From the Securities Lending Trading Desk

IPO activity is driving lending demand in the US, while in Asia, the Singaporean energy and marine sector has been in focus.  European M&A is on the rise and generating demand in the region.

Below please find the June 30 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Oil-related M&A activity is heating up, following Q1’s historic lows for M&A in the sector.  Last week there was increased demand for Energy Transfer Equity amid news that the company’s proposed merger with The Williams Cos was rejected.  Though Williams believes the $48 billion stock offer “significantly undervalues” the company, many analysts suggest Energy Transfer Equity will not give up on the merger, despite the fact there are currently no competing offers, according to reports.  Demand for Energy Transfer Equity was limited to only a few borrowers and levels were subdued.

Though IPO activity is down 36% versus this time last year, there is strong demand for newly public firms including Fitbit, MINDBODY and 8point3 Energy Partners.  According to reports, the average return for 2015 IPOs remains near +20% and it is expected that as many as 19 more deals are on the calendar to price this month, putting it in the running for the busiest June for the IPO market since 1999.  Fitbit, MINDBODY, and 8point3 Energy Partners were among the most actively located stocks this week.

Asia Pacific
The Singaporean energy and marine services sector has been in focus amid China’s continued economic slowdown and weak commodity prices.  Securities lending demand has been strong for Ezra Holdings and Ezion Holdings as a result of lower profit margins.  Lending demand has also been robust for Sembcorp Marine as it grapples with depressed new orders and allegations that a local unit paid bribes to win lucrative contracts in Brazil.

Clampdowns in major Chinese coal-burning industries such as steel, cement and glass, combined with a desire to promote renewable energy, is placing pressure on the coal sector.  Thermal power comprised 79% of China’s energy mix in 2014, down from 82% in 2011.  Further, coal prices halved in that period.  China is now the world’s biggest wind-power market and leads the world in solar photovoltaic installations.  We continue to see long term lending demand for Yanzhou Coal and China Coal Energy.

The European oil services sector remains under considerable pressure amid suppressed crude prices.  Default concerns remain for offshore drillers amid project delays, amended contracts and downsized fleets.  This, coupled with rallying share valuations throughout Q2, have given short sellers a re-entry point.  Many speculate that Saipem will launch a rights issuance in the near to mid-term, however the firm stated that no capital increase and/or refinancing operations have been brought to the attention of the board.  Borrowers have sought shares of Transocean, Seadrill, Akastor, Subsea, CGG, and Petroleum Geo.

European M&A activity has increased this week.  Borrowers are seeking shares of Svern Trent on news that Borealis, the Canadian pension fund, is considering a bid.  This comes two years after a previous attempt was rejected.  Vivendi and Vodafone held informal talks with Richard Murdoch to discuss bids for his 39% stake in Sky.  Talks did not progress as the price sought by the Murdoch family was too high at $28/share.  Finally in France, Numericable-SFR made an offer of over $11 billion for Bouygues.