16 million new Zip shares will hit the ASX on Monday. What does this mean?

Zip is about to welcome some new shares to the market. Here’s why…

| More on:
a person's legs and an arm sticks out from underneath a large ball of scrunched paper.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Zip has been an ASX share on struggle street in recent months
  • The company's shares are today trading fairly close to their 52-week low
  • Zip will be welcoming more than 16 million new shares next week

Things aren’t looking too rosy for the Zip Co Ltd (ASX: Z1P) share price these days. At the time of writing, Zip shares are trading at $1.44 each, down 1.23% for the day thus far. That’s only a whisker away from the company’s 52-week low of $1.40 a share that we saw only last month.

But some big changes are coming to Zip shares next week, changes that all shareholders should be aware of. Earlier this week, the buy now, pay later (BNPL) company announced the results of its recent share purchase plan (SPP). This SPP was offered to retail shareholders, who were given the option of purchasing up to $30,000 additional Zip shares.

This was offered at either the lesser price of $1.90 per share, or at “a 2% discount to the volume-weighted average price of Zip’s shares traded on the ASX during the five trading days up to and including Friday, 1 April 2022 (being the date the offer closed), rounded to the nearest cent”.

The latter option ended up being the lesser of these two, so Zip confirmed the share price offered would be $1.48.

Zip share purchase plan leads to 16 million new shares

Unfortunately for any investor who subscribed to this plan, the company is today trading below that value. So it’s perhaps no surprise that Zip only managed to raise $23.99 million of the $50 million that it had on the table.

Zip had told investors that it intends to use this extra capital to shore up its balance sheet. In addition, it will also use the capital to “position Zip for sustainable growth by providing more capital runway to execute on potential synergies [resulting from the proposed merger with Sezzle Inc (ASX: SZL)]“.

This means that, come Monday (11 April), 16.21 million new Zip shares will hit the ASX boards.

So what does this mean for the Zip share price? Well, additional shares are rarely a good thing for a company’s share price on a purely numerical basis. That’s because the laws of supply and demand dictate that an increase in supply results in a fall in price. If investors are enthusiastic about what a company intends to raise capital for, it can overcome this inherent weakness that new shares bring. But, unfortunately in this case, this doesn’t seem to be playing out.

At the current Zip Co share price, this BNPL share has a market capitalisation of $990.2 million.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Capital Raising

A young male investor wearing a white business shirt screams in frustration with his hands grasping his hair after ASX 200 shares fell rapidly today and appear to be heading into a stock market crash
Mergers & Acquisitions

Why is the Carsales share price crashing 15% lower today?

Carsales shares are sinking on Wednesday. Here's why...

Read more »

a small child and a pug dog sit in a go cart wearing old fashioned drivers headress and goggles as the drive along a country road with the boy holding his arm in the air and shouting as if celebrating their performance behind the wheel.
Capital Raising

How has the Carsales share price performed after past acquisitions?

Carsales shares are frozen right now amid acquisition moves.

Read more »

man bending over to look at red arrow crashing down through the ground
Capital Raising

BWX share price sinks 38% following capital raising at dizzying discount

BWX shares are feeling the wrath of investors after the steep discount offered by the company.

Read more »

a man peers out from a high collared jacket with just his eyes and nose visible amid a swirling snowstorm.
Capital Raising

Why is the Electro Optic Systems share price frozen today?

The space, defence, and communications company is undergoing a capital raise.

Read more »

A group of friends push their van up the road on an Australian road.
Capital Raising

Why is the Carsales share price frozen on Monday?

The market is unable to trade Carsales' stock on Monday. Here's why.

Read more »

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Capital Raising

The Wiluna Mining share price has been frozen for a month. What’s happening?

The ASX gold miner could remain halted for weeks to come.

Read more »

a woman sits in her home with chin resting on her hand and looking at her laptop computer with some reflection with an assortment of books and documents on her table.
Capital Raising

NAB share price backtracks amid $1 billion capital raise

NAB shares are hovering in negative territory so far today.

Read more »

Red arrow going down on a stock market table which symbolises a falling share price.
Capital Raising

Here’s why the Chalice Mining share price sank almost 7% today

Chalice Mining's shares fell heavily on Wednesday...

Read more »