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Should you invest in the Zip share purchase plan?

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Zip Co has launched a $30 million share purchase plan. Here's what you need to know.

As we enter the tail end of the shopping season, buy now pay later player Zip Co has announced a stock sale of up to $30 million in discounted shares. Merry Christmas.

Zip released details of its share purchase plan (SPP) on Wednesday, following a $120 million capital raise for institutional and wholesale investors last week.

Stocks are being offered at $5.34 a share, or 2% below Zip's average share price during the final week of the offer. This means you get a discount through the SPP even if Zip's market price dips below $5.34 as the offer closes.

How it works

To participate in the purchase plan, you need to have been a Zip shareholder as of 15 December 2020 and an Australian or New Zealand resident.

The offer period itself opens on 4 January 2021 at 9am and closes at 5pm 13 January.

Buying shares via a share purchase plan isn't the same as buying shares over the stock market. Because they're new, you apply for shares directly through Zip rather than through a broker, which means you won't need to pay a commission fee.

However, it does typically mean there are restrictions around how many shares you can purchase. In this case, eligible investors will have the option of buying between $2,000 and $30,000 worth of Zip in $1,000 increments.

To apply for shares, you'll need to fill out an application form on the offer homepage and transfer funds via BPAY, bank transfer or cheque.

Is the Zip SPP a buy?

Zip's $120 million capital raise last week saw stocks sold at a 4% discount to the market, but its price has since fallen. As of midday Thursday, Zip's share price was 2.6% below the $5.34 SPP offer.

According to managing director of Medallion Financial Michael Wayne, how attractive the share purchase plan will be will depend on your situation.

"Given the current market price ... I think we can safely say the offer isn’t a bargain buy. If I was a shareholder I would pass up on the offer given it isn’t at an attractive enough discount to entice me," Wayne told Finder.

"The one exception is if I was an existing shareholder who already had a plan to increase my exposure at some stage. This SPP offers that opportunity to build on an existing position brokerage free and at a discount, albeit a very slight discount."

Wayne's advice for potential investors is to wait until the closing date to make the final decision.

Looking for a low-cost online broker? Compare broker fees and features using our share trading platform comparison table to get the best deal for you.

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