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Shein might not shine in London

Financial Communications
capital markets

Online fashion retailer Shein has been intensifying its preparations for an attempted listing on the London Stock Exchange, it what would be one of the biggest to hit the Capital in well over a decade.

The fact talks are happening during an election campaign is adding to the intensity, with all political factions pushing to ensure the company picks London and shows global investors that the UK is open for business.

But as the potential £51.7bn IPO swings into view, a quiet backlash is growing pace, with the media keen to whip up a conflict.

The question now remains – can Shein hold its nerve and will its charm offensive with politicians and the media pay off after years of poor performing UK IPOs led to ridiculing from journalists and caution from investors.

Currently, Shein’s management seem undeterred and to the casual observer London would be the natural choice, especially since a New York listing was ruled out due to deteriorating China and US relations.

The Chinese fast-fashion business which is headquartered in Singapore, would automatically join the London Stock Exchange inside the FTSE 100, and in the top ten biggest companies, in the largest IPO since Swiss commodity trading and mining company Glencore joined in 2011.

Shein began a meteoric rise during the early stages of the Covid 19 pandemic, with consumers becoming fascinated by influencers posting their “cheap” clothes hauls on social media platforms such as TikTok and Instagram.

But despite delivering $2bn (£1.6bn) of profits for 2023, the listing of the controversial company in London has been met with concern from top UK fund managers and institutional investors.

The Financial Times reported that some institutional investors would stay away from investing due to the alleged use of forced labour in Shein’s cotton supply from Xinjiang.

With the company already failing to successfully meet New York’s requirements, arguments have been made that this listing could make the UK market look desperate, and therefore leaving the London Stock exchange at risk of “collateral brand damage”.

However, others have been quick to counter this argument, taking the view that a company like Shein is pivotal for the UK stock market, following huge losses such as Arm, a jewel of Britain’s technology industry, who chose the US as their main market for listing in 2023.

The potential appetite for this disputed stock is also expected to subside because it has been pointed out that embedded demand already exists in the shares due to the large number of index funds invested in the FTSE 100.

From the perspective of more active investors, it’s important to note that not all will prioritise ESG considerations. Many may focus on the headline figure of $2bn of profits rather than the alleged labour issues in Xinjiang.

Barry Norris, fund manager at Argonaut Capital supported this sentiment, by comparing the IPO of Shein to “our homegrown Boohoo”, conveying that “fast fashion is a rough-and-ready industry”.

Of greater concern is whether the company and its brokers can set realistic forecasts and valuations.

Markets are built on trust and a sense of uncertainty remains, especially when looking at recent poorly performing IPOs from The Hut Group (THG) and Deliveroo.

The chaotic circumstances experienced by these two firms have played out in full view of the markets, causing investors to reconsider investing in companies listed on the London Stock Exchange. Shein’s advisors will be wanting to avoid a similar fate.

So far, they seem to realise there is work to do.

Shein's executive chairman Donald Tang, has taken a charm offensive approach, meeting with both Chancellor Jeremy Hunt and Jonathan Reynolds, the shadow business secretary, in recent months to discuss the possibility of floating in London.

Both Labour and the Conservatives have expressed their desire to welcome Shein with open arms.

A strong non-executive board of former politicians and City grandees is also expected to go some way to keeping investors sweet and the City regulator, the Financial Conduct Authority, looks likely to approve any listing.

So, whilst the listing may get off the ground without a hitch, it is worth remembering that politicians can be a fickle bunch and, for all the welcoming words today, the next Government may well think again about the merits of having a company with so many governance questions still hanging over them.

If Shein is to face any difficulties with a London listing, it will come after it joins the FTSE 100 with the extra scrutiny that accompanies being a public company.

That could be where the pressure on politicians to clamp down grows. But whether that will impact consumer appetite for cheap fast-fashion remains to be seen.