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Zip (ASX:Z1P) share price falls after raising

The Zip Co Ltd (ASX: Z1P) share price has gone down in reaction to the notes offering.

Zip completes its raising

The buy now, pay later business will come under scrutiny today after revealing it has successfully priced its $400 million zero coupon senior unsecured due 2028.

Convertible notes are sort of like bonds that can be turned into shares for a certain cost within a particular timeframe.

These notes will mature on 23 April 2028 unless otherwise redeemed, repurchased or converted.

The initial conversion price of the notes is A$12.39 per share, which is a conversion premium of 35% compared to the reference share price.

Zip intends to use this raised money (net of expenses) to drive growth in core markets, expand into new regions and for general corporate purposes.

Other elements of the transaction

At the same time as the convertible note offering, a delta placement of approximately 11 million shares has been executed by Jarden Australia to facilitate some of the hedging activity in relation to the notes.

The clearing price was $9.18, which represents a discount of 4.5% to the closing price on 14 April 2021.

Founder selldown

It was also announced yesterday that co-founders Larry Diamond and Peter Gray expressed an intention to sell a small portion of their holdings (up to 1.5 million and 0.5 million respectively). Proceeds will be used primarily to fund their respective tax liabilities. This sale was done in conjunction with the delta placement.

The reference share price of $9.18, being the clearing price for the delta placement, was used for the sale of the 2 million co-founder shares.

Management comments

Zip co-founder and chief operating officer Peter Gray said: “We are very excited to welcome a new group of global investors to the Zip ecosystem, embracing our journey and mission to be the first payment choice everywhere and every day. 

“The additional capital from this offering will support the active pursuit of both core and international growth opportunities, as Zip becomes a truly global BNPL player, leveraging our very strong momentum and the worldwide shift away from the broken credit card, towards a better, fairer digital alternative.”

Summary thoughts

Zip has puts its balance sheet in a stronger position thanks to this transaction, which should help power growth for the next step of the company’s growth.

It makes sense to do this while the Zip share price is stronger. As I’ve said before, I think Zip looks like a better value idea than Afterpay Ltd (ASX: APT).

But margins could come under pressure in the future, so I’d rather think about other ASX growth shares where there is a bit less uncertainty, less competition and not such a high valuation.

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Is BNPL the opportunity of a lifetime or is the sector a ticking time bomb?

Rask's analyst has just finished a 7,500-word report, The Ultimate BNPL Sector Report, taking a deep dive into this booming ASX sector. It shines a spotlight on each of the major players. You can get the full analyst report for FREE by CLICKING HERE NOW.

Note: the report is 100% free.

At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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