Australia's Westpac selling stake in buy-now-pay-later firm Zip

FILE PHOTO: A man walks past a Westpac bank branch in Sydney, Australia April 20, 2018. REUTERS/Edgar Su

(Reuters) - Westpac Banking Corp WBC.AX said on Wednesday it would sell its 10.7% stake in buy-now-pay-later firm Zip Co Ltd Z1P.AX in a deal valued at about A$368 million ($260 million), as it aims to trim its portfolio and improve its capital position.

Australia’s second-largest lender, whose capital has been eroded by a record lawsuit settlement and surge in bad-debt provisions due to the coronavirus outbreak, said the sale will add around 8 basis points to its common equity tier 1 capital ratio.

The offer price for the sale is A$6.65 per share, a discount of 6.1% to Zip’s last closing price of A$7.08, and implies a deal values of about A$368 million for Westpac’s stake, based on Refinitiv data.

This week, Westpac teamed up with Zip's rival Afterpay Ltd APT.AX to offer savings accounts and budgeting tools, marking a push into the buy-now-pay-later sector.

The sector’s popularity has surged due to an online shopping boom triggered by the pandemic.

“We are continuing to explore opportunities with Zip, including working to integrate their buy-now-pay-later functionality into our mobile banking apps across Westpac and our regional bank brands,” said Westpac Chief Information Officer Gary Thursby.

Westpac said settlement of the sale, a bookbuild to institutional investors being managed and underwritten by UBS, is expected to occur on Oct. 26.

Reporting by Shriya Ramakrishnan in Bengaluru; Editing by Jacqueline Wong and Lincoln Feast