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What you need to know about Zip Co’s $60 million capital raise

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Zip Co has announced a $60 million capital raise and share purchase plan.

Black Friday seems an unusual day for a listed retail payments company to cease trading on the stock market, but that's the news from the ASX this morning.

In what may be its own version of a Black Friday sale, buy now pay later (BNPL) provider Zip Co (Z1P) entered a trading halt on Friday to announce a capital raise that will see $60 million of shares sold off at a discount.

Of the total raise, $50 million will go to sophisticated and institutional investors on Friday, while $10 million is being offered in December to regular Z1P shareholders in what is called a share purchase plan (SPP).

The shares are being priced at $3.70 – a 5.6% discount from its closing price on Thursday – and investors can purchase up to $27,000 worth of shares under the plan.

The SPP kicks off Friday 6 December and finishes 20 December, but to be eligible to participate you need to have been a registered Z1P shareholder by 7pm Thursday 28 November.

The key details

  • SPP stock price: $3.70
  • Maximum per person: $27,000
  • SPP dates: 6 December - 20 December
  • Z1P trading halt: 29 November - 2 December

Why the capital raise?

The company says it plans to use the funds for global expansion, product investment and to bolster the balance sheet.

Certainly, there's plenty happening in this instant with Zip Co and others in the BNPL space such as Afterpay.

Zip's capital raise comes less than a month after it announced a partnership deal with Amazon that would see its popular payment platform Zip Pay available on the retailer's Australian site, sending the Z1P share price soaring over 20% on the news.

Now the company is looking to expand to the UK and capitalise on the fast growing BNPL space there – some of which will be funded by the $60 million capital raise, according to Zip.

However, the company is also likely to need funding to protect against regulatory headwinds over the next 12 months. Last month, the RBA announced a 2020 review into the buy now pay later space which could result in heavy statutory reforms and compliance costs for Zip Co and others like it.

Despite the risks, the major brokers remain positive. Despite downgrading Afterpay (APT) to a "sell" rating, UBS rates Z1P a "buy" with a target price of $4.80. Morgans has a lower target price of $3.86 with an "Add" rating, and Ord Minnet is of a similar mind with a price target of $3.95.

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