June 23, 2008 / 4:52 PM / 10 years ago

Hedge fund Harbinger discloses HBOS short position

LONDON (Reuters) - U.S. hedge fund Harbinger Capital said it held a 3.3 percent short position, worth about 345 million pounds, in bank HBOS HBOS.L, under new disclosure rules for companies during rights issues.

Two other investors -- Lansdowne Partners and Meditor Capital Management -- unveiled short positions of less than 1 percent in the bank.

HBOS shares have fallen sharply since it announced a plan to raise 4 billion pounds ($7.86 billion) last month, and on Monday they dropped below the rights issue price.

Turbulent trading around several companies going through rights issues prompted Britain’s financial watchdog to impose new rules requiring investors to reveal any short positions over 0.25 percent in companies in a rights period.

The rules came into effect on Friday, and positions need to be disclosed by 3:30 pm (3:30 p.m. British time) the next day.

The surprise move was aimed at smoothing the process for firms raising cash from rights issues, as the regulator said the rights process provided greater scope for market abuse.

But the move prompted criticism from hedge funds that it had been rushed in without consulting them.

Harbinger Capital said in a regulatory filing that it owned its stake in HBOS as of June 20.

It manages over $20 billion (10.2 billion pounds) through two funds, according to the website of its parent group Harbert Management Corp., based in Alabama.

One fund focuses on distressed, undervalued or special situation assets, and the other focuses on longer-term investments including special equity situations.

It sells short securities when a company’s deterioration or industry fundamentals are not reflected in its current price, the website said. The hedge fund could not be reached for comment.

Lansdowne Partners said it had a 0.6 percent short position and Meditor Capital said it had a 0.3 percent short position.

HBOS shares fell 4.3 percent on Monday to 270.25 pence, below its 275p rights price. The shares have tumbled 15 percent in the last three days after a trading update stoked concern that bad debts on mortgages will rise and economic growth is likely to slow.

There also remains a threat that a big chunk of shares will not be taken up during the rights issue, forcing its underwriters to sell shares in the market, dealers and analysts said.

Reporting by Steve Slater; Editing by Erica Billingham

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