European equity shorts
03 March 2020
IHS Markit takes a deepdive into the drivers behind popular short positions capturing market attention
Image: Shutterstock
Overall, the short loan value, that is the amount of securities finance transactions deemed likely to be related to short selling, has increased by just over 4 percent year-to-date (YTD). That suggests little overall change in positioning, with the short positions little change shares terms so that the increase in balances matches the advance for broad EU market indices. Beneath the surface of relatively steady aggregate short demand there have been some movers which warrant a closer look. As the table overleaf shows, Premier Oil’s (PMO) share price surged following the early January announcement of a debt refinancing plan.The increase in share price was met with an increase in share borrowing, making PMO shares the most heavily borrowed in Europe as a percentage of outstanding shares. The largest publicly disclosed short position is from Asia Research & Capital Management (ARCM), which revealed a position of more than 140 million shares in July 2019 (there are a total of 217 million shares on loan). ARCM is also Premier Oil’s largest creditor and released a statement on 12 February indicating that they will “vigorously oppose” the firm’s proposed restructuring plan in court on 17 March.
Shares of Cineworld have seen a 23 percent increase in borrow demand YTD, largely maintaining a consistent borrow value of around £530 million despite a 20 percent decline in the share price. Short sellers may be betting against the prospects for the firm, specifically the debt assumption required to facilitate the proposed takeover of Cineplex (an all-cash deal expected to close in the first half of 2020) and other challenges faced by global theatre brands. The latter concern is also reflected in the increased short demand for AMC shares and the 18 February bankruptcy filing for VIP Cinema Holdings (a maker of luxury cinema chairs).
Hammerson has also seen increased borrow demand, likely driven by a perceived likelihood that the UK real estate investment trust will cut its dividend. IHS Markit Dividend Forecasting predicts the August 2020 dividend will be cut 23 percent year-over-year. Hammerson currently has 15.5 percent of outstanding shares borrowed, worth £268 million.
Borrow demand for Future surged following the 31 January release of a research report from Shadowfall Capital & Research, which was linked to a post on Twitter that disclosed its short position. The number of borrowed shares has more than doubled after the report was released to 7 million shares for settlement on 18 February. The borrow cost remains low with more than 15 million shares reported as available for borrow.
Borrow demand for shares of Wirecard (WDI) has been flat over the past month, however, that follows demand surges in October and December. Shares of WDI are the most heavily borrowed for any EU equity in nominal terms, with more than €3.4 billion on loan. The massive borrow balance is the result of the share price increasing just over 30 percent from the December low, while shares on loan have increased by just over 20 percent.
Moving in the opposite direction, the number of Aston Martin shares on loan decreased 22 percent from the post-initial public offering peak observed on 24 January. The move toward the exit appears to be motivated by the 31 January announcement of strategic equity investment in the firm by a consortium led by billionaire Lawrence Stroll, which provided a boost to the share price.Another UK equity with declining borrow demand is NMC Health. The United Arab Emirates healthcare group came under increased scrutiny following a Muddy Waters report in December, which revealed that it held a short position.
While the share price has declined by 67 percent since the report was released, the trajectory hasn’t been on a straight line with four days seeing a greater than 10 percent increase in price, two of which were increases of more than 30 percent. The volatility may be shaking some short sellers out of the trade, reflected in a 50 percent decline in share borrowing YTD. The decline in borrowing is also notable in that the 52 percent decline in share price YTD may have been softened by the impact of short covering.
To wrap up, we’ll head back to the continent to look at shares of AMS, which have seen a net increase in share borrowing YTD, based on coronavirus related concerns for the Apple supplier and questions surrounding the acquisition of Osram Licht. The number of borrowed AMS shares has more than doubled YTD, to 10.8 million shares, however, that figure also represents a decline from the peak borrow demand of 14.4 million shares on 4 February. The share price has oscillated, but is little changed, with a net increase of 1.1 percent YTD.
Shares of Cineworld have seen a 23 percent increase in borrow demand YTD, largely maintaining a consistent borrow value of around £530 million despite a 20 percent decline in the share price. Short sellers may be betting against the prospects for the firm, specifically the debt assumption required to facilitate the proposed takeover of Cineplex (an all-cash deal expected to close in the first half of 2020) and other challenges faced by global theatre brands. The latter concern is also reflected in the increased short demand for AMC shares and the 18 February bankruptcy filing for VIP Cinema Holdings (a maker of luxury cinema chairs).
Hammerson has also seen increased borrow demand, likely driven by a perceived likelihood that the UK real estate investment trust will cut its dividend. IHS Markit Dividend Forecasting predicts the August 2020 dividend will be cut 23 percent year-over-year. Hammerson currently has 15.5 percent of outstanding shares borrowed, worth £268 million.
Borrow demand for Future surged following the 31 January release of a research report from Shadowfall Capital & Research, which was linked to a post on Twitter that disclosed its short position. The number of borrowed shares has more than doubled after the report was released to 7 million shares for settlement on 18 February. The borrow cost remains low with more than 15 million shares reported as available for borrow.
Borrow demand for shares of Wirecard (WDI) has been flat over the past month, however, that follows demand surges in October and December. Shares of WDI are the most heavily borrowed for any EU equity in nominal terms, with more than €3.4 billion on loan. The massive borrow balance is the result of the share price increasing just over 30 percent from the December low, while shares on loan have increased by just over 20 percent.
Moving in the opposite direction, the number of Aston Martin shares on loan decreased 22 percent from the post-initial public offering peak observed on 24 January. The move toward the exit appears to be motivated by the 31 January announcement of strategic equity investment in the firm by a consortium led by billionaire Lawrence Stroll, which provided a boost to the share price.Another UK equity with declining borrow demand is NMC Health. The United Arab Emirates healthcare group came under increased scrutiny following a Muddy Waters report in December, which revealed that it held a short position.
While the share price has declined by 67 percent since the report was released, the trajectory hasn’t been on a straight line with four days seeing a greater than 10 percent increase in price, two of which were increases of more than 30 percent. The volatility may be shaking some short sellers out of the trade, reflected in a 50 percent decline in share borrowing YTD. The decline in borrowing is also notable in that the 52 percent decline in share price YTD may have been softened by the impact of short covering.
To wrap up, we’ll head back to the continent to look at shares of AMS, which have seen a net increase in share borrowing YTD, based on coronavirus related concerns for the Apple supplier and questions surrounding the acquisition of Osram Licht. The number of borrowed AMS shares has more than doubled YTD, to 10.8 million shares, however, that figure also represents a decline from the peak borrow demand of 14.4 million shares on 4 February. The share price has oscillated, but is little changed, with a net increase of 1.1 percent YTD.
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