Chinese fast fashion giant Shein appears to be moving to London rather than New York for its planned IPO.
On the face of it, this would be a resounding success for London, especially given last year’s survey of its attractiveness by a group of large British and Irish companies. moved its main stock market to New York.
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There will undoubtedly be a degree of cynicism involved Shein’s decision to include in London rather than New York. For example, it will be suggested that British regulators – and politicians – are less hawkish on China than their US counterparts and less likely to ask difficult questions about a company’s supply chain.
That Jeremy Huntchancellor, she met with Donald Tang, the executive chairman of Shein, to make the case for London, it only adds to that sense.
Some might compare this to the way the Financial Conduct Authority launched a consultation on a possible change to UK listing rules in 2017, when it was hoped that state-controlled oil giant Saudi Aramco could be persuaded to choose London as a destination. its secondary listing.
On that occasion, however, the FCA faced heavy criticism from asset managers in the UK and no doubt the same would have happened if there was any sense that Shein was getting special treatment.
A difficult inspection ahead
Shein’s activities, including its supply chain, would also come under intense scrutiny if it were to list in the UK.
A group of leading fund managers is said to be getting cold feet about backing a flotation, while the UK Sustainable Investment and Finance Association (UKSIF), the membership body for sustainable and responsible finance in the UK, told the Mail on Sunday last month it did not want one. London will become “the place of last resort for companies with poor human rights records”.
Shein takes the concerns of UK politicians and regulators seriously. As Sky’s Mark Kleinman reported, as well as the chancellor, Mr Tang met with a number of dignitaries Work politicians including Jonathan Reynolds, the shadow business secretary, in recent months.
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And anyone who thinks the UK is a soft touch for Chinese businesses should ask Huawei, the telecommunications equipment maker UK 5G rollout bannedwhat do you think about it
However, there is no doubt that London would be a more hospitable dating environment for Shein than New York.
This is largely a reflection of the fact that the US is now a positively hostile environment for Chinese companies.
Back in May 2020, the US Congress passed a law – written by both Republican and Democratic senators – that gave the Securities and Exchange Commission (SEC), America’s top financial regulator, the power to delist Chinese companies from US exchanges if US regulators were not allowed to review audits of those companies after for a period of three consecutive years.
China finally, two years later, they were looking for accommodation with the law.
But by then, there was another painful episode that poisoned the minds of American investors towards Chinese enterprises.
In July 2021, Wall Street had rolled out the red carpet for Didi Global, a ride-hailing app often described as China’s version of Uber, in the largest U.S. initial public offering by a Chinese company from Alibaba seven years earlier.
Just days later, China launched a crackdown on its technology sectorwhich sent shares of Chinese technology companies plunging.
Most of the damage was done on the Shanghai and Hong Kong exchanges, but in New York Didi Global shares fell 42% below the company’s IPO price. Didi Global delisted from the New York Stock Exchange in June of the following year.
Watch out for New York
With that back story, it’s understandable why Shein — whose annual profits are set to more than double to more than $2 billion by 2023 — would be wary of listing in New York.
The Biden administration has been no less hawkish on China than the Trump administration before it — as shown by the president’s recent threat to ban TikTok in the US unless its Chinese parent ByteDance sells the business within a year.
Mr. Tang, an American citizen who moved from Los Angeles to Washington last year to lobby Shein more effectively, also knows that listing in New York could anger the authorities in Beijing.
The US has banned imports from Xinjiang province, where authorities have been accused of repression Uighur ethnic groups and the use of forced labor, which China denies.
More transparency?
But the US listing could force Shein to provide details of its supply chain and, in particular, to provide evidence that it does not use cotton from Xinjiang – something that, if made public, would not find favor with Beijing.
Not that London is necessarily any less demanding when it comes to the revelations it demands from Shein. The company already publishes a Modern Slavery Statement on its UK website, in accordance with the UK Modern Slavery Act, which sets out its expectations of labor practices among its suppliers and manufacturers.
But British politicians want more than that.
The three chairmen of the select committee – Liam Byrne from the trade committee, Alicia Kearns from the foreign affairs committee and Sarah Champion from the international development committee – said the IPO should not go ahead while parliament is dissolved.
Why London is more attractive
However, there are some very positive reasons why listing in London would be more attractive to Shein than New York.
Europe is already home to two of the world’s largest listed fashion retailers – Zara’s Madrid-listed parent company Inditex, which is worth €135bn (£115bn) and Stockholm-listed H&M, which has a market value of SKr263bn (20bn GBP). ), which are both types of companies that Shein considers equivalent.
As Europe’s largest stock market, the UK would be an obvious listing destination for Shein under these circumstances. London is also home to two online fashion retailers – £445m Asos and £444m Boohoo – whose business models are similar to Shein’s. A Chinese company could therefore list in London knowing that the analyst community has a reasonable understanding of businesses such as its own.
Is it worth the risk?
Perhaps the bigger question, given the questions that refuse to go away about Shein’s business practices, is whether playing host to the company is worth the risk for London.
Other European countries would also like to see Shein listed in their market.
Paris, despite France recently introducing legislation to punish suppliers of disposable fashion, lobbied for Shein to be listed there.
That’s another reason why Mr Hunt clearly thinks the Shein IPO is a prize worth chasing.
At the end of the day, however, it will be the UK asset managers who make the decisions.