BNPL Company Raised Capital to Reduce Debt, Boosted Share Prices

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Australian-based buy now pay later (BNPL) company Zip Co Ltd (Zip) raised capital to effectively reduce its debt, which also allowed for higher share prices as it strengthened its balance sheet.

Zip had A$330 million worth of outstanding zero coupon senior convertible notes, which was one of the leading factors for the company to raise capital financially. Zip’s action allowed it to raise $24.7 million with a shares placement by issuing some 52.5 million shares at a lower price of A$0.47.

The capital raised through this action will allow the company to slash the outstanding zero coupon balance by around $192.2 million and let Zip be cash-neutral and ‘highly value accretive’ to its stakeholders.

Peter Gray, co-founder and COO of Zip noted that this plan was implemented to strengthen the company’s balance sheet and improve its profitability.

 He added, “We are pleased to launch this liability management exercise which will allow us to retire a significant portion of our liabilities at a fraction of face value and restructure our $330 million zero coupons convertible note to a liability of $137.8 million.”

The COO reaffirms to its stakeholders that the company is focused on creating strategies focused on sustainable growth amidst the poor market sentiment of the BNPL sector, rising interest rates and stricter regulatory rules.

The country has seen staggering increases in consumer prices due to inflation, and many feel helpless as they see their purchasing power dwindling. Many Australians now rely on credit cards and BNPL to finance their purchases.

But research conducted by the University of Sydney uncovers that BNPL users may fall into a debt trap. The study found that people with multiple BNPL accounts are more likely to rack up significant debts because lenders do not know how much debt a customer has.

Andrew Grant, a senior finance lecturer at the university, noted, “Here’s such a limited amount of transparency in the marketplace. There’s real concern that lenders don’t know how much BNPL debt people have.”

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