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Uber bears already snap up 70% of shares available to short

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Despite Uber's post-IPO decline, it has seen an increase in short interest, particularly over the past week.

New York

WANT to bet on losses in Uber Technologies Inc? The number of shares available to do that is starting to run low.

The ride-hailing company has been public for less than a month, but bears have already moved in on almost 70 per cent of the shares that can be lent out for short selling, data compiled by IHS Markit show. That is up from 50 per cent on May 15, days after Uber's trading debut.

Uber, the biggest initial public offering (IPO) of the year, has started on a weak footing. Concerns have ranged from the size of the ride-hailing market and the company's ability to push into autonomous cars to investors' appetite for riskier assets amid a worsening US-China trade spat. The shares have fallen 9 per cent from their US$45 offering price.

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While the growing short interest has not yet taken a significant toll on the cost to borrow the stock, fees will likely start to bite if the amount of lendable shares available drops much further, according to Samuel Pierson, director of Securities Finance at IHS Markit. "The utilisation of lendable shares reaching 70 per cent generally coincides with a marginal increase in borrow costs," he said. "Once utilisation reaches 80-90 per cent, borrow costs often become a meaningful consideration for short sellers."

The potential pain to come can be seen in the cost of borrowing shares of its competitor, Lyft Inc. With more than 80 per cent of Lyft's lendable stock out on loan, the cost to borrow shares for new shorts hovers near 35 per cent on an annualised basis, IHS Markit data show. That compares to around 1-2 per cent for Uber, though its free float is about 5.5 times larger, which accounts for part of the difference. The borrow cost for Apple Inc and Alphabet Inc is about 0.25-0.5 per cent.

While Uber's post-debut decline is less than half that of Lyft, it has seen a bigger increase in short interest, particularly over the past week. Last week, Uber's short interest more than doubled to 36 million shares, while Lyft's went from 21.7 to 23 million shares, according to data compiled by IHS Markit.

That is out of sync with sell-side analyst calls. Four of those covering Uber recommend buying the stock, while five say "hold" and none recommend selling. Lyft has 16 "buy", seven "hold" and two "sell" recommendations. BLOOMBERG