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Klarna is offloading most of its UK “buy now, pay later” portfolio to US hedge fund Elliott for undisclosed terms, in a deal that will free up as much as £30bn for new loans, according to people familiar with the matter.
The deal with Paul Singer’s $70bn hedge fund is expected to bolster Klarna’s capitalisation and allow the fintech to continue to pursue ambitious growth targets ahead of a highly anticipated US IPO. As part of the deal, Elliott has bought a junior note in a vehicle that will hold the loans.
Klarna, which has been licensed as a bank in Sweden since 2017 and is overseen by German and UK financial regulators, will continue to underwrite the loans and provide customer service to borrowers. The company is focusing its growth strategy on the US, where it has signed partnerships with merchants including Apple and Uber Eats. It was regularly profitable until 2019, when it decided it would accept some credit losses in order to pursue US expansion.
Niclas Neglen, chief financial officer of Klarna, said the deal would help support its global growth. “By efficiently managing our assets, we can deploy shareholder equity more effectively,” he said.
The Swedish fintech has pioneered BNPL loans, a form of short-term credit that enables customers to spread the cost of their retail purchases in zero-interest instalments.
Klarna’s “pay in three” and “pay in 30” loans allow customers to pay in either three monthly instalments or in a single instalment within 30 days. These offerings make up the vast majority of Klarna’s lending activities in the UK.
BNPL is unregulated in the UK but the Labour government has pledged to bring it under financial regulators’ control.
This is not the first time these types of loans have been sold to investors. Last year, private equity group KKR agreed to buy up to €40bn of PayPal BNPL loans originated in Europe.
Klarna also previously struck a significant risk transfer deal with Elliott on its German loan book two years ago, according to three people familiar with the matter.
The fintech, whose IPO is expected to take place as early as the first half of next year, has been looking for ways to grow quickly while maintaining its capital ratios. In June, it sold its checkout product to a consortium of investors led by Kamjar Hajabdolahi, chief executive and founding partner of BLQ Invest. for $520mn.
Klarna said the sale of its checkout business was made principally to allow it to sign partnership deals with checkout providers such as Adyen in other markets without directly competing with them. But the deal also gave it more room to stay within its capital requirements as it ramps up lending, according to three people familiar with the matter, with one of them adding this was particularly important ahead of a jump in lending before Christmas.
Klarna also considered a sale of its employees’ existing shares ahead of its flotation but it decided not to go ahead with the plan, according to three people familiar with the talks.
Additional reporting by Maria Heeter and George Hammond
https://www.ft.com/content/5ace6764-f406-4933-9f59-f0716a6eade4
