Zip share price charges higher on $25m equity raising

Why has Zip been raising funds this week?

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Key points

  • Zip has raised funds from institutional investors this week
  • The proceeds are being used to fund its liability management exercise
  • This is expected to clean up its balance sheet and be value accretive to shareholders

The Zip Co Ltd (ASX: ZIP) share price has returned from its trading halt and is charging higher.

At the time of writing, the buy now pay later (BNPL) provider's shares are up 3% to 52 cents.

Why is the Zip share price charging higher?

Investors have been hitting the buy button today after Zip announced the completion of a $24.7 million equity placement.

According to the release, the company is raising the funds through the issue of 52.5 million fully paid ordinary shares at 47 cents per share. This represents a reasonably modest 6.9% discount to the where the Zip share price was trading prior to the halt.

Zip revealed that it received strong interest in the placement from both domestic and offshore institutional investors.

Why raise funds?

These funds will be used to clean up the company's balance sheet through a liability management exercise.

Zip co-founder and global chief operating officer, Peter Gray, explained:

We are very pleased to announce the successful completion of the Equity Placement, the first leg of our liability management exercise. The placement will be used to fund the retirement of $39.8 million of our convertible notes at a very significant discount to face value. Along with the Consent Solicitation process, this exercise will reduce our corporate debt by $192.2 million, further strengthening the balance sheet and positioning the Company for our next phase of growth.

Normally an equity raising will weigh heavily on a company's shares. But as you have seen from the Zip share price today, that's not the case.

This is probably because the exercise is "expected to be cash neutral for the Company and highly value accretive to Zip shareholders."

In other words, this is actually a positive for shareholders.

Motley Fool contributor James Mickleboro 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 Zip Co. 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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