"Sell Treasury Stocks Amid Stock Market Boom"

[Asia Economy Reporter Hwang Junho] Recently, the number of companies disposing of treasury stocks amid rising stock prices is increasing.

According to the Korea Exchange on the 27th, the total number of treasury stock disposal cases across the three markets?KOSPI, KOSDAQ, and KONEX?this month was recorded at 38. In December last year, 57 cases were recorded, marking the highest number of treasury stock disposals in two years, and this month showed a similar trend. From January to October last year, the average number of treasury stock disposals was about 14 cases, but it surged starting in November.

This trend aligns with the rising stock market. As the KOSPI and KOSDAQ have continuously risen since the end of October last year, more companies have been selling off their treasury stocks. There were more disposals among KOSDAQ companies, whose cash-generating ability is weaker than that of KOSPI companies. Some companies, like SaraminHR, consistently disposed of about 20,000 shares throughout the year, while others, like Bigtec, sold intensively 54 times from November to the end of December. This month, Donghwa Hwasung (21 billion KRW), Preems (8.7 billion KRW), and Samjin L&D (5.4 billion KRW) have also started disposing of their treasury stocks.

[Image source=Yonhap News]

Treasury stock disposal is not solely for securing cash. Last year, Naver and CJ ENM established a strategic partnership through stock exchange. Semiconductor company SFA increased its controlling power by disposing of treasury stocks to major shareholders.

Kang Bong-ju, a researcher at Meritz Securities, said, "The reasons for treasury stock disposal can vary greatly by company, but in the current market where the KOSPI price-to-earnings ratio (P/E) stands at 14.4 times, CFOs of each company may consider disposing of treasury stocks. Especially for companies that acquired treasury stocks due to stock price impacts from COVID-19, they are likely to realize gains through disposal."

However, from an investor's perspective, treasury stock disposal can be a double-edged sword. When a company releases treasury stocks into the market, it can cause stock prices to fall, but the cash secured can be used for new investments or strengthening fundamentals, which can positively affect stock prices. Researcher Kang explained, "Unless companies dispose of large amounts enough to influence stock prices, there will be little impact on the stock price."