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Online fast-fashion giant Shein, which has gone to great lengths to separate itself from its Chinese roots, has now found itself having to return to Beijing to seek authorities’ tacit approval for its blockbuster overseas initial public offering plan.
In recent weeks senior executives of the company, valued at more than $60bn in its most recent private fundraising, have been holding discussions with regulators in the Chinese capital to get their blessing for an imminent listing in New York, according to multiple people briefed on the talks.
The regulatory situation is unclear, given Shein’s unique status as a start-up that originated in China with a Chinese founder but has moved its headquarters to Singapore and does not generate any revenue in the country of its birth.
Shein, which is profitable and targeting revenues of nearly $60bn this year, approached the Cyberspace Administration of China and China Securities Regulatory Commission despite not formally requiring their approval, the people said. The CAC and CSRC did not respond to a request for comment.
Shein still employs thousands of people in China, including designers and supply chain managers, and outsources manufacturing to factories in the southern province of Guangdong. Yet it is not available to China’s online shoppers and therefore does not hold any domestic consumer data. The decision not to sell in China was made to avoid Beijing’s regulatory scrutiny and because of intense competition in the domestic ecommerce market, according to company insiders.
Even so, “Shein felt they had to ask the CSRC for approval”, said one company adviser, adding: “You can’t piss off regulators in China.” One investor said the company made the gesture as a “courtesy” to Beijing.
Shein told the Financial Times it disputed the “accuracy of any statements and speculation” from “company advisers” and “third-party sources”.
The company’s caution in consulting the authorities arises from Beijing’s response to the $4.4bn IPO of ride-hailing provider Didi. Under pressure from its US investors, Didi pushed ahead with a New York listing in 2021, despite private warnings in advance by Chinese regulators to delay the share sale.
Days after the IPO, the CAC announced that Didi was barred from signing up new users and launched a cyber security investigation into the company. Didi’s losses mounted as a result and shareholders voted a year later to delist the company, which had lost 90 per cent of its value since the IPO.
Three people close to Shein, including two investors and an adviser, expressed confidence that the CAC and CSRC would give their consent for Shein to list in the US.
However, another person cautioned the process was taking longer than expected because there was no precedent or clear regulation for the overseas listing of a company with as big an operation as Shein’s but with no customers in China.
Shein filed a confidential preliminary prospectus with regulators in November and is expected to be the most valuable company to go public in the US since Uber in 2019.
Its listing would also be a test of how global banks warn about the potential risks of investing in companies that have operations in China. The US Securities and Exchange Commission last year called for “more specific and prominent disclosure” in listing prospectus documents of risks related to China’s government. But Beijing last year banned banks from making comments that “disparage” the country. Wall Street banks have toned down the warnings they include in some Hong Kong filings.
The prospective IPO also comes as Beijing is courting foreign investors, trying to restore confidence by downplaying regulatory risks and stepping up stimulus measures.
“Everyone is watching the Shein IPO. If they can list on Nasdaq, then it’s possible other big Chinese companies can, too. It means the pipeline is open again,” said one Beijing-based venture capitalist.
The investor added that a Shein listing would help restore confidence in tech start-ups that were starved of capital during the pandemic and suffered from Beijing’s tech crackdown and rising geopolitical tensions, which have sent foreign capital fleeing from the sector.
“It’s still unclear if any big tech companies will be allowed to go public in the US,” they said, noting that recent IPOs of Chinese companies there have been relatively small. They include listings at the start of last year of Chinese lidar maker Hesai, which raised $190mn, and online education group QuantaSing, raising $40mn.
Car insurance tech group CheChe raised $22mn on the Nasdaq in September, in one of the first overseas listings of a mainland Chinese company since the CSRC implemented new rules on foreign share issuance in March.
CheChe chief Zhang Lei said Beijing had formalised the process for companies listing overseas, which afforded “very strong protection” for the more than 250 Chinese groups listed on the Nasdaq and New York stock exchanges.
Zhang explained that CheChe, which listed through a special-purpose acquisition company, first had to undergo a data security review with the CAC to inspect how the group handled “sensitive data” such as biometric information relating to facial recognition or fingerprints.
The CAC “wants to see what data you have and how you manage it”, said Zhang. From submitting to the CSRC to approval, the process took about four months, he said.
China tech investors are hoping that the crop of smaller Chinese companies going public and the Shein listing will pave the way for the long-awaited listings of TikTok owner ByteDance and fintech group Ant.
“Any delay to Shein’s IPO is a negative signal for ByteDance and any 2024 IPO possibilities,” said one US tech investor with stakes in the TikTok owner and Shein.
Additional reporting by Mercedes Ruehl in Singapore
