On Jan 8, Top Glove Bhd announced that the Employees Provident Fund (EPF) had ceased to be a substantial shareholder in the glove maker on Jan 5, following the disposal of 40 million shares.

The filing indicated that the 40 million shares were SBL (securities borrowing and lending) shares. This means the provident fund is lending out its Top Glove shares for a fee to investors who intend to short the stock.

In fact, exchange filings showed that in November and December, EPF made nine share disposals that were labelled as “SBL” transactions. These transactions involved about 52.74 million shares.

The suspension on regulated short selling was lifted on Jan 4 and Top Glove was one of the counters targeted by short sellers, pushing its share price to a low of RM5.23 that day, before it settled at RM5.50. Its trading volume soared to 347.86 million shares — the highest level seen since end-May 2018.

Subsequently on Jan 21, EPF became a substantial shareholder again after 19.46 million shares were returned to it.

The question is, why did it lend out the shares to be shorted, leading to lower prices for the counter and ultimately, a lower value for its own investments.

While the EPF perhaps earns a fee for lending the shares, it is likely to be minimal. Is it worth the write-down in its investment in Top Glove?

The move only makes sense for long-term strategic investors with a controlling block in the company. They can then make a fee from lending the shares out.

Top Glove is, however, just one of the many stocks the provident fund has in its investment portfolio. Wouldn’t it make more sense for EPF to just sell the shares and buy them back later at a lower price?