Zip Co Ltd (ASX: ZIP) shares are currently halted as the business plans a capital raising.
Zip used to be a high-flying buy now, pay later company. But, it’s now a much smaller business, and it has retreated from some international markets.
Capital raising
Zip said that the trading halt was to do a capital raising and liability management exercise. This trading halt will remain in place until a detailed announcement is made, or until 13 June 2023, whichever is earlier.
According to reporting by the Australian Financial Review, Goldman Sachs is helping Zip raise $25 million as the buy now, pay later business restructures its liabilities that would see “convertible noteholders take a big haircut”.
The $25 million will be raised at $0.47 per share, or a 6.9% discount to what the Zip share price last closed at. The money will reportedly be used to pay some convertible noteholders.
The AFR also reported that it would restructure its remaining convertible notes at $0.475 in the dollar.
Zip currently owes its convertible bond holders about $330 million, but this change would reduce it down to $137.8 million. The AFR noted that this is a better deal than what Zip convertible notes have trading in the secondary markets.
Zip said that the dela is “highly accretive” for shareholders.
Ongoing restructuring
A couple of months ago, Zip said it has signed agreements to divest its businesses in central and eastern Europe (Twisto) and South Africa (Payflex), and it also said it’s on track with the “wind-down” of its businesses in the Middle East.
Cash EBTDA for Zip’s Europe, Middle East and Africa businesses was negative $10.2 million in the first half of FY23. Zip said it will have ended its cash burn from its rest-of-the-world footprint by the end of the financial year.
Zip remains confident that it has sufficient available cash and liquidity to deliver positive group cash EBTDA during the first half of FY24.
Zip says that it’s on track to deliver up to 50% core cash EBTDA improvement in the second half of FY23 compared to the first half of FY23.
Final thoughts on Zip shares
Zip has been through a lot over the last couple of years. It’s making the right moves to get to sustainability, but I don’t know how much profit it can make with debt now costing a lot more and the sector facing regulation.
