Block Trade vs Exchangeable Bond vs Stock Loan: Raising Cash Against a Controlling Stake.

A controlling shareholder who needs cash has three broad routes: sell part of the stake, issue a bond exchangeable into it, or borrow against it. The firm arranges stock loans; block trades and exchangeable bonds are described for comparison only.

How does a block trade or placing raise cash?

The SEC describes a block trade as one that “generally involves the sale of a large quantity of shares of an issuer’s stock”, arranged privately and executed outside the public markets. In a placing, banks act as placing agents and find the buyers.

In June 2026, a Kingboard Holdings subsidiary agreed, before trading hours and under a “Block Trade Agreement”, to sell 155,000,000 shares (about 4.92%) of the group’s listed subsidiary Kingboard Laminates at HK$76.0 each. That was about 11.5% below the previous close of HK$85.90, yet above the five-day and ten-day average closes.

Completion was set for 22 June 2026, and the group’s holding was to fall from about 66.62% to 61.70%, leaving Kingboard Laminates a subsidiary.

What lock-up applies to the rest of the stake?

Here the lock-up was contractual. Without the placing agents’ written consent, the seller undertook not to “offer, sell, lend, contract to sell, pledge” or otherwise dispose of further shares, or securities exchangeable for them, until 60 days after closing.

A clause in that form rules out a stock loan or an exchangeable bond on the retained shares until it expires, unless the banks agree. Lock-ups after a flotation are covered in IPO lock-up periods.

What does a block sale disclose, and what can it signal?

In Hong Kong, as the SFC’s outline of Part XV explains, a notice is due within three business days when a holding of 5% or more crosses a whole percentage point. The exchange publishes the notices in a searchable database.

In the UK, DTR 5.1.2R requires notice to a UK issuer at 3% and each whole percentage point above, within two trading days. In the US, a Schedule 13D filer must amend within two business days of a material change, and disposing of 1% or more of the class is deemed material.

Directors, officers and holders of more than 10% must report changes on Form 4 before the end of the second business day. An affiliate selling control shares publicly needs registration or an exemption.

An affiliate relying on Rule 144 may sell, in any three months, no more than the greater of 1% of the class or the average weekly volume over the previous four calendar weeks. A Form 144 notice is needed where three months’ sales exceed 5,000 shares or US$50,000.

Leaks are a risk: in January 2024 the SEC charged Morgan Stanley and a former executive with block trading fraud. The SEC’s orders found that details of upcoming blocks were disclosed to buy-side investors on the understanding that they would take short positions first.

Is a block trade a taxable disposal?

Yes, for a seller within a capital gains charge. In the US, gain is the amount realised over the adjusted basis under section 1001, and IRS Topic No. 409 treats stocks held as investments as capital assets. HMRC’s manual lists a sale as a disposal.

In Hong Kong, stamp duty of 0.1% of the consideration applies to every sold note and every bought note, so it is payable by buyer and seller alike.

How does an exchangeable bond work?

An exchangeable bond is debt that holders can swap for shares the issuer’s group already holds in another listed company. In May 2025 a subsidiary of Sinopec Group, the controlling shareholder of Sinopec Corp, issued HK$7.75 billion of bonds, guaranteed by Sinopec Group and exchangeable into Sinopec Corp H shares held by another group company.

The offering circular sets a coupon of 0.75% a year and maturity in 2032, and each HK$1,000,000 is initially exchangeable for 166,666.6667 H shares, an exchange price of HK$6.00. Bonds not exchanged are repaid at 109.27% of principal at maturity, and holders can demand repayment in 2028 or 2030.

The issuer raises face value, each underlying share counted at the exchange price. Where that price is set above the market price, the gap is the exchange premium: the issuer raises more than the shares’ current value but cedes any rise above that price.

Until exchange, bondholders have “no rights as holders of H Shares”, including voting rights and regular dividends. The issuer and guarantor also agreed a lock-up running to 90 days after issue which, like Kingboard’s, covers pledging the shares.

Who buys exchangeable bonds, and in what size?

These bonds were listed in Hong Kong for professional investors only, were not registered in the US, and had a minimum denomination of HK$2,000,000. The lead manager was to facilitate investors’ hedging through a concurrent placement of shares to the guarantor at the 13 May 2025 closing price.

Structures vary: after a no-objection letter from the Shanghai Stock Exchange, Shanghai Electric’s controlling shareholder issued RMB5 billion of three-year exchangeable bonds to professional investors in March 2024, at a 0.01% coupon. It pledged A shares equal to 10.98% of the company to secure exchange and repayment. Both are single issues, not benchmarks.

Does an exchangeable bond have to be disclosed?

Often, for a substantial holder. The SFC’s outline counts exchangeable bonds as equity derivatives, and an obligation to deliver shares under an instrument a person issues as a short position. A holder of 5% or more must notify when it comes to have a short position “of more than 1%”.

In the US, Schedule 13D’s Item 6 asks a filer to describe option arrangements and derivative securities over the issuer’s shares.

How does a stock loan raise cash without a sale?

A stock loan advances cash against a pledge of the shares. In the firm’s structures for controlling shareholders, voting authority typically remains with the borrower, and the full position, upside included, is returned on repayment.

The amount is a fraction of market value, the loan-to-value, set per position after review; no band is published. Indicative terms typically follow within one to two business days of an enquiry, and tenors typically run 12 to 36 months.

What does the holder risk?

Market risk on borrowed money. If the shares fall, a margin call can require more collateral or a part repayment, and an unmet call can lead to a sale (see margin call mechanics).

Recourse decides who bears a shortfall: the firm arranges non-recourse, limited-recourse and full-recourse structures, and non-recourse typically runs at a lower LTV on the same shares. Where the borrower is also an officer or director, see executives pledging company stock.

In the UK, granting security is not a disposal, but a lender’s enforcement sale is treated as the borrower’s own, so a forced sale crystallises the gain the loan deferred (see tax treatment).

For a US affiliate, a lender’s sales within six months after a default count towards the same Rule 144 limit as the borrower’s own. Pledges can be notifiable too: the SFC lists providing shares as security as a change in the nature of an interest, and Item 6 covers pledged securities (see pledge disclosure by market).

Which route fits which objective?

A block trade fits a holder ready to sell part of the stake now and accept the price, lock-up and tax. An exchangeable bond fits a holder content to hand over shares above the exchange price and able to issue a bond to professional investors.

A stock loan fits a holder who wants to keep the shares, the votes and the upside, and can carry interest and margin risk. The routes can be combined over time, subject to any lock-up. Other approaches are compared in exchange fund vs stock loan vs hedge and ways to raise liquidity, compared.

General information only, not legal or tax advice: take local advice before acting.