U.S. buy-now-pay-later firm Sezzle plans Australia IPO amid Afterpay woes

(Reuters) - Sezzle Inc SZL.AX, a loss-making U.S. buy-now-pay-later lender, plans to list in Australia braving heightened scrutiny of the sector there after the financial crime watchdog ordered an audit of top local rival Afterpay Touch Group Ltd APT.AX.

Minneapolis-based Sezzle wants to raise A$43.6 million ($30.36 million) by selling a fifth of the company in an initial public offering next week and use the proceeds to fund growth in North America, according to its prospectus.

The listing comes after the Australian Transaction Reports and Analysis Centre (AUSTRAC) ordered an external audit of Afterpay for suspected non-compliance with anti-money-laundering laws.

Lawmakers in Australia have also called for tougher regulation of buy-now-pay-later companies, which let shoppers buy products in installments, without having to go through the scrutiny of applying for a credit card or a loan.

“One of our biggest missions revolves around young people’s financial empowerment and responsibility,” Sezzle executive chairman and CEO Charlie Youakim said in an email, in response to a question about AUSTRAC’s scrutiny of Afterpay.

He added that most companies that went public in 2018 were “pre-profit, so I think there is nothing remarkable about our choosing to do so as well”.

Most of the income of buy-now-pay-later lenders comes from charging retailers a fee, with the promise that it will attract shoppers wary of the failings of existing forms of credit lending.

Sezzle only operates in the United States and Canada and said further expansion is dependent on how well they do in those two markets.

An Australian listing makes sense because Sezzle may struggle for relevance with U.S. fund managers, said Andrew Mitchell, a senior portfolio manager at Ophir Asset Management, an early investor in Afterpay that still holds an investment.

“There is a land grab as different players try to carve out their bit of turf in different segments of the market,” he said, adding that the sector would consolidate over time.

Australia already has a host of listed buy-now-pay-later lenders, including Zip Co Ltd Z1P.AX, FlexiGroup FXL.AX and Splitit Ltd SPT.AX. Visa V.N also plans an entry.

Afterpay, which like Sezzle operates in North America, listed in Australia with an issue price of A$1 per share in 2016 and the shares were trading at A$25.85 on Friday.

Sezzle said in its prospectus it has 3,321 active merchants, most of them in the United States, and 269,820 active shoppers.

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Byron Kaye and Muralikumar Anantharaman