From the Securities Lending Trading Desk

We’ve seen renewed broker demand in the US for Herbalife Ltd. following their announcement of a modified Dutch auction. Semiconductor Manufacturing International Corp shares surged in Hong Kong trading on speculation China will increase support for domestic chipmakers. In Europe, demand picks up after Seadrill gets approval for bankruptcy.

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.


American Depository Receipts (ADRs) have long been the focus of strong demand as investors seek access to international stocks via domestic listings. Short interest and fee levels in ADRs, which has historically been one of the most popular repository receipt classes, have increased as US short sellers are increasingly looking abroad. Specifically, we have seen increased demand for Chinese and Russian ADRs. We see the strongest demand for ADRs in markets where gaining access to the local shares is too expensive or difficult. Chinese ADRs have become a focus as companies see their valuation rally helped by a stronger currency, but short sellers see an entry point as headwinds remain strong. We have seen strong demand for Qudian Inc. (QD), Cheetah Mobile Inc (CMCM) and Xunlei Ltd. (XNET) since the start of the year. For Russian ADRs, there has been increased demand as sanctions had an immediate effect on valuations on many companies and stock with exposure to the country. VanEck Vectors Russia ETF (RSX) and Surgutneftegas OJSC (SGTZY) were among the most located Russian ADRs over the past week.

There was renewed broker demand for Herbalife Ltd. (HLF) as the stock price surges following their announcement of a modified Dutch auction.
Through the auction, HLF will buy back $600 million of shares in the range of $98 to $108. HLF has historically been a long-term focus of demand as Hedge fund billionaire Bill Ackman has been bearish on the stock, alleging the company was profiting from a pyramid scheme. However, this year, Ackman finally admitted his defeat by Carl Ichan and has closed out his $1 billion short position he initiated more than 5 years ago. The share price closed at a multi-year high on 4/18.

Asia Pacific

Semiconductor Manufacturing International Corp (SMIC) shares surged in Hong Kong trading on speculation China will increase support for domestic chipmakers. Trade tensions between China and the United States increased further last week, after the US banned chipmaker ZTE Corp from purchasing American components for seven years. Analysts speculated the move will encourage China to increase support for domestic manufacturers to make the sector less dependent on overseas components. Shares in SMIC rose 13% on the news. We have seen long term lending demand for SMIC which reduced following the share price surge.

Itochu announced plans to take a $1.1 billion stake in Japanese convenience store operator FamilyMart UNY Holdings Co Ltd. Itochu will boost its stake to 50.1% from 40.7% in a tender offer which was priced at an 11% premium over the closing price on announcement day. The move is part of a trend for Japan’s trading companies to increase their holdings in the country’s convenience store operators to diversify away from the volatile commodities business. We saw strong lending demand for FamilyMart UNY Holdings Co Ltd


Demand for Intu Properties (INTU LN) as Hammerson (HMSO LN) pulls interest in takeover. News surfaced last week that Hammerson Plc, the owner of Birmingham’s Bullring shopping centre, has abandoned its planned buyout of smaller rival Intu properties, owner of Manchester’s Trafford Centre. The deal, believed to be £3.4 billion, had come under growing pressure by shareholders in recent weeks with the board blaming a deterioration in the UK retail property market and concerns on the length of the merger. Intu dropped 5% in early trading Thursday; however, it recovered through Thursday and Friday to around £2 a share. The news is part of a recent trend in the UK retail space including New Look, Toys R Us, Carpetright, and Homebase whereby mass closures are a by-product of an increased shift towards online shopping by consumers.

Securities lending demand picks up after Seadrill gets approval for bankruptcy. The company’s Chapter 11 reorganisation plan was approved by the U.S. Bankruptcy Court. The approval comes after a deep slump, following the collapse in oil prices in 2014. After building Seadrill into one of the world’s biggest drillers, Fredriksen was forced to file for bankruptcy in September last year following more than 18 months of negotiations. Seadrill shares surged 27% on the announcement.