Klarna offloads UK loan book to hedge fund Elliott

Klarna is selling off its UK loan book to the hedge fund Elliott in a deal designed to free up some £30bn to fund its global growth plans, the company has announced.

In a statement today, the Swedish headquartered buy-now pay-later firm said it had signed a multi-year agreement with the UK arm of Elliott for the majority of its loan portfolio, in a move that will bolster its balance sheet ahead its much hyped IPO next year. 

Under the terms of the deal, Klarna will own all consumer-servicing arrangements and continue to underwrite the loans, while Elliott’s financial liabilities will be shifted onto its books.

“This is a unique deal, designed to support Klarna’s global growth as we continue on our journey to become the commerce network for the next generation,” said Niclas Neglén, chief financial officer of Klarna. 

The move will allow Klarna to “deploy shareholder equity more effectively” and expand its reach globally, Neglen added.

Over the past three years, Klarna, which operates as a regulated bank in the EU, has been building a platform to allow it to offload the loans it holds on its balance sheet to international investors. 

The set-up is designed to minimise the firm’s credit risk and reduce the amount of capital it is forced to hold on its books as a regulatory buffer. 

Paypal last year struck a similar deal with KKR last year to offload some $40bn worth of its European buy-now pay-later loans to the private equity giant KKR.

It marks the latest in a string of deals for Klarna as it gears up for a hotly-anticipated stock market debut in the US next year. The company revealed it would be selling off its its online checkout business for around €485m in June before it snapped up the New Zealand assets of collapsed rival Laybuy, City AM revealed.

Its presence in the UK has swelled in recent years despite regulatory and political efforts to more tightly police the sector. 

According to figures shared with City AM last week, its network of UK merchants has grown by roughly a third over the past year to 41,496, up from around 30,000 in 2023.

The Treasury is yet to announce details on how the sector will be regulated, but the City minister, Tulip Siddiq, has confirmed the Labour government will press ahead with plans to formally regulate the companies under the remit of the Financial Conduct Authority.