From the Securities Lending Trading Desk

Globe and Prices

In Asia, rising debt levels in the Chinese property sector has led to a surge in lending demand for mainland developers.  Meanwhile, pharmaceutical and construction M&A are the main stories the US and Europe.

Below please find the August 4 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.


Israeli drugmaker Teva Pharmaceuticals agreed to buy Allergan’s generic-drug business for approximately $40.5 billion in cash and stock.  The deal further solidifies Teva’s position as the world’s largest manufacturer of generic drugs.  Teva also ended its hostile bid for Mylan.  The deal is not expected to close until the first quarter of next year.  As a result, there has not yet been firm demand from borrowers for shares of Teva.

Predictably, the Fed Governors unanimously chose not to raise interest rates during last week’s FOMC Meeting.  Despite Greece and Puerto Rico’s financial troubles, positive US economic figures – including encouraging jobs figures, increasing housing prices and positive consumer spending data – have helped boost the likelihood of a rate hike in September.  From a securities lending standpoint, this is an overall positive development.  The Fed’s clear communication of their intentions, combined with volatility in the equity markets and som steepening in the yield curve, are all good signs.

Asia Pacific

Rising debt levels in the Chinese property sector has led to a surge in lending demand for mainland developers.  Concerns are increasing that China’s already heavily indebted developers are raising debt levels further after the mainland government loosened controls on financing.  Chinese developers issued a record 67.1 billion yuan of notes in the second quarter, up from 44.4 billion yuan during the previous three months.  Lending demand has increased for Evergrande Real Estate and China Vanke Co.

Luxury retail sales are falling in China and shifting to Japan and Europe.  LVMH announced earnings last week which showed Japan and Europe are benefitting from a shift of business from China, Macau and Hong Kong where they have seen sales fall approximately 10%.  The announcement led to a 7.2% plunge in the share price of Hong Kong-listed Prada Spa.  We have seen strong lending demand for retailers Sun Art Retail Group Limited, Sa Sa International and Prada Spa.


Spanish construction group Obrascon Huarte Lain called an extraordinary meeting for September 7th to propose a capital increase of up to €1 billion.  Obrascon has become one of the more difficult to borrow names in Europe and the potential rights issue should drive levels higher.  Other potential rights names in Europe are Lonmin, Mediclinic International, Solvay and Saipem.

HeidelbergCement agreed to purchase Italcementi for €3.7 billion in a stock and cash deal.  HeidelbergCement will initially buy Italmobiliare’s 45% stake in Italcementi, paying Italmobiliare €10.6/share and then offering the same for each share held by outstanding investors once the transaction is approved.   Securities lending demand has been seen for Italcementi, with short interest increasing to 7.5%.

Tesco short sellers are coming back in droves.  The number of bets taken out against the company’s share price has risen sevenfold since Tesco’s annual results were released in April and optimism around Chief Executive Officer Dave Lewis’ revival plan has waned, sending shares down 9.6%.  Short selling is now equivalent to 3.6% of outstanding shares, according to data compiled by Markit.  UK grocers have become a favorite target of short sellers.  Morrison and Sainsbury are currently the two most-shorted companies in the FTSE 100.