From the Securities Lending Trading Desk

As the share price for iRobot Corp has risen more than 20% over the past two months, we are seeing an increase in put options in the U.S.  The world’s largest maker of solar wafers has announced the sale of a majority stake in its polysilicon unit to one of China’s largest power generation firms. In Europe, Clydesdale Bank improves offer for Virgin Money.

Below please find this week’s edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

Ubiquiti Networks (UBNT) continues to be a strong and consistent earner in the securities lending space due to ongoing price volatility. In February, the hardware company that focuses on wireless network routers, disclosed an ongoing Securities and Exchange Commission probe into its business and accounting practices; the price dropped 27% in response. However, the company recovered quickly with consecutive share buyback programs in March and a successful quarterly earnings report. The share price is back up 53% since then, and primed to hit its sales targets. Nonetheless, some short attacks, which claim that UBNT’s reported margin is false and overseas cash is non-existent, persist and UBNT remains a top lending name.

As their share price has risen more than 20% over the past two months, put options on iRobot Corp. (IRBT) are also increasing. A put is the option to sell assets at an agreed price on or before a particular date. IRBT is the second most shorted stock in the worldwide Household Appliances sector, second only to Whirlpool Corp. (WHR), according to S3 Analytics. IRBT is the company behind the very popular Roomba vacuum, and is a leader in the robotic vacuum space. Some bearish investors question the current valuation as their focus of concern is largely around growing competition and ease of entry into the market. However, bulls remain concentrated on the fact that the company has reported consistent 20% plus revenue growth every single quarter. Only time will tell whether the bull or bears have it right, but in the Securities Lending world we continue to push fees higher as bearish sentiment and demand grow.

Asia Pacific

The world’s largest maker of solar wafers has announced the sale of a majority stake in its polysilicon unit to one of China’s largest power generation firms. GCL-Poly Energy Holdings Ltd, said it intends to sell a 51% stake in Jiangsu Zhongneng Polysilicon Technology Development to Shanghai Electric Group, in a deal valued at almost $2 billion. News of the deal come after the Chinese government recently announced that it would halt the approval process of new solar plants and curb subsidies to the sector, which until last year has been facing excess capacity issues after years of rapid expansion. We witnessed an increase in securities lending demand for Hong Kong-listed GCL-Poly and Shanghai Electric following the announcement of the deal.

ZTE Corp may resume trading in 2-3 weeks after the U.S. government reached a deal to allow the telecommunications manufacturer access to US markets upon payment of a fine and management changes. The U.S. blocked ZTE’s access to U.S. suppliers in April, saying the company violated a 2017 sanctions settlement related to trading with Iran and North Korea and then lied about the violations. The company announced it was shutting down just weeks after the ban was announced, and shares were suspended. We saw strong lending demand for ZTE Corp before the suspension, and expect demand to continue when shares resume trading.

Europe

Securities lending demand for Bayer and ITE Group rises due to rights issues. Bayer’s trading period started this week where they are raising EUR 6 million at a subscription price of EUR 81. The spread between the ordinary stock and the rights line has been trading negative, so currently there has been limited profit in the trade. Trading period terms June 15th so we continue to monitor. ITE Group announced £265 million rights issue to finance part of the cash consideration for acquisition of Ascential Events Limited. The company will issue 7 new ordinary shares at 56.2p for every 4 existing ordinary shares. The trading period starts June 26th.

Clydesdale Bank improves offer for Virgin Money. News that the Yorkshire bank improved its GBP 1.6 billion offer for Virgin Money in order to create Britain’s sixth largest bank has led to increased securities lending demand. The improved offer would mean shareholders would gain 38% in the larger combined group, up from the initial 36.5% proposed and valuing Virgin Money at 359p a share. Virgin Moneys founder Richard Branson, who owns a 35% stake, is set to make a large profit if the deal goes through seven years after he led a controversial buyout of troubled Northern Rock having only paid half of what the UK taxpayer had injected to save the failing bank. At the time of writing both Clydesdale and Virgin Money were trading up for the week at 303 and 352 pence a share.