From the Securities Lending Trading Desk – Week of May 20th

In the Americas, Uber Technologies (UBER) saw its shares fall 7.6% in their highly anticipated initial public offering. In Asia Pacific, the plight of one of Japan’s leading phone display manufacturers continued to worsen. In Europe, Osram Licht AG (OSR GY) shares buck trend after a possible Bain-Carlyle offer.

Americas

Uber Technologies (UBER) saw its shares fall 7.6% in their highly anticipated initial public offering making it one of the worst debuts among large tech stocks over the last decade. Uber started off originally with an aggressive $120 billion valuation but management ultimately pegged it closer to $75.4 billion ($45 per share) after Lyft’s sub-par debut. The company had a 2018 operating loss of $2.8 billion and, with no sign of impending profitability, the market reacted negatively. Fee levels spiked initially but as more shares settled into the market levels began to ease. However, as the share price continues to struggle to get back to its opening day price, more shorts have begun to pile in; though not yet enough to start squeezing supply and driving back up borrowing costs in a significant way.

A secondary offering from outdoor gear company, Yeti (YETI) inundated the lending market with additional shares prompting widespread returns as brokers look to refinance their more expensive borrows. The IPO from last October also had its 180-day lockup period expire a few weeks before. Yeti has been a focus of bearish demand since going public as their share price has skyrocketed, nearly doubling its IPO price of $18 by the end of April. Some investors doubted whether management could deliver on lofty expectations for 2019. However, earlier this month the company reported earnings that topped estimates for the quarter Q1 2019. The increase of new market supply subsequently ended Yeti’s rein as one of lenders’ top earning stocks.

Asia Pacific

The plight of one of Japan’s leading phone display manufacturers continued to worsen after it released its annual results last week. Japan Display announced a net loss of 109.4 billion yen ($1 billion) for the fiscal year 2018 to go along with the net loss it reported of 247.2 billion yen for the previous year. In recent months, Japan Display has been in negotiations for a bailout from an increasingly hesitant Taiwanese/Chinese-led consortium as it seeks to turn around its fortunes, although the much needed funds from the consortium continue to be delayed. Japan Display’s troubles have deepened in the past year due to a reduction in demand for liquid crystal displays for iPhones as a result of softer global demand for smart phones. Orders have significantly declined from Apple Inc, one of its major customers. We continue to see strong long-term securities lending demand for Japan Display, which has seen its share price decline by 60 per cent in the past year.

An independent Hong Kong-based equities researcher has alleged that billionaire Li Ka-Shing’s CK Hutchison Holdings may be concealing significant debts from investors. GMT Research Ltd posted research on its website last week where it alleged that the conglomerate has been engaging in creative accounting practices by overstating its assets that are held for sale and understating the liabilities directly associated with these assets. The research firm, which provides its mostly long-only investors with independent analysis on company balance sheets, has alleged that CK Hutchison has been engaging in this practice to give the firm a higher market rating and access to cheaper sources of credit. We have witnessed muted securities lending demand for CK Hutchison in the past week as investors have largely brushed off the allegations, which have been strenuously denied by the company.

Europe

Thomas Cook falls 48% this week as it announced poor trading conditions and analysts cut its target price to zero. Securities lending demand for Thomas Cook (TCG LN) increased this week as it issued a profit warning amid writedowns and challenging trading conditions. Though the share price fell 15% following the news, it fell again further (35%) after a Citigroup analyst set a price target of zero, citing that debt levels were greater than earnings. This essentially wiped out any equity value in the travel operator. The group sought to minimize sell-offs by announcing a new £300mm bank facility and noted that it had received multiple bids for its airline business in its pursuit for a sale. Short interest is at highs of 16.7% of free float according to Bloomberg.

Osram Licht AG (OSR GY) shares buck trend after a possible Bain-Carlyle offer. Securities lending demand remains elevated after the company announced plans to discontinue the share buyback program and news hit the wires of a possible offer from Bain and Carlyle. German magazine Bosrse Online reported that a potential offer of at least EUR35 a share will be announced in the coming weeks for the German lights manufacturer. Osram, whose share price has slid from highs of EUR 80 a share at the beginning of 2018 to just under EUR30 this week, has seen the decline due to weak sales following an over reliance on automotive growth which has declined in mainland Europe. Short interest has risen in the first half of 2019 to highs of 21% according to data from Markit. Even though the price has spiked this week the desk has seen increased demand for non MSCI tracking stock after it was highlighted as a deletion in the indices Semi-Annual Index Review this week.