From the Securities Lending Trading Desk

US based Biopharmaceutical firm MiMedx remains a target of short sellers as the share price remains under pressure. One of Australia’s largest and iconic media brands has announced plans to buy out one of the nation’s largest newspaper firms. In Europe, BillerudKorsnas falls as forest fires in Sweden adds to cost pressures.

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

We saw strong directional interest for shares of Tilray Inc., after they became the first cannabis business in Canada to trade on a major U.S. stock exchange through an initial public offering. The company raised $153 million, which will be used to expand its operations as Canada prepares to legalize the drug nationwide in October. American cannabis companies have been unable to list on major U.S. exchanges because of the drug’s illegal status under federal law. Instead, some have gone public in Canada by being acquired by companies there. Shares rose almost 32% in its trading debut but analysts will be monitoring closely to see how Canadian marijuana stocks perform in the U.S. Many are concerned that the companies may be overvalued with one analyst stating that a lot of investment has been highly speculative and a correction should be expected in the near future. As with many IPOs, fee levels spiked initially but have since retreated once the true demand was realized.

Biopharmaceutical firm MiMedx remains a target of short sellers as the share price remains under pressure, hitting a 52-week low on 7/16 on the heels of a DOJ and SEC probe. MiMedx is under investigation over matters including its sales practices and accounting. Last month the company said it must restate more than half a decade of financial results. In recent weeks, several top executives have resigned, including the CEO and COO amid the investigation. As speculation continues surrounding the outcome of the inquiry, we expect to see fees to borrow remain elevated

Asia Pacific

One of Australia’s largest and iconic media brands has announced plans to buy out one of the nation’s largest newspaper firms. Nine Entertainment said it agreed to buy Fairfax Media for A$2.2 billion ($1.6 billion) in cash and stock deal to create a new company that spans a wide variety of disciplines such as print, television, radio and streaming in an effort to combat Netflix’s growing local presence. Analysts, however, have pointed out that the immediate financial benefits of the deal appear limited and it is not entirely evident that all the individual business can continue in the new group in the future. Fairfax’s share price jumped as much as 14% after the deal was announced but Nine Entertainment tumbled 8%. We saw increased securities lending demand for both companies following the announcement of the proposed takeover.

Sembcorp Marine shares fell in Singapore trading after it posted a large net loss in the second quarter. Sembcorp Marine posted a net loss of S$55.62 million due to a realized loss from the sale of a semi-submersible rig and lower overall business volume. These results represent a reversal from the net profit of S$5.12 million for the corresponding quarter a year ago. Shares fell sharply on the news as volume surged. We saw an increase in lending demand for Sembcorp Marine.

Europe

Demand for UK scrips began last week with SSE LN going record on Friday and a number of others set to pay in August. The desk saw increased demand for SSE LN last week due to the scrip dividend that went record on the 27th July. Borrowers were willing to pay a premium for stock that had a guaranteed cash election allowing them to fix their cost of borrow. Details of the scrip reference share price will be calculated by the average closing mid-market price of SSE’s shares over the five dealing days starting on the ex date 26th July and finishing on the 1st August. Shareholders are set to receive either 66.3 pence a share or their total holdings multiplied by the dividend, and then divided by the scrip reference price to give them how many new shares they would be allocated. Several other UK scrips are due to pay as we head into August with the desk expecting short term demand for BP, Barclays and HSBC over their record dates.

BillerudKorsnas falls as forest fires in Sweden adds to cost pressures. Securities lending demand increased this week for BillerudKorsnas, who have been impacted by the forest fires in Sweden. Pareto says the damage the fires could do to harvesting levels could add to short-term cost pressures on the company. BillerudKorsnas also fell 16% last week after announcing second quarter results and outlook below expectations. Hedge funds such as Citadel and Worldquant all boost their short positions. Other names to look out for are Stora Enso and Metsa Board.