[Beginner's Guide] The 'Block Deal' That Caused Doosan Bobcat's Stock Price to Plummet... Why Is It a Negative Factor?

Editor's Note[Joorini Guide] is a smart investment guide for ‘Joorini (stock + beginner)’ investors. We will kindly and easily explain stock stories that are unfamiliar to Joorini.

On the 21st, Doosan Bobcat's stock price closed down sharply by over 8%.

This was due to a ‘block deal (large-scale off-hours trading)’.

Let's take a look at what a block deal is and why it causes a sharp drop in stock prices.

Doosan Bobcat's Stock Plummets Over 8% Due to Major Shareholder's Block Deal

On the 21st, Doosan Bobcat's stock price dropped sharply by up to 9.52% during the trading session,

closing down 8.18% at 55,000 KRW.

The sharp decline in Doosan Bobcat's stock price was due to a disclosure by its major shareholder, Doosan Enerbility, the day before.

Doosan Enerbility announced it would dispose of 5% (5 million shares) of its stake in its subsidiary Doosan Bobcat through a block deal.

The total sale amount is 299.5 billion KRW, and the purpose of the stake sale was stated as raising funds for new growth investments.

After the sale, Doosan Enerbility's stake in Doosan Bobcat will decrease to 46%.

'What is a Block Deal?'

A block deal refers to a transaction where a major shareholder holding a large number of shares finds a buyer in advance and transfers the shares either before the market opens or after it closes.

As in the case of Doosan Enerbility and Doosan Bobcat, block deals are mostly used when major shareholders sell their stakes.

Investors are recruited before the stake sale.

These are mainly foreign investors and institutional investors.

If the shares were sold at the current market price, naturally they would not want to acquire them.

Therefore, it is common to offer a discount of about 7% below the current price.

Doosan Enerbility also announced that it would trade Doosan Bobcat shares at a discount ranging from 6.18% to 8.51% below the current stock price.

Why Block Deals Are Negative News

[Image source=Yonhap News]

As seen when Doosan Enerbility disclosed the block deal to dispose of 5% (5 million shares) of Doosan Bobcat, causing the stock price to plunge over 8%,

block deals act as clear negative factors for stock prices.

First, because the number of circulating shares increases.

Shares held by major shareholders or treasury stocks are usually excluded from circulating shares because they are not easily traded in the market,

and having fewer circulating shares is positive for stock prices.

Since fewer shares are traded, it is favorable from a supply-demand perspective.

However, when major shareholder or treasury shares that were not previously circulating enter the market through a block deal to foreign or institutional investors, the number of circulating shares increases.

Foreign and institutional investors often aim for short-term capital gains rather than long-term investment, so after buying at a discounted price through a block deal, there is a high possibility of immediate profit-taking.

This increases the supply of shares in the market, leading to a decline in stock price.

Another reason block deals are negative is that they negatively affect investor sentiment.

If a major shareholder sells part of their shares, it can trigger anxiety among shareholders.

Shareholders may wonder if there is a problem with the company or if the company is deteriorating, prompting the reduction of their stake.

The recent block deal by Doosan Enerbility involving Doosan Bobcat shares is no exception.

Researcher Youngsoo Han from Samsung Securities analyzed, “Considering that the seller is a major shareholder and Doosan Bobcat's stock price has risen about 73% since the beginning of the year, the block deal inevitably has a negative impact on short-term investor sentiment.”

Dear Joorini investors,

Stock prices fluctuate due to various factors, but if you can at least predict why they rise or fall, you can respond accordingly.

In this regard, we recommend frequently checking the Electronic Disclosure System.

Events such as major shareholders' block deals are always disclosed,

allowing you to decide on your investment in advance.

No matter how good a company's value is, if the supply-demand balance worsens and the stock price remains sluggish for a while, you might reconsider your buying timing.

We support your wise investments, and with that, we conclude this article.

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This article is from [Joorini Guide], published weekly by Asia Economy. We explain stock-related financial news and complex economic stories in an easy and friendly way so that stock beginners can understand. By subscribing, you can receive articles for free.

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