LONDON Jan 25 Hedge fund short-sellers have
hoovered up nearly all available shares in Peugeot in
their scramble to bet the French carmaker will be an early
victim in an industry struggling to overcome a collapse in
Peugeot is now one of the most in-demand stocks in Europe
for short-selling by hedge funds, with 92 percent of shares
available to borrow - the "lending pool" supplied by
institutional investors - now out on loan, according to data
Such has been hedge funds' rush for Peugeot stock that prime
brokers, who provide finance and lend stock to hedge funds, have
had to meet some demand from their own supplies. The Peugeot
lending pool amounts to 12 percent of the carmaker's 2.17
billion-euro market capitalisation. In total 18 percent of
Peugeot stock is now out on loan.
Short-sellers include hedge fund Marshall Wace, which holds
a net short position of 0.76 percent of the carmaker's total
share capitalisation. Odey Asset Management holds 2.66 percent,
Egerton Capital 0.7 percent and DE Shaw 1.4 percent, according
to according to the most recent disclosures.
"The majority of the (Peugeot) lending pool has been
borrowed, by a mixture of directional and event-driven funds, at
which point stability becomes a potential concern," said Duncan
Wilson, head of equity finance sales trading at JPMorgan prime
In an auto market where demand is close to a 20-year low -
and still falling - Peugeot has been one of the hardest hit by
Europe's debt crisis and the ensuing austerity measures curbing
consumer spending. The region accounted for 59 percent of its
sales volume in 2012.
Once a star French brand, Peugeot is struggling with excess
production capacity and mounting losses compounded by the
protracted sales slump. It is cutting 10,000 jobs and has
already required a capital increase, a 7 billion-euro government
loan guarantee and 1.5 billion euros in asset sales over the
past year to stay afloat.
Now hedge funds are betting it will have to raise more money
or be further damaged by the dire economic climate.
Short-selling means borrowing stocks in the hope the share
price will fall and enable the fund to buy them back profitably
at a lower value.
However, some funds could have so far lost money on their
positions. Peugeot shares, which rose above 7 euros in
September, dropped below 4.5 euros last month but have since
recovered to more than 6 euros on Friday along with a broader
No-one from Peugeot was immediately available to comment on
the short-selling positions.
European demand is set to shrink another 1.7 percent this
year to 17.8 million light vehicles according to consulting firm
LMC Automotive. By comparison, the U.S. market is set to grow
4.2 percent to 15.1 million vehicles.
"It's appalling. In Europe it's terrible," Savvas Savouri,
chief economist at London-based hedge fund firm Toscafund, told
Reuters. His firm's short positions include U.S. carmaker
General Motors, on the grounds its large European
operations counter its exposure to better conditions at home.
General Motors expects losses for its European operation,
which consists mainly of Opel and UK-based Vauxhall, of between
$1.5 billion and $1.8 billion for 2012. GM took a 7 percent
Peugeot stake in the French carmaker's March share issue.
After Peugeot, the other major European carmaker being
targeted by hedge funds is Fiat.
Levels of Fiat stock lending have more than doubled since
the end of October - though some of this may
have been driven by hedge funds borrowing the stock to give them
the option to short, without actually placing the trade. Those
levels fell back a little last month when Fiat CEO Sergio
Marchionne said it had no need for a capital increase.
Fiat, which is trying to counter grim European numbers by
increasing sales of its luxury Alfa Romeo brand in the U.S. and
boosting growth in Asia and Latin America, saw its shares drop
from around 4.8 euros mid-September to around 3.4 euros at the
end of November. They have since recovered to around 4.5 euros.
Funds with short positions on Fiat include Brookside Capital
Management and Pelham Long Short Master fund, according to the
website of Italian regulator Consob, while Highbridge Capital is
shorting tyre maker Pirelli.
One of the biggest Fiat bears has been Chris Cooper-Hohn,
head of activist hedge fund firm TCI, although the firm's
position has since been closed, a spokeswoman said on Friday.
In November Cooper-Hohn told a conference in London: "It is
a bad company. People look at the net debt of 5 billion euros,
ex-Chrysler. We think the gross debt is what matters ... we
think it could be nearer to 20 billion euros. We think Fiat
needs to do a rights issues as soon as possible."
In total stock lending for the Euro Stoxx 600 Autos and Comp
index rose to 4.28 percent last week, up from 3.81
percent at the end of October, according to Markit.
Though U.S. and Asian automakers have so far attracted
mainly long positions by hedge funds - Toyota in
particular has been boosted by a fall in the yen, reducing the
price of its exports - some believe the industry's wider woes
could throw up further trades.
"In Japan there will be opportunities to short soon," said
Toscafund analyst Takis Christodoulopoulos.