From the Securities Lending Trading Desk – Week of March 18th

In the Americas, we have seen increased demand for Turtle Beach Corp. (HEAR), a video-game headset maker, ahead of their fourth-quarter 2018 financial results. In Asia Pacific, China’s largest electric-vehicle maker is continuing to feel the effects of the central government’s decision earlier in the year to reduce subsidies to the industry. In Europe, Elliot Management Corp and Vivendi set to go to war again over Telecom Italia Spa (TIT IM) board.

Americas

There continues to be strong directional demand for Cannabis distributor company, Cronos Group (CRON) as the share price remains volatile. The stock price recently hit an all-time high on 3/5 since going public last year after tobacco company Altria completed its 45% stake in the company worth about $1.4 billion. Since reaching that high shares have retreated on the heels of several analysts downgrades. Concerns persists regarding the company’s high valuation while lagging behind other cannabis companies in production. Fees to borrow remain elevated amid high utilization levels.

We have seen increased demand for Turtle Beach Corp. (HEAR), a video-game headset maker, ahead of their fourth-quarter 2018 financial results scheduled for March 14. Bearish bets have piled in expecting the company to announce less than stellar earnings. In the last reported quarter, the company announced a positive earnings shock of 18.2%. However, short-sellers feel that was a one time occurrence and don’t believe they will beat analyst expectations this time around. Despite robust gains in 2018 it was most mostly due to two specific games and the target market likely bought most of the gaming headsets they will ever need. The additional demand in an already crowded space further tightened market supply driving up borrowing costs.

Asia Pacific

China’s largest electric-vehicle maker is continuing to feel the effects of the central government’s decision earlier in the year to reduce subsidies to the industry. BYD announced last week that it temporarily halted operations at its electric bus factory in Guangdong province in a sign that the size of the industry is expected to shrink further. China is expected to completely phase out subsidies to the electric vehicles sector by 2020 and some industry observers believe that local manufacturers will consequently face a more competitive environment especially from Western and Japanese rivals. We have seen long-term securities lending demand for BYD, which has seen its share price decline by nearly 40 per cent in the past year.

Hong Kong-based retailers’ sales and margins are likely to come under pressure in the near term despite an increase in visitors from mainland China. A weaker yuan compared to the Hong Kong dollar has dampened sales for retailers in the city as it has deterred mainland tourists from spending heavily on luxury goods such as jewelry and watches as well as high-end cosmetics. The mainland Chinese currency has traded 5 per cent lower than the Hong Kong dollar in the past year and many analysts believe it needs to strengthen significantly in order for spending levels to increase. In recent weeks, we have seen an increase in securities lending demand for Sa Sa International, the cosmetics retailer, which derives 89 per cent of its sales in Hong Kong.

Europe

Elliot Management Corp and Vivendi set to go to war again over Telecom Italia Spa (TIT IM) board. Institutional Shareholder Services Inc. urged investors to reject Vivendi’s proposal to replace five Telecom Italia directors backed by Elliott at the carrier’s annual shareholder meeting on March 29, according to a report on Monday. The French media company has been fighting the U.S. activist investor since Elliott’s slate of board candidates won most seats last May. The disagreement between Telecom Italia’s top two shareholders over how to turn around the indebted company is heading for a showdown at the meeting, when investors will have an opportunity to vote on directors.

US hedge fund Coltrane Asset Management rejects debt restructuring causing Interserve PLC (IRV LN) to apply for administration. The UK based firm that maintains hospitals and roads for the government has struggled in the past year after a disastrous entrance into the energy waste business and delays on construction projects. Shares of Interserve were suspended on Friday, after the plan was voted down by investors putting 45,000 jobs at risk. The insolvency comes little more than a year after the collapse of former rival Carillion Plc. Coltrane had been pushing an alternative plan that would have handed creditors 95 percent of the company’s equity after the injection of new money.