Corporate earnings season is the big demand story this week in the US. In Asia, competition in the television manufacturing industry is driving demand. Rights issues in Europe have increased borrower interest in deal-specific names.
Below please find the May 27 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.
Corporate earnings season is spurring securities lending demand. A number of firms are reporting this week, closing out a busy month for earnings announcements. Borrowers are seeking shares of Tidewater, GameStop, Titan Machinery, and ExOne.
Pharmaceutical M&A activity continues to drive borrower demand, a trend that we expect will continue in the months ahead. Acquisition prices this year for pharmaceutical and biotechnology companies are the highest relative to Ebitda and revenue in at least 20 years, according to data compiled by Bloomberg. Last week TPG Capital Management announced that it is selling Par Pharmaceutical to Endo International in a transaction valued at $9.7bn. Borrower demand is expected to increase as completion date approaches.
Some of the best performing Hong Kong stocks in 2015 fell sharply last week leading to a surge in lending demand. Goldin Financial Holdings and Goldin Properties Holdings plunged more than 60% in Hong Kong trading after surging more than 300% in 2015. Both stocks fell the day after a 47% collapse in the share price of Hanergy Thin Film Power Group which erased $19bn in market value before trading was suspended. Borrower demand was strong for all three names.
Intense competition in the television manufacturing industry is driving strong securities lending demand. Borrowers are seeking shares of Sharp as mounting debts and intense competition from lower-cost rivals in China and South Korea continue to plague the company. Sharp has lost $13.3bn in the last four fiscal years. Once on the brink of bankruptcy, Sharp is now selling its headquarters and shrinking its solar business to help keep the firm afloat.
The announcement of multiple rights issues has increased borrower demand for specific names. Rubis and Deutsche Wohnen announced plans to raise $145.3mn and $1.0bn, respectively, driving demand for both companies. The long awaited rights issue of Banca Monte Dei Paschi will be priced at a discount of between 35-40%. There has been significant interest from borrowers in the lead up to the rights trading period.
European oil refining margins remain subdued, driving borrower demand. The emergence of cleaner energy and fuel efficiency in transport sectors have created a dampened demand profile, while cheaper product supply from both the US and Middle east has resulted in increased price competition. The lending desk is seeing increased utilization in large cap European oil refiners such as Eni Spa, Total SA and Neste Oil.