Commonwealth Bank has sunk more capital into loss-making Swedish buy now pay later provider Klarna despite facing a material writedown on the carrying value of its longstanding investment in the troubled company.
In a statement issued on Monday night from Stockholm, Klarna confirmed that CBA participated in the firm’s latest US$800 million funding round, which was priced at an 85 per cent discount to its previous capital raising in June last year.
According to Klarna the latest capital raising values the struggling company at only US$6.7 billion – a sharp slide from the US$45 billion valuation ascribed to it 12 months ago.
“The financing attracted strong support from both existing and new investors and will primarily be used to expand Klarna’s leading market position in the United States,” Klarna said in a media release.
“Klarna received strong backing from its existing investors including
Sequoia, the founders, Bestseller, Silver Lake, and Commonwealth Bank of Australia.”
While CBA chief executive Matt Comyn in recent months has reaffirmed his confidence in Klarna’s long term prospects, it now seems inevitable that his bank will incur a heavy writedown on its longstanding investment that was valued at A$2.48 billion at the end of December 2021.
Given the 85 per cent pricing discount on Klarna’s latest round of funding, Australian banking analysts, including Morgan Stanley’s Richard Wiles, are expecting CBA to write down the value of its interest by around A$2 billion.
Details of the write-down and the size of its fresh top-up investment in Klarna are expected to be included in CBA’s full year accounts to be released next month.
However, Comyn is also expected to clarify comments he made over the last two years that indicate CBA has a 50 per cent economic interest in the Australian and New Zealand operations of Klarna.
While Comyn has repeatedly said that CBA has 50 per cent “ownership rights” over Klarna’s local businesses, he has never clarified whether the Klarna subsidiaries qualify as associate entities of his bank.
Nor has he explained whether those ownership rights mean that CBA would, in certain circumstances, become responsible for meeting Klarna’s liabilities in Australia and New Zealand.
The collapse in support among global investors for unprofitable buy now pay later companies and fintechs in general is also set to present headaches for another major Australian bank.
National Australia Bank is the country’s leading provider of warehouse facilities and other funding lines to a host of troubled fintechs.
In recent years its clients have included Zip Co, Laybuy, Afterpay and Wisr Ltd.
The sharp rise in bad debts on buy now pay later receivables across most of the sector casts doubt on the level to which NAB’s funding support is properly secured.
NAB’s exposure to uneconomic fintech businesses, including fringe BNPL providers, now runs into the billions of dollars.
In March NAB’s corporate and institutional banking arm highlighted the “progress” it had made in meeting a 2019 pledge to provide $2 billion of debt funding to Australian fintechs.
Lu Li, the bank’s head of emerging technology clients, revealed that NAB had provided $2.43 billion worth of debt funding to fintechs up to the end of September 2021.
“It’s a great outcome and it’s really exciting to see we have supported a number of fast-growth fintech companies at a very critical stage of their journey,” she said in a statement issued by the bank.
“We will continue supporting them as they further scale up all the way to maturity.”
Li indicated in the statement that most of the debt funding had been deployed to support “capital intensive, fast growth, early stage fintech companies via wholesale warehouse securitisation solutions”.
In the same statement, NAB’s head of global securitisation origination, Sarah Samson, said she was excited to take startups with little more than “an idea on the back of a serviette and a couple of chairs in an office” all the way to multi-million dollar enterprises accessing capital markets.
Now that business valuations across the fintech sector have been blown asunder, the bank’s credit risk bureau is likely to be reviewing the large exposure with a tad less excitement.