July 7, 2014 / 10:06 AM / 3 years ago

Struggling Gowex a short-selling target months ahead of bankruptcy

2 Min Read

* Demand to borrow the stock rose sharply in April

* Hit a record on day critical report released

* Nine out of every 10 available shares on loan

By Nishant Kumar

LONDON, July 7 (Reuters) - Hedge funds and other investors began to bet big on a share price fall for Spain's Gowex some three months before the struggling wireless network provider declared bankruptcy.

That came on Sunday, following a report last week by Gotham City Research questioning the firm's financial reporting, which sparked a 60 percent slide in Gowex's share price in two days and the resignation of its chief executive.

Demand to borrow the shares first began to rise sharply back in April. Around 10 percent of the Gowex stock available to be borrowed was out on loan at the end of February. But that figure rose to 27 percent on April 2, then to 76 percent on April 16, Markit data showed.

It held around 80 percent for several months before popping up to hit a record of nearly 90 percent on July 1.

Short sellers sell stock they have borrowed hoping to profit by buying it back later at a cheaper price and returning it to the original owner, such as a pension fund or other long-term investor, and pocketing the difference.

Trading in Gowex shares was suspended on Thursday after the share price slide. (Reporting by Nishant Kumar; editing by Sophie Walker)

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