From the Securities Lending Trading Desk – Week of April 8th

In the Americas, we saw an increase in directional demand for Eastman Kodak Company (KODK). In Asia Pacific, Chinese auto makers rallied strongly last week on news that a leading firm may receive subsidies on green cars. In Europe, Superdry shares dropped as much as 25% this week as its founder won a controversial vote to return to the company.

Americas

Ride-sharing company, Lyft Inc. (LYFT), made its highly anticipated IPO debut drawing heavy borrower demand as many bearish speculators question the company’s current valuation. After a successful launch on 3/29 where the share price surged 8.7% giving them a market valuation of $22.2 billion the stock declined below the $72 IPO price in its second day of trading before rebounding by week’s end. Skepticism grew following several analysts’ reports that warned the company’s growth is assured to slow. The company saw revenue double in 2018 but their net losses continue to mount and they have not indicated when they expect to become profitable. Strong directional demand sent borrowing fees soaring initially as brokers scrambled to source shares to make good on their deliveries. Once shares became more available in the lending market, levels began to ease as brokers were able to gain access to more shares.

We saw an increase in directional demand for Eastman Kodak Company (KODK) ahead of their fiscal fourth-quarter 2018 earnings results. The bearish bets paid off as the company reported disappointing results with sales falling 4.4%. The company failed to meet the outlook it provided last quarter for fiscal 2018. The imaging firm saw sales slide partly due to the lower sales from its Print Systems brand. Revenues decreased by roughly $61 million compared with the same period in 2017. With a declining cash flow, questions remain whether the company can keep up with a solid game plan to report revenues for the next fiscal reporting period. KODK has been a long term directional focus name and the recent uptick in demand drove fees-to-borrow higher.

Asia Pacific

Chinese auto makers rallied strongly last week on news that a leading firm may receive subsidies on green cars. BAIC Motor, BYD Co and Great Wall Motor rallied sharply in Hong Kong trading after BYD issued a statement that two of its units may receive close to 2 billion yuan ($300 million) in subsidies for the fiscal year 2017-18. The relief is expected to help improve the financial health of the company and help boost the firm which has been under pressure as a result of increased competition and declining margins. Analysts believe that additional support for the electric vehicle sector may be provided in the future. We have seen long-term securities lending demand for both BYD and Great Wall Motor.

One of Japan’s largest phone display manufacturers is set to receive a bailout from a Taiwanese-Chinese consortium last week as it battles for its long-term survival. Japan Display announced that it agreed to receive up to 80 billion yen ($717 million) in a rescue package from Taiwanese electronic component manufacturer TPK Holding, Taiwanese financial firm Fubon Group and China’s Harvest Fund Management. The move comes as Japan Display has struggled to compete in recent years in the face of intense competition from rivals in China and South Korea and as orders dwindled from Apple Inc, which makes up half of Japan Display’s revenue. We have seen strong long-term lending demand for Japan Display, which saw its share price rally by over 25 per cent last week on optimism that the bailout will help turnaround the company’s fortunes.

Europe

Lending demand continued for Funding Circle as it revealed calls to wind down one of its key funds. Lending platform Funding Circle (FCH LN) dropped 14% late in the week as it announced that it would call a shareholder vote on the winding down of its Funding Circle SME Income Fund after shareholders indicated they’re no longer willing to provide credit for its investments. Securities lending utilization is at 60% of market availability (source: Datalend) and short interest is currently 3.8% of free float. Though funding circle confirmed that financial guidance for 2019 remains unchanged, its share price currently sits at 32% below its September IPO price of £4.60.

Superdry shares dropped as much as 25% this week as its founder won a controversial vote to return to the company. Global securities lending utilization in fashion retailer Superdry (SDRY LN) increased from 35% to 53% this week (source: Datalend) as its co-founder, Julian Dunkerton, won a controversial campaign to be re-elected as CEO. The Present Chairman, CEO, CFO and various directors have left or will leave following Dunkerton’s appointment. Analysts have suggested that the impact of the co-founder’s return would result in additional costs to a business which has already issued multiple profits warnings in recent times. Short interest over the past week has increased from 5.17% to 10.45% of free float.