At a time when the likes of Afterpay and ZipCo were booming, American buy-now-pay-later company Zebit (ASX: ZBT) thought they could quench Australian investors’ thirst for BNPL exposure when listing on the ASX in October 2020 via a $35 million IPO. But with mounting bad debts from its customers, Zebit has decided that it’s all too hard, plummeting shares by more than 50% on news of their intended delisting from the ASX just 15 months after listing.
The decision, which still requires shareholder approval, has been cited to stem from the lack of liquidity on ZBT shares which Zebit claims has created too much of an administrative burden. Due to this lack of investor interest, the Company no longer sees any benefit to being listed on the ASX, but that hasn’t helped shareholders still holding the stock.
On news of the intended delisting, ZBT shares tanked more than 60% down to $0.076 which represents just 5% of its value compared to the IPO Offer Price of $1.58.
Offering additional commentary around their delisting, it is clear that the Company’s Board is not happy with how Australian investors value their BNPL business whose loan book consists of 12-13.5% worth of bad debts.
“Since the Company’s IPO debut, the Board has observed ongoing fluctuations in the quoted price of the Company’s CDIs and noted that the value attributed to a CDI has been largely independent of news flows, even when positive news has been released. This has caused the Board to question whether the market is fairly valuing the Company,” the Company said in its Statement.
“Undervaluation means that the placement of significant equity to investors at current market prices may be more dilutive to existing stockholders than if the Company was, in the Board’s opinion, more fairly valued.”
The substantial fall in Zebit’s share price has come amid a general cooling of the BNPL sector where new customer acquisitions have slowed across all rivals. This has been amplified by Zebit whose December quarter revenue of USD $31.4 million was burdened by $2.3m worth of bad debt for the quarter which chewed through any margins which were already thin.
That resulted in USD $3.6m in net cash outflows, taking their 12 month to date figure to $14.6m in negative cash flow.
With those fledgling numbers, the Company vowed to reduce costs across all areas of the business where heavy marketing expenditure wasn’t improving the bottom line.
While Zebit can remain solvent in the short term with USD $7.8m of cash in the bank, the Company is aware that attempts to raise fresh capital from Australian investors will almost certainly fall on deaf ears.
“Having regard to the Company’s limited liquidity, CDI price, and market feedback, the Company believes it is unlikely to be able to raise the capital it requires from Australian investors, and that the Delisting may enable it to raise the required capital from US investors who are either unable to invest in ASX listed companies due to their investment mandates, or who are unwilling to invest in ASX listed companies,” stated Zebit.
In order to finalise their delisting from the ASX, Zebit has called an General Meeting of shareholders to be held on 16 March 2022 but it seems unlikely that any of Zebit’s 1,375 CDI holders will recoup anything close to the IPO Offer Price.