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Zip and NAB brace for final daze

15 July 2022 6:03AM Ian Rogers

NAB, M&A, Payments, mobile & wallets, Comment

Comment: It is the sale of its US unit, formerly QuadPay, that Zip Co’s owners and bankers must be holding out for.

Instead, the news out of London a few hours ago is that Zip is bumbling around seeking a buyer for its UK unit.

There can barely be any value in Zip UK now. After acquiring it via the takeover of PartPay in 2019, Zip withdrew funding late last year and thus wrote off all the goodwill for the UK arm in the December 2021 half year accounts.

Maybe the Sky News report on Zip UK is a smokescreen for something more dramatic. Like a reprieve orchestrated around the remaining value in Zip US/QuadPay.

Any demerger of Zip’s US division may appeal to NAB, as the company banker, and more so to the auditors, while leaving shareholders wondering if anything might be left over for them.

On the home front it is only one week since the sudden closure of the Pocketbook app, which had hundreds of thousands of users and was seemingly an activity in need of minimal support, either money or people.

Other recent steps to mitigate losses in Australia - lifting interest rates and the company’s share of merchant fees - at least help the bottom line.

Yet it’s the balance sheet and tenuous asset valuations alongside the uncontrollable metric that is Zip’s market capitalisation that must most confound the board and management at the moment.

Those in the know have so far succeeded in keeping the market and the media guessing, but the outline of the next - and final steps - in the Zip disaster are well understood. And increasingly unavoidable.

Zip has to be perilously, incredibly close to a breach of its covenants with National Australia Bank, its principal overlord, via warehouse funding facilities.

These by the way, must now be well and truly destroying the value on the bank’s side, as arrears and bad debts begin to run out of control.

Two weeks after balance date Zip’s auditors will by now be deeply engaged with the board and management over any number of write-downs ahead, shredding (even eliminating) the net asset value of a business that’s done nothing but burn capital and seduce gullible millennials since it started.

What on earth are NAB waiting for? That’s really the only remaining unknown around Zip.

I’m not saying NAB are poised to enforce their security and impose receivers on Zip Co as soon as today. But they might as well.

NAB cannot delay long, the full year accounts will never be completed.

So I’d be measuring Zip’s future under the control of its board in hours or days.