Klarna CEO Sebastian Siemiatkowski
In a move bound to stoke plenty of speculation about its strategic intentions, Swedish-based buy now pay later giant Klarna has ploughed almost A$141 million of fresh capital into its ailing Australian arm.
Klarna’s local holding company notified the Australian Securities and Investments Commission last week that its Swedish parent had boosted the paid-up capital base of the local entity to $145.9 million.
The disclosure is a material development for Klarna’s local operation, which previously had paid-up capital of only $5 million.
According to the ASIC filing, Klarna Australia’s parent – Klarna Bank AB – acquired 95 million new shares in the local subsidiary on 11 September, which brought its total holding to 100 million shares.
The parent paid slightly more than $1.48 for each of the new shares, boosting the capital base of the Aussie subsidiary by $140.9 million.
Banking Day has documented the financial travails of Klarna’s local business in detail over the last 12 months.
Klarna Australia Pty Ltd posted a net loss of $56 million over the year to the end of December 2021.
Moreover, disclosures in the company’s 2021 balance sheet show the local business had a net asset deficiency of more than $70 million on 31 December of the same year.
Mystery surrounds the 2022 financial performance of Klarna’s Australian business because ASIC has granted the company a waiver from having to lodge annual accounts.
The massive capital injection comes at a critical moment for Klarna and the Australian buy now pay later sector as a whole.
Klarna’s global chief executive Sebastian Siemiatkowski told the Financial Times in August that he was preparing to IPO the group operations, although a date had not been set.
“From an IPO perspective, the requirements have been met,” Siemiatkowski told the FT on 31 August.
“So now, it’s more market conditions.
“It’s more a question of us getting ready and prepare the organisation.
“We don’t have any official date; we haven’t announced anything.”
The recapitalisation of the Australian business could be part of a program to stabilise those parts of the group making deep and unsustainable losses.
Klarna’s Australian auditor E&Y partner Michael Byrne warned the directors of Klarna Australia Pty Ltd in August 2022 that there was material uncertainty as to whether the local arm could continue to trade as a going concern.
Since then the composition of the Australian board has been through several makeovers, with the latest overhaul occurring after the departure last month of Katrina Ang.
While cleaning up the Aussie balance sheet might be the most obvious explanation for the fat capital boost, there is moderate speculation that some of the fresh cash might also be used to fund acquisitions in the local BNPL sector.
The ASX is the home listing for a swathe of Australian-based BNPL providers such as Zip and Sezzle that are exposed to the US - a key market for Klarna’s BNPL business.
The market valuations of Zip and Sezzle have collapsed in the last two years as rising interest rates fuelled big operating losses.
Most payments experts are leaning to the view that the capital injection in Australia would be used to stabilise the financial position of the local arm as Siemiatkowski readies the group for a sale.
“There’s some speculation around with what they might do with the big lick of capital they’ve put into the Australian business, but I think the overriding objective is to prepare the business for an IPO,” said Melbourne-based payments consultant, Grant Halverson.
“With an impending IPO, I don’t think the investment market would take too well to the idea of Klarna trying to buy Zip or Sezzle.”