Tired Retail Investors After '1-Year Adjustment Period'... Plunged by Unexpected Block Deal Bombshell

[Asia Economy Reporter Lee Seon-ae] Individual investors, exhausted from nearly a year of market corrections, have recently been shaken by consecutive block deals (off-hours large-volume trades). A block deal refers to a transaction where a large shareholder secures a buyer in advance and transfers shares after market hours. After the trade, a post-trade disclosure is made, and the stock price often plunges, causing small shareholders to suffer losses without understanding the reason. Small shareholders, who can only watch helplessly, vent their frustrations and complaints, but there is no fundamental solution in sight.

According to the Korea Exchange on the 11th, Lotte Chilsung closed at 187,000 KRW on the 9th, down 10%, and remained at 186,000 KRW, down 0.53%, the following day. This was influenced by the block deal push for Lotte Chilsung shares held by Hotel Lotte. The large volume flooding the market, combined with the perception that the major shareholder’s sale signals a current peak, negatively affected investor sentiment.

On the 8th, Alipay Singapore Holding, the second-largest shareholder of Kakao Pay, announced the sale of 5 million shares (approximately 470 billion KRW) through a block deal. The volume, accounting for 3.77% of Kakao Pay’s total shares, flooded the market, causing the stock price to plummet 15.57% in a single day. The previous day, it closed at 85,100 KRW, down 3.73%. Alipay, as the second-largest shareholder of Kakao Pay, sold about 3.8% of Kakao Pay’s issued shares to institutional investors through this block deal. Subsequently, the securities industry’s outlook on Kakao Pay also lowered. Samsung Securities maintained a 'buy' rating on Kakao Pay but lowered the target price from 162,000 KRW to 120,000 KRW. Researcher Jo A-hae of Samsung Securities explained, "The block deal share sale triggered an overhang issue related to Alipay’s remaining shares, and considering the recent valuation declines of competitors like PayPal and Block amid global growth stock corrections, we lowered the target price."

This year, block deal sales by Samsung Electronics, Celltrion, and Woori Financial Group also caused their stock prices to drop sharply in the short term. Samsung Electronics’ stock plunged to the '60,000 KRW level' after Hong Ra-hee, former director of the Leeum Museum of Art, sold 19,941,860 common shares through a block deal.

A block deal is a transaction where a large shareholder transfers shares to a buyer outside regular trading hours to avoid impacting the market during trading hours. Since large-volume trades during market hours can cause sharp price fluctuations, block deals are conducted to prevent this. However, because large volumes are traded at a discount to market prices, the stock price is likely to fall the day after the block deal news becomes public. The potential issue of a large volume of shares being released (overhang) also makes short-term price recovery difficult.

The damage caused by transactions of large shareholders is borne entirely by individual investors, and currently, there is no effective way to prevent small shareholders from suffering losses due to block deals. This is because block deals themselves are shareholders exercising their rights.

However, in the current political arena, an amendment to the Capital Markets and Financial Investment Business Act has been proposed to require listed companies to pre-report large stock sales such as block deals. The amendment mandates major shareholders selling 1% or more of the total issued shares through block deals to report to the Korea Exchange and related authorities. Sales are restricted for three months from the reporting date.

The Korea Stock Investors Association stated, "The block deal pre-disclosure system is the most practical alternative as it helps resolve the information asymmetry between institutions and retail investors," adding, "If the stock price drop due to block deals is deemed excessive, measures such as limiting the contract size per transaction to a certain level could also be considered." However, some remain skeptical, noting that even if the actual contract is made after the block deal pre-disclosure, the impact of the block deal may already be fully reflected by then.

This content was produced with the assistance of AI translation services.