From the Securities Lending Trading Desk – Week of March 25th

In the Americas, A short squeeze has fee levels spiking for allocations of Sorrento Therapeutics, Inc. (SRNE). In Asia Pacific, Kingdee International Software sank in Hong Kong trading after a critical report was released calling the company a bubble stock. Several European stocks announced details of capital raising.

Americas

We are seeing increased demand on Eventbrite, Inc. (EB) as the share price fell to $20.08 on 3/20, lower than the $23 IPO price from Sept 2018. The decline came as the company missed fourth quarter earnings-per-share, and as they lowered guidance for the first quarter. In addition, one board member sold his entire position of directly owned shares worth nearly $1.25mm. As more bulls turn bearish, we have seen increased securities lending demand while utilization and fee levels shoot higher.

A short squeeze has fee levels spiking for allocations of Sorrento Therapeutics, Inc. (SRNE). Over the past year, SRNE’s share price has been in a downward spiral, falling roughly 80% between 3/21/18 and 3/7/19. However, over the last 2 weeks, the stock has bounced back by 153% due to their announcement of positive phase results from its non-opioid product resiniferatoxin to treat patients with osteoarthritis of the knee followed by positive sales results from Sorrento’s subsidiary Scilex. Short covering has driven lending fees higher as the stock continues to climb, closing at a six month high on 3/21 of $5.23 per share.

Asia Pacific

YG Entertainment Inc’s share price fell following the announcement of an investigation into one of its artists as part of a probe into prostitution at Seoul nightclubs. YG Entertainment artist Seungri was accused of offering prostitutes to potential business partners. Although YG Entertainment terminated its contract with the singer, the company is also being investigated by the National Tax service for tax evasion activities and its founder is also accused of tax evasion. We saw strong securities lending demand for YG Entertainment Inc following the announcement of the investigations.

Kingdee International Software sank in Hong Kong trading after a critical report was released calling the company a bubble stock. The report said the company was too dependent on sector-specific tax breaks, government grants, property investment gains and questionable transactions to book any profit. Following the drop, an external representative for Kingdee said management was confident about the company’s future. We saw a short term surge in lending demand following the share price decline.

Europe

Securities lending demand continued for UK companies Metro Bank and Debenhams as fresh headlines regarding their respective finances emerged. Securities lending demand increased for Metro Bank (MTRO LN) this week as questions emerged regarding the receipt of a £120M grant that the challenger bank had received shortly prior to its announcement of erroneous accounting. The source of the grant is reportedly seeking to determine if Metro had fully disclosed all known financial issues when finalizing details of the grant. Struggling retailer Debenhams (DEB LN) also confirmed late in the week that it was looking to secure new liquidity of up to £200M for future funding needs. The announcement caused its share price to drop nearly 35%, the most on record, as analysts noted that some of the restructuring options would be of no benefit to shareholders. According to data from IHS Markit, MTRO LN and DEB LN are among the most shorted stocks in the UK at present with high short Interest (MTRO LN 19% and DEB LN16% of shares outstanding) and a high corresponding loan utilization within the securities lending market (MTRO LN 90% & DEB LN 70%).

This week, several European stocks announced details of capital raising. Spanish and Portuguese based language provider PRISA (PRS SM) issued a EUR 200 million rights issue in order to purchase the remaining shares of Santillana, a Spanish domiciled publisher focused on educational material. The distressed retailer Distribuidora Internacional (DIA SM) has also been in the news again after shareholders backed billionaire Mikhail Fridman’s rescue plan in favour of a rival plan set out by the management. Fridmans LetterOne group is the largest shareholder in the group and has tabled a 500 million euro share sale in order to modernize stores and expand digital sales in a bid to rescue the failing retailer. Finally, is Sweden engineering firm AF Poyry AB (AFB SS) confirmed details of their SEK 2,777 million rights issue following the agreement on 10 December 2018 to combine the two companies to form a leading European engineering, design and consulting company. The proceeds of the rights will help AF pay off the public cash tender it issued for all remaining Poyry shares it completed on the 21st February 2019 to create the joint venture.