From the Securities Lending Trading Desk

Paper house under a magnifying lens

Demand has increased for Redfin Corp. (RDFN) as the share price recently rallied to a 52-week high, closing at $31.32 on 12/29. Hyundai Heavy Industries Co shares took a record plunge after the shipbuilder announced plans to raise about 1.29 trillion won ($1.2 billion) by selling new shares.  In Europe, Carillion shares rise off the back of potential refinancing deal. 

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

Price volatility and bearish sentiment continue into 2018 for Applied Optoelectronics Inc. (AAOI). The advanced optical semiconductor devices manufacturer has been a focus of short sellers amid concerns with the slowdown in Chinese telecom growth and the cyclical industry demand downturn. Most recently, one analyst at BWS Financial gave AAOI a sell rating and set a $25-per-share price target on the stock due to challenges the company is facing from major players in the internet space. However, bullish shareholders and investors remain convinced that demand for hyper-scale data centers from giants such as Facebook and Amazon will continue and offset other concerns. The share price has been volatile over the past two months – trading between $37.80 and $45.40 – and bears continue to see opportunity to short and market utilization remains high.

We are seeing increased demand for Redfin Corp. (RDFN) as the share price recently rallied to a 52-week high, closing at $31.32 on 12/29. The company, which went public in July, was priced at $15.00 per share and quickly shot up to the mid $20.00 range. Some analysts suggest that this price range is the more accurate “fair value” of the stock. Despite the rally, RDFN has been unable to maintain its valuation at $31.32 and last week the share price declined. One analyst suggested several reasons for their $25.00 price target. These include: concerns that RDFN’s content lead will likely narrow over time and worries that the company’s strategy of targeting the high-end market without high-end agents limits upside potential. Finally, despite RDFN gaining market share, proprietary checks and conversations with sellers and buyers that have knowledge of Redfin were “only mixed.” As we often see with IPOs, there is a lot of uncertainty with regard to valuation and RDFN has been no exception. We anticipate continued demand for Redfin as many of the bears’ concerns appear unlikely to change in the near term.

Asia Pacific

Hyundai Heavy Industries Co shares took a record plunge after the shipbuilder announced plans to raise about 1.29 trillion won ($1.2 billion) by selling new shares. Hyundai Heavy intends to sell 12.5 million new shares before the end of March at an estimated price of 103,000 won each. The fundraising plan was announced during a tough period for Korean shipyards which continue to struggle with declining orders amid overcapacity and weak oil prices. Many shipyards are being forced to reform or spin off businesses. Shares in Hyundai Heavy Industries Co dropped 29% following the announcement on December 27, but have since recovered some of the losses. We saw strong lending demand following the announcement.

Shares rally strongly in one of South Korea’s leading technology firms after announcing plans to raise capital. Kakao Corp, South Korea’s top mobile messaging application company which is backed by Chinese social media giant Tencent Holdings, announced last December that it would raise $1 billion through the issuance of global depository receipts (GDRs). The company said it intends to use the proceeds of the sale to acquire overseas artificial intelligence firms and mobile content providers. We have witnessed strong securities lending demand for Kakao in recent weeks, which has seen its share price rally by over 25% after a brief sell-off following the announcement of the capital raising.

Europe

Carillion shares rise off the back of potential refinancing deal. The construction service provider, this week, saw its shares surge 20% after news over the weekend that the outsourcer would be meeting banks including HSBC, Santander, and Barclays on a potential refinancing deal. The news is somewhat positive compared to the past year for Carillion, with the share price having lost 90% of its value following a profit warning and write-downs of £845 million. The firm also faced negative press last week as the FCA announced an investigation into the timeliness and content of the firm’s market announcements. Securities lending demand has remained strong for the name, despite the positive news this week. The desk continues to monitor open levels.

German SBL tax rules drive down market lendable supply, raising specials borrow fees. Due to German tax changes that went into effect on the first of the year, approximately 14% of lendable German equity supply was restricted from the market during the month of December. The supply reduction has resulted in higher borrow fees for many German specials, including Nordex, Krones, Metro, K&S, and SMA Solar. DataLend market utilization has jumped 2.1% from 20.6% to 22.7% from December 1st through January 5th.