Premier Oil becomes the target of record £132m short bet by Hong Kong hedge fund
- Asia Research & Capital Management built up an enormous 17% short position
- The hedge fund did not disclose the bet to the watchdog until Friday last week
- The short position is huge by typical standards
A Hong Kong hedge fund secretly built up the biggest ever short position in the UK by taking huge bets against Premier Oil shares.
Asia Research & Capital Management should have revealed its bet to the Financial Conduct Authority in February 2017 when its short position in the North Sea oil firm’s shares went above 0.5 per cent.
But ARCM, which invests in distressed assets, did not disclose the bet to the watchdog until Friday last week – when it belatedly revealed that it had built up an enormous 17 per cent short position worth £132million.
ARCM built up an enormous 17 per cent short position worth £132million in Premier Oil
Short-selling involves borrowing shares from another investor for a fee, selling them, buying them back, hopefully at a lower price.
The shares are then returned to the original owner, with the short-seller pocketing the difference.
ARCM’s huge short position – thought to be the largest ever disclosed in the UK – is understood to be a hedge against its $380million holding of Premier Oil’s $2.55billion net debt, which becomes repayable in May 2021.
Premier Oil agreed a crucial debt refinancing package in February 2017 when ARCM bought its debt and began shorting the shares as insurance.
The £132million short position does not mean ARCM has spent £132million betting against Premier Oil, but it does pay a fee for borrowing the shares. It means ARCM has some insurance if the shares fall and it suffers because it holds vast sums of its debt.
This is a rising concern when oil prices are falling, as they have done since April.
A source familiar with ARCM, which has not increased its short since June, said the company always hedges all its investments.
Even so, the short position is huge by typical standards. It is the largest short position in Europe by percentage of a company’s shares, according to analysis by Breakout Point. The second largest is CPMG’s 5.86 per cent short position in German technology company Aixtron.
Premier Oil and ARCM declined to comment. The FCA declined to comment on any potential penalty for ARCM for late disclosure.