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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
“You ain’t a beauty, but hey you’re alright,” sings Bruce Springsteen in his 1975 anthem Thunder Road. “Oh, and that’s alright with me.”
This iconic tune from New Jersey’s unofficial poet laureate sprang to mind after news broke yesterday that fast fashion titan Shein was thinking of ditching New York for London for its IPO splash amid resistance from the US Securities and Exchange Commission.
As Bloomberg reports:
Fast-fashion company Shein is considering the possibility of switching its initial public offering to London from New York because of hurdles to the listing in the US, according to people with knowledge of the matter.
Shein, which was founded in China but is now headquartered in Singapore, is in the early stages of exploring the London option as it has judged it unlikely that the US Securities and Exchange Commission will approve its IPO, the people said, asking not to be identified discussing confidential information…
A listing in London would be a potential boon to the beleaguered market, after one of the worst years for IPOs in its modern history…..
The UK is also struggling to stem an exodus of firms to the US and elsewhere. Chip designer Arm Holdings Plc spurned London for a New York IPO last year, even after the UK government lobbied for a domestic listing by the Cambridge, England-based company.
The news report raises the possibility that London could land Shein’s superjumbo IPO. Estimates swirl around, but it’s plausible for the flotation to rake in $5-10bn, making it conceivably the second-largest ever on the London Stock Exchange.
And the UK is pulling out all the stops, with Sky News reporting that Chancellor Jeremy Hunt had met with Shein’s chair Donald Tang to push for a London debut.
These reports have the heft and weight of a trial balloon. Is floating a London float a way of pressuring the SEC or a real option on the table? Does the UK have a chance or is it setting itself up for another embarrassment, as happened when it rejigged its listing rules in 2018 in a forlorn attempt to lure Saudi Aramco? And is this even a good idea?
But first things first: Shein must secure permission to list abroad. New rules require sign-off from Chinese regulators for overseas listings for companies primarily operating in China. Although Shein moved its domicile to Singapore and doesn’t sell into China, it has thousands of employees there and relies on a network of suppliers on the mainland. So as a “courtesy” Shein has sought clearance from Chinese securities and cyberdata watchdog, and that process seems to be dragging on.
The next hurdle involves the SEC. Shein filed its registration statement confidentially in November, but the review was always going to be a tough ride: the SEC is all over China-related risks like a hawk, demanding more disclosure around the risks of doing business in China, including governmental intervention as well as possible breaches of Uyghur Forced Labor Protection Act. Like the Chinese Security Regulatory Commission, the SEC presumably thinks Shein has enough nexus to China to warrant the full cavity search.
The US doesn’t seem like a welcoming venue. Senator Marco Rubio has branded Shein a “China-based issuer” and demanded enhanced scrutiny from the SEC. Even once listed, the risk of class-action lawsuits beckons, as does the penchant for using any justification to apply US law extraterritorially.
By contrast, the UK must seem like a haven. London’s disclosure standards are just as strict as those of the US, but the approval process offers a clearer path, even if it is genuinely arduous. There are mandated turnaround times for the FCA’s prospectus review, and UK regulators are more accustomed to dealing with foreign companies. It may be hell for a while, but at least you won’t be in permanent purgatory.
Moreover, the political backdrop differs starkly. US regulators have nothing to gain from accommodating Shein, lest they be accused of going soft on China. By contrast, reeling from the recent loss of listings, the City and its political supporters are minded to champion the blockbuster IPO of this behemoth.
London also has the heft and reach to handle a company of Shein’s size. After all, the biggest fast fashion company in the world — Inditex, the owner of Zara — has a market capitalisation of nearly $140bn, and its stock trades on a much smaller exchange (Madrid). Moreover, once it reaches 25 per cent free float, Shein (as a foreign company) would qualify for FTSE index membership whereas it wouldn’t likely make it into the S&P 500.
At one level, one can understand the UK government’s wish to snatch listing victory from the jaws of the NYSE. But the path remains tricky because perception matters.
The main challenge is that it’s not confidential that Shein filed a registration statement confidentially with the SEC. The news was widely reported. As a result, it is no secret that any other exchange will have been the second (or third!) choice.
It is not only that London would be the fallback option but also the narrative around why. Let’s assume Shein decides to list on the LSE. Will the market believe that Shein picked London as a sort of sanctuary exchange to sidestep Sino-US political tensions? Or because the UK promised to bend the rules and make things easy in a bid to restore the City’s lustre as an equity market?
The former explanation evokes London’s prized role as a kind of all-purpose entrepot financial centre at the crossroads of global capital flows. The latter narrative reeks of post-Brexit desperation and gives investors leverage to lowball valuation on the IPO.
Regardless, it wouldn’t be a great look for Shein to be rejected by the US and to have to resort to a second-choice listing exchange. But if it’s going to be the “rebound” venue, London can’t be an easy catch. It will need to assert its merits and hold Shein to the highest standards. There’s a fine line between pitching for business and prostrating for it.
