Own Zip shares? Here’s how much debt the company has and what this could mean amid rising interest rates

Consumers pressured by high inflation and rising interest rates could drive renewed business to the BNPL sector.

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A corporate executive in a suit and wearing boxing gloves slumps in the corner of the ring representing the battered Zip share price and consideration reportedly being given to dumping the company's UK operations

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Key points

  • Zip shares in the red today
  • The BNPL company says it's well placed to respond to rising interest rates
  • Zip says it has sufficient capital to see it through to cash flow breakeven in FY24

Zip Co Ltd (ASX: ZIP) shares are slipping in morning trade, down 3.2% to 45 cents per share.

The ASX buy now, pay later (BNPL) share has been under tremendous selling pressure over the past year amid investor jitters over rising interest rates and rising debts.

How will Zip shares fare amid rising interest rates and debts?

As at December 2021, Zip’s total outstanding borrowings stood at $2.4 billion, as reported by The Australian. Some $400 million of debt will need to be refinanced in approximately two years.

With Zip shares remaining under pressure, the company responded to investor concerns over inflation, interest rates and rising debts, reporting that its underlying business remained strong.

It said it had “a solid pipeline of enterprise merchants” coming onto its platform. These include household names like Qantas Airways Ltd (ASX: QAN), eBay and Best Buy.

Addressing the impact of rising interest rates, Zip reported it was “well placed to respond to and offset” those effects. It listed a series of initiatives already in progress to cope with a higher rate environment. Those include consumer fee increases, merchant repricing, and increased customer repayment velocity.

The United States market was reported to be particularly resilient to any impact from rising interest rates. Zip estimated that any 0.25% rate increases would impact its cost of fund by 0.02% per transaction.

With the company still eyeing future growth, it reported its acquisition of Sezzle Inc (ASX: SZL) is on track. Shareholders will vote on the acquisition later in 2022.

What did management say?

Commenting on Zip shares in the current market conditions, CEO Larry Diamond said:

In an environment where wage growth is falling behind heightened inflationary pressures, affordability becomes an even more important priority for consumers as they budget each month.

We believe our business model will stand up exceptionally well in such an environment as we continue to provide significant value and benefit to our customers and importantly our merchant partners seeking to drive continued growth.

Zip advised shareholders it had AU$401.9 million undrawn and available in Australia, and US$168.1 million available in the US, with $303 million available in cash and liquidity as at 31 March.

The company also has $24 million from its April share purchase plan (SPP). It expects to have sufficient capital to see it through to cash flow breakeven in the 2024 financial year.

How have Zip shares been tracking?

Zip shares have been hammered this year, down 90% since the opening bell on 4 January. That compares to a year-to-date loss of 15% posted by the All Ordinaries Index (ASX: XAO.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in 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 Scott Phillips.

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