Chrysalis (CHRY) has announced its first return of capital in its managed wind-down, saying it will return £25m following the £34m sale of its remaining stake in Klarna, the New York-listed credit provider.
The money will be paid out tomorrow through a compulsory purchase of Chrysalis shares at 127p. Having fallen 38% this year, Chrysalis shares jumped 4.6%, or 3.2p, to 72.1p at the news.
Chrysalis will retain £9m from the disposal as an operating capital buffer and source of funds for any necessary follow-on investments into its portfolio companies. The portfolio is now the responsibility of Chrysalis director Sam Dobbyn, the former Urban Exposure boss who was appointed to the board in February when the contract with fund managers Richard Watts and Nick Williamson was terminated.
Earlier this year Chrysalis sold £6.6m of Klarna shares as it repaid its debt balance of £17.8m.
Our view
Matthew Read, senior analyst at QuotedData, said: “The £25m return of capital is welcome, but the price achieved for Klarna is harder to celebrate. CHRY valued the holding at £56.9m at 30 June, yet has realised just £40m from selling the entire position – £6m in July and £34m now. That is a substantial shortfall and raises the question of whether this was really the right time to sell what was once, by some distance, CHRY’s largest investment.
“There is, of course, no guarantee that waiting would have produced a better outcome. However, it is striking that, following Klarna’s sharp derating earlier this year, CHRY’s former managers remained “highly encouraged” by the company’s growth and product traction and said they expected a “marked acceleration in profitability”. If that assessment was right, crystallising the loss now risks exchanging potential recovery upside for the certainty of cash at what may prove to be a depressed point in Klarna’s valuation.
“Returning capital is an important part of CHRY’s new strategy and shareholders should welcome evidence that the board intends to follow through on that commitment. However, realising assets sensibly matters just as much as returning the proceeds quickly. The Klarna disposal feels like a disappointing way to start that process.”
