Shein steers tough course in pursuit of blockbuster UK IPO

London bankers have waited more than two years for initial public offerings to bounce back. When news that fast-fashion upstart Shein could list first emerged at a potential £50 billion ($64 billion) valuation, the City saw a deal that could finally reverse the slump.

It won’t be easy. To deliver what could be one of the UK’s biggest-ever IPOs, the controversial e-commerce retailer will need to convince regulators, politicians and investors that it meets their standards for inclusion.

Critics warn that a Shein listing in London would make the City into a market of last resort. They point to allegations about the company’s environmental, social and governance record, including allegations highlighted by US politicians that the China-founded firm’s products are linked to forced labor. Shein has said it has a zero-tolerance policy for forced labor.

After the lawmakers called for probes into those concerns, Shein pivoted its listing plan to the UK, Bloomberg News has reported.

Still, as the Singapore-headquartered company prepares to file confidentially for an IPO in the City, some of the key decision-makers are already on side. The opposition Labour Party — which is enjoying a large lead in the polls ahead of the general election next month — has given its qualified support to the listing, people familiar with the matter have said. 

With the London Stock Exchange experiencing the deepest IPO slump in more than a decade, Shein’s backers aren’t the only ones quietly hoping that a way can be found.

“There is probably some desperation today,” said Xavier Rolet, former head of London Stock Exchange Group Plc. “The British IPO market is very slow, while in the US it is on fire.”

Power to Refuse

The Financial Conduct Authority, the UK’s listing authority, has the power to refuse IPO applications if the watchdog thinks it would be detrimental to investors’ interests. In a market with room for oil producers, tobacco companies and miners, however, not all ESG considerations are disqualifying.

Nick Bayley, former head of regulation and trading services at the London Stock Exchange and ex-senior markets adviser at the FCA, believes Shein may well pass the regulator’s tests.

“The hurdle for turning something down on reputational or investor protection grounds is quite high,” Bayley said. “If you look at some of the companies that listed in the 2000s from the former Soviet Union, there were all sorts of interesting characters involved. We welcomed them with open arms in London, while there is no way the Americans would have taken them.”

In the US, Republican and Democrat politicians alike called for investigations into Shein, making concern about forced labor allegations a rare instance of bipartisan agreement.

Marco Rubio was among the US senators who asked the US Securities and Exchange Commission to consider blocking a listing by Shein, saying the company needs to disclose more about its operations in China. Shein should have to prove its products are not sourced from forced labor if it wants to go public in the US, Virginia Representative Jennifer Wexton wrote last year in response to reports of the IPO filing there.

Both of the UK’s major political parties have met with Shein leaders, Bloomberg News has reported, though neither has come out in support publicly. Labour has no intention of blocking the move, but hasn’t conducted its due diligence yet, people familiar with the matter have said.

Only Reform UK leader Nigel Farage has spoken out against them on the record, telling The Sunday Telegraph newspaper that Shein listing in London would be a “very bad idea,” and that it “won’t change the IPO crisis” in the City.

Shein is required to comply with the UK’s Modern Slavery Act, which is intended to combat human trafficking. The Act requires companies to publish a statement on their website every year — Shein’s most recent statement is dated July 2023 — indicating a company’s efforts to prevent forced labor in its business and supply chain.

The Act’s standard isn’t high enough, according to Labour Behind The Label, a UK-based organization which campaigns for workers’ rights in the clothing industry, and which opposes a Shein listing in London. 

“The Act doesn’t require companies to conduct due diligence to support the statement, or to report on the success or failure of any commitments it makes in the statement,” said Anna Bryher, the organization’s policy lead. “It really is simply that they have to have conducted a risk analysis. This low bar needs progressing in UK law.”

Along with its labor practices, Shein will have to disclose pending litigation such as suits by H&M and Uniqlo over alleged intellectual property violations and anti-competitive tactics against rival Temu. 

Rolet said during his time at the LSE Group he hadn’t seen the regulator bending the rules to accommodate a company. 

“If there is a difference between what a company does and the rules, the FCA will say no,” he said.

Representatives for Shein, the FCA and the LSE Group declined to comment.

Marketing Effort

If allowed to proceed, a Shein listing in London would still require a major marketing effort. That’s despite sales last year rising about 40% to $32.2 billion, and net profit doubling to about $1.6 billion, according to a person familiar with the matter, who asked not to be identified as the information isn’t public.

A bid for FTSE 100 index inclusion would be attractive to some buyers. Yet in order to merit consideration, the company would have to float a huge chunk of shares, which increases the risk.

Good disclosure from Shein will be key to assuaging some investors’ concerns, according to Matt Evans, a portfolio manager at Ninety One.

“Maybe the fact that they’re even prepared to think about London suggests that they feel they’re in a good position to address those ESG considerations,” Evans said.

Investors could price any compliance issues into a firm’s float and punish a listed company for labor breaches, said Mark Spiers, a partner at regulatory consultancy Bovill.

“There are plenty of mining firms and others with London listings who have relatively dubious supply chains or environmental outcomes, online gambling with dubious social value et cetera, and they attract, or don’t, money as people see fit for their ESG tolerance,” he said.

Some investors may yet sit out the IPO and wait and see how it trades, while others plan to steer clear entirely. Alasdair McKinnon, chief investment officer of Sgurr Ventures, said companies that list in locations far removed from their headquarters “tend to be troublesome.” 

“I’m not sure what other investors will do but I suspect they will back this if they think they can play the ‘greater fool’ game successfully.” –BLOOMBERG