From the Securities Lending Trading Desk – Week of May 13th

In the Americas, lending fees have skyrocketed for coal mining company, Cloud Peak Energy. In Asia Pacific, there’s an increase in demand for Softbank Corp following an announcement that it will become the largest shareholder of Yahoo Japan. In Europe, demand continues for Purplebricks as one of its founding partners exits the company.

Americas

Beyond Meat Inc. (BYND), the maker of plant-based protein food products, IPO’d recently and enjoyed an astronomical jump in market value in its first week. Investors were drawn to the company’s investment in innovation which has manifested itself in explosive growth, more than doubling its net revenue in each of the last 2 years. With that said, short sellers are salivating as the company has never turned a profit and the initial spike since its IPO is unprecedented since the dot com boom. After spiking then leveling off, lending fees have begun to increase again as the share price remains elevated and short interest grows.

Coal mining company Cloud Peak Energy Inc., which operates coal mines in Wyoming, is considering its options with respect to sale, debt restructuring, and/or bankruptcy. The company lost 94% of its market value between 2014 and 2015 before staging a minor comeback in 2016 but has since gradually declined to the brink of insolvency. Management opted to not make an interest payment on their debt which has put into question whether they will continue as a going concern. With their 30-day grace period and debt extensions exhausted, Cloud Peak’s creditors now have the option to demand the debt be paid in full. Lending fees have skyrocketed as a result.

Asia Pacific

Japanese telecommunications company Softbank Corp announced a complex transaction that will result in it becoming the largest shareholder of Yahoo Japan. Softbank announced last week that it will spend $4 billion to increase its stake in Yahoo Japan to nearly 45%. The company forecast that with the additional stake in the internet services firm, its net profit will rise to 480 billion yen ($4.4 billion) in the current fiscal year, up from 430.8 billion yen in the year that ended in March. SoftBank said it expects that increased cooperation with Yahoo Japan and tapping its big database will help it expand its consumer and business services and tailor them to better suit the needs of its customers. The two companies have long standing ties while collaborating on broadband internet and wireless service. We have seen an increase in securities lending demand for Softbank Corp in recent weeks.

One of Japan’s leading builders of liquefied natural gas plants may be in line for additional financial support from two of the nation’s leading companies. According to the Nikkei newspaper, Chiyoda Corp is set to receive more than 150 billion yen ($1.4 billion) from trading house Mitsubishi Corp and MUFG Bank to help the LNG plant maker with its turnaround and restructuring plan. Chiyoda has suffered significant losses of late mainly stemming from one of its projects in Louisiana, where its operational costs have risen substantially. We have seen strong long-term securities lending demand for Chiyoda, which has seen its share price decline by over 70 per cent in the past year.

Europe

Lending demand continues for Purplebricks as one of its founding partners exits the company. News released this week that revenue forecasts had been cut and one of its co-founders, Michael Bruce, had left the web-based real estate company (PURP LN) led to increased securities lending demand this week. The news follows sluggish growth in its quest for international expansion and reports that it is closing its Australian business and scaling back operations in the US. The share price has suffered over the past 12 months with Purplebricks previously announcing a £26M loss in July 2018. The share price is currently down 72% over the past 12months. Market securities lending utilization is at 99% of available shares according to Datalend.

More bad news at Metro Bank as it announces that more capital is required. Metro bank (MTRO LN) fell 10% to a record low this week as reports suggest that the bank would have to raise more capital than it initially suggested in February when news of an accounting error was announced. Metro Bank had initially announced plans for a £350M rights issues however sources suggest that this may end up at £600M, further diluting shares which have already lost 70% YTD. Short Interest is at an all-time high with up to 22% of free float. Market securities lending utilization is at 90% of available shares according to Datalend.