Item number 3 looks very similar to how the auto industry works, vis-a-vis asset back commercial paper (secured bonds). It's not a million miles away from how the process of securitisation is supposed to work either. A bank or other sponsor set up a bankruptcy remote special purpose vehicle (SPV). Bushveld sell their future cash flows related to vanadium leasing agreements to the SPV at a discount, thus realising their profit up-front . The SPV funds the purchase from bushveld by issuing short term debt secured on the vanadium batteries. The bonds pay interest to investors based on the interest it receives from the leasing agreements. These structures are not without their risks, especially as the vanadium batteries are not liquid instruments in the event that the SPV does not have access to wholesale markets in a crisis and is unable to roll-over these short term liabilities. To get around this it could issue bonds which match the term of the lease agreements. The attraction from an SPV investors perspective has nothing really to do with vanadium, but rather the guarantee of future income streams secured by vanadium in the event of a default.
Its the same concept as carbon credits. For a more recent example of how this nonsense works have a look at tesla -> fiat
https://electrek.co/2019/05/07/tesla-tsla-2-billion-fiat-chrysler-emission-standards/
another possibility is a third party providing TPEP with exposure to the ETF "on tick".. eg a swap referencing the ETF.. so the likes of Citi could hold the ETF position and charge TPEP a spread over the cost of the ETF for proving leverage.
Good question @biganuf and a good find. I'm not sure when they took out their positions. What I would say about that list is it represent investors who are required under us law to submit a 13D/G or 13F forms with the Securities Exchange Commission (SEC)
just googling TPEP on 13d/g/f forms and I found this
Public Equity Partners Management
The firm has not submitted 13F filings and does not appear to be an investment advisor.
IF my theory is correct , when TPEP unwind their short , they simply sell back their holding of the ETF to Vaneck. Vaneck then need to reduce their holdings of the underlyings and will sell stocks back to the market. TPEP then purchase these stocks and close out their short position.. this should have no impact on the SP..
@Daisan.. The are investors in REMX other than TPEP that may be holding the whole ETF (inc BMN).. So when you see a drop in the BMN position within the ETF without a corresponding drop in the short position it suggests to me that some investors in the ETF have sold their positions. This is normal. The ETF AP redeems or creates ETF shares based on the days trading activity. This, in turn, leads to the purchase or sale of the underlying securities. The other way the underlying holdings can change is when the reference index is rebalanced.
@Daisan.. The are investors in REMX other than TPEP that may be holding the whole ETF (inc BMN).. So when you see a drop in the BMN position within the ETF without a corresponding drop in the short position it suggests to me that some investors in the ETF have sold their positions. This is normal. The ETF AP redeems or creates ETF shares based on the days trading activity. This, in turn, leads to the purchase or sale of the underlying securities. The other way the underlying holdings can change is when the reference index is rebalanced.
So Norway has a major problem on their hands... how do you deploy $12bn into renewables?.. you can obviously take over companies such as bushy... but that’s not their MO.. it’s the Woodford problem ... once a fund becomes too big your investment potential decreases..
Plus... and this is a big plus. The ETF is open-ended and is perceived to be far more liquid than the underlying. I say "perceived to be" because the assumption is they can settle their ETF shares on the same day. Whilst this is true in good times, if everybody rushes for the door at the same time the ETF may have to close the fund to redemptions. Case in point: woodford.
@biganuf That's precisely why I think they are buying the ETF. It cost them .59% per annum to hold the ETF and 0.53% to borrow the securities. It's cheap as chips. Add to that the hassle and cost of buying in far-flung markets as well as having to rebalance the portfolio as the underlying index changes. This is a far easier play.
@jogj99 because JM hasn't worked it out, but also because this share has most definitely been shorted by PIs. People saw the fall in the v price and clearly shorted this stock.
My point around TPEP is that I strongly believe their short is benign and should be ignored.
actually, there is one more scenario which is positive for bushy. It's an extension of the last point. Perhaps TPEP decide they now want exposure to vanadium as the V price is on the march. They could retain their ETF holding but buy back their BMN short. This would obviously increase the sp.
I know people are a bit spooked by the short but there really is no need to be.
Firstly, the shares have been sold short already, so the downward pressure is done for now. What this means is that if this is a "traditional" short & borrow, which I don't think it is, the buyback of $2m shares should have significant upward pressure on the share price when it closes. I do not think this is short play on bushy per se. Why? because a $2m short in an illiquid stock is simply way too risky for a hedge fund with over $2bn in AUM. The risk/reward is simply not there: you need to be confident that you can borrow the stock (continuously) and you need to be able to buy back the stock without the price moving against you. It’s the later part that is near on impossible in an illiquid stock. The sp dropped to 19p and they didn’t close. The v price is on the march and again and still they didnt close. Why?
