The Zip Co Ltd (ASX: Z1P) share price has dropped 8% in early trading after the buy now, pay later company’s capital raising.
Zip’s raising success
The buy now, pay later business told investors that it had successfully completed the fully underwritten $148.7 million institutional placement.
The company said proceeds raised under the placement will help strengthen Zip’s balance sheet and positions Zip for sustainable growth by providing more capital runway to execute on the potential synergies from its proposed acquisition of Sezzle Inc (ASX: SZL).
Zip revealed that it received strong support from both existing investors and new investors.
The Zip share price for the issue was $1.90. This represented a discount of 14% to Zip’s last closing price of $2.21.
This will mean there are approximately 78.3 million more Zip shares, which equates to around 13.3% of Zip’s existing shares on issue. Those new shares will start trading on 4 March 2022.
The placement is not conditional on the proposed transaction occurring.
Share purchase plan
Next is the share purchase plan for regular shareholders to buy some shares, if they want to.
The share purchase plan is for up to $50 million. Under this SPP, eligible shareholders will be able to apply for up to $30,000 of new shares without broker or transaction costs.
The price for this will be either the placement place of $1.90, or a 2% discount to the 5-day volume-weighted average Zip share price up to 1 April 2022.
At the moment, Zip shares are at $2.03, so $1.90 would be the price if it were done today.
Thoughts on the Zip share price
It has been a disastrous 12 months for the Zip share. It’s down more than 80%. A number of problems have impacted the business.
Zip’s operating profitability is falling, competition is rising, regulators are circling, interest rates are about to start rising in the US and investors have turned off high-growth no-profit businesses.
It could be able to turn things around. There’s a lot of transaction value that goes through Zip. If Zip can start making profit then that could help investor sentiment. But there are other ASX growth shares I would rather focus on.