M&A activity and news from Asia sparked securities lending demand amid an NYSE outage, Greek bailout package, and US-Iran nuclear deal.
Below please find the July 14 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.
Horizon Pharma made an unsolicited bid to buy Depomed for $3 billion which sparked initial demand. Depomed, the maker of painkillers and anti-seizure medicines, has reportedly refused to engage in talks since March. Horizon Pharma is offering $29.25 a share in stock, or about $3 billion including debt. Though initial demand was strong, firm orders have not materialized.
Despite a four hour outage at the New York Stock Exchange on last Wednesday, the securities lending market remained active. “The root cause was determined to be a configuration issue,” an NYSE spokesman said Wednesday evening. The NYSE Arca and NYSE Amex/Arca Options were not affected and other exchanges, such as the Nasdaq and OTC activity, were open and operational as usual. The NYSE opened as usual and without issue on Thursday.
Extreme volatility in Chinese equity markets continues to boost lending demand in Hong Kong. A 32% plunge in the Shanghai Composite Index from this year’s peak has erased more than $3.5 trillion in value. In an effort to control the stock market rout, Chinese regulators unveiled new measures almost every day last week. Measures included the suspension of trading in over half of mainland stocks, a ban on major stockholders selling stakes in listed companies, a ban on IPO’s and a cut in interest rates to provide support for markets. The volatility has persisted, however, and spread to the Hong Kong equity market. We continue to see broad lending demand for a range of securities with a focus on Chinese brokerages and automakers.
The issue of corporate governance in South Korea has come into focus once again, ahead of a contentious vote concerning the nation’s largest conglomerate and its major shareholder. The proposed acquisition of Samsung C&T by Cheil Industries, in which Samsung Group’s Lee family has a large stake, has resulted in strong securities lending demand for both companies. Prominent activist investors, such as influential hedge fund manager Elliot Group, have been publicly voicing their disapproval of the deal on concerns that the offer is undervalued and would result in too much control for the Lee’s in running Samsung.
The EU Commission has agreed terms with Greece over a new bailout package. Greece is set to vote in the local parliament on Wednesday on a $95 billion package of new aid in an effort to avoid an exit from the Euro. Greece will in turn have to surrender state assets and implement immediate reforms to pensions, VAT and the labor market as part of the deal. Accepting the deal will secure a longer repayment window in which to service the already large Troika debt. From a securities lending perspective, hedge funds have largely sat on the sidelines while the market remains volatile on Greek news. The securities lending desk remains watchful of the situation.
US and Iranian diplomats have reached an agreement on a historic nuclear deal. In its current form, the deal removes economic sanctions on Iran that have hampered the ability for the fourth largest oil producer to distribute reserves amongst the Western world. The securities lending desk remains vigilant of liquidity in the oil service sector, which has remained tight over the last 12 months on price pressure.