My theory is that TPEP are simply betting on an increase in rear earth companies as a direct result of the US/China trade wars. I believe TPEP are long (circa $55m) of Remx and are simply hedging their exposure to Vanadium by shorting bushy and potentially largo. So when we see an increase in their short it reflects a further increase in their holdings of the ETF. In this scenario they are both long bmn (through the ETF) and short BMN in the cash market. I.e BMN neutral. The ETF provider provides them with shares to cover their shorts and when they want to unwind their position in the ETF they sell back the ETF to the ETF issuer who in turn sells the underlying shares on the open market. TPEP can then buy back their shares without being exposed to gap risk.
So in both scenarios TPEPs short is either neutral or positive to the share price.
Admittedly they can increase their short, but given where the v market is heading I would think that would be unwise, unless of course my theory is correct.
thanks @BubbyHuxter. Shorting, and the reasons for shorting, expand way beyond spivs taking a punt on a share price dropping. At the bottom of the swamp you have the 'short and distort' crew, but at the top end most shorting is simply to hedge risk or some form of arbitrage.
I'm going to crawl back under my rock before the pitchforks come out !
@Ophidian. ah, I see. Understood. The workings of the (bucketshop) MMs is definitely not an area I have any expertise in. Most big houses would simply execute buys and sells as they occur (assuming market liquidity) due to reputational risk issues and "best execution " regulatory requirements. Perhaps the constant dripping is at the will of the seller rather than the MM. If I needed to sell down a big position I would drip feed it in when their's liquidity in the market to absorb it.. eg, I would go to great pains to not move the price as this is detrimental to my capital/return. Either the seller doesn't care, which is unrealistic, or they are a forced seller and need to get out at any price.
HI Ophidian. I'm trying not to take exception to your comment on "non-expert guff" :)
Firstly, what I just described below is a fundamental hedging mechanism used by equity financing houses when giving client's exposure to a basket of specific securities (ex-something), and this is where my background lies. I'm not pretending to be an expert, but I would say I'm well informed and my ‘theory’ has been well thought out.
I’m simply using reason here.
You could say BMN is an easy short with the vanadium price dropping like a stone. That’s plain for everyone to see, however, the fact remains that shorting BMN (in size) is not an easy task at all. You need to be able to borrow the shares to cover your short and more importantly, you need to be able close out your short in a timely fashion, otherwise you’re exposed to significant gap risk; look what happened when we hit 19s and everyone pilled in. Now imagine what would happen if TPEP tried to buy back all their shares in one go? The SP would go through the roof. This for me is the reason why I think TPEP are simply hedging their BMN exposure which they obtained through their position in the REMX ETF. Nothing else makes sense to me. TPEP have $2.2bn AUM and they’re trying to make a few dollars on aim by shorting a small cap? I’m sorry, I just don’t buy it.
Also, I’m about 90% sure that TPEP are borrowing shares from REMX to facilitate their short. Who else in the investors register would lend them shares? Also, it’s in black and white in the ETF prospectus.
“VanEck Vectors Exchange Traded Funds (ETFs) may lend securities to generate additional income which may help reduce expenses. All net proceeds earned by VanEck Vectors ETFs in the securities lending process are allocated to the applicable ETF after subtracting fees payable to the lending agent.
My theory is no different to you're wave theory .. they can happily co-exist!
and what about the unwind...
When TPEP want to close their bet on REMX ex vanadium they sell back their ETF units bavk to the ETF provider. Hmm.. now they need to close their short and buy back the stock. Where do they get the stock from? Well the ETF provider has redeemed their shares and now needs to sell down the underlying to bring the nav back in line.
This structure limits the main risks for TPEP in terms of shorting. eg.. Can I borrow the shares to cover the short and can I buy the shares quickly when I want to close of my short.
In summary, it is my view that TPEP are completely market neutral to the share price of BMN.
My other theory, for what it's worth, is that TPEP are not shorting BMN, they are simply hedging their exposure to vanadium which they gained by buying the REMX ETF. Why do I think that? Shorting is hard enough but trying to short a stock with low liquidity is utter madness. Also, why didn't they close at 20p?
So how does that work? You want exposure to REMX but you don't like the volatility in the vanadium price. You buy the ETF (its dirt cheap in comparison to trying to construct the basket yourself) and you sell short the components you don't want. The ETF is the most logical place to borrow the shares from.
Eg.. You buy 100 of the ETF and you end owning 4 of bushy... you sell short 4 of bushy and borrow the stock from the ETF. It's just a hedge.
Time will tell if my theory is correct or not!