How Shein’s US IPO plans got derailed by China rift
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If a London listing does not pan out, the company could turn to Hong Kong or Singapore.
PHOTO: REUTERS
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New York - US investors appear to be on the verge of losing out on Shein’s potentially huge initial public offering (IPO)
1. How did Shein become controversial?
Shein’s roots in China played a big role in its initial success, but in some ways they have come back to bite it. Founded in 2008, the e-commerce pioneer gained attention in 2021 as it became the most downloaded shopping app in the United States, overtaking Amazon. The company managed to more than triple its sales during the Covid-19 pandemic, to a staggering US$10 billion (S$13.6 billion) in 2020, making it the biggest web-only fashion brand in the world.
Its runaway success has been attributed to its prowess with data, favourable tax treatment for small packages and, more controversially, to its vast network of contract manufacturers that pump out thousands of youth-friendly styles daily at ultra-low prices. Critics and rivals have assailed the company over concerns about the environmental impact of disposable fashion, pay and working conditions for those assembling garments, anti-competitive behaviour and even evidence that some cotton in its clothing was made with forced labour.
A Bloomberg News study in 2022 found that garments shipped to the US by Shein were made with cotton from China’s Xinjiang region, where the US State Department has alleged human rights abuses against the Uighur people, which China denies. A statement from a company spokesperson said that Shein has a zero-tolerance policy for forced labour and requires its contract manufacturers to source cotton only from approved regions.
2. How did US scrutiny affect any potential US IPO?
A potential US IPO had been a lightning rod for politicians such as Senator Marco Rubio. The Florida Republican asked the Securities and Exchange Commission (SEC) in a February letter to consider blocking a Shein listing, following reports that the company had approached Chinese regulators for permission. Mr Rubio said the company needed to disclose more about its operations in China, despite having moved its headquarters to Singapore.
In April, he sent a letter to the Homeland Security Department secretary calling for an investigation into Shein and Temu, a rival e-commerce company backed by China’s PDD Holdings, over their alleged use of slave labour.
Enter Britain, whose IPO market could use a boost – especially one the size of Shein’s, should it achieve the US$50 billion valuation seen in private trades. Bloomberg News reported on June 3 that the company was considering filing a draft prospectus that week. It may seek a valuation of around £50 billion (S$86 billion), the report said. Shein’s preparations do not mean an offering is imminent, said the report, and the share sale is unlikely to start before the summer.
A Shein IPO in London is a potential subject for British politicians as campaigns intensify in the run-up to the country’s election on July 4. Finance minister Jeremy Hunt met Shein in February as part of efforts by British regulators and government officials to encourage the firm to choose London, and the company has also met Labour’s shadow business secretary Jonathan Reynolds several times in 2024, Bloomberg reported.
If the listing goes ahead as envisaged, it would give a huge boost to Britain’s capital market, which has been trying to rebuild its reputation as a listing venue.
3. What about other Chinese IPO plans in the US?
Executives of Chinese companies remember when things were different. Alibaba Group Holding’s US$25 billion New York listing in 2014 was the largest-ever at the time, and numerous start-ups from the country were drawn to the large, liquid US market that did not require they turn a profit in order to go public.
The decline in relations between the US and China found its analogue in 2021, when Beijing opened a cyber-security probe into Didi just days after its US$4.4 billion US listing, over concerns about foreigners gaining access to data with implications for national security.
The ride-hailing company’s fall, and eventual delisting, heralded a series of crackdowns on the country’s technology sector that effectively halted sizeable Chinese IPOs in the US. About 1½ years later, the stance has softened, and regulators have toned down the rhetoric about curbs on overseas listings, so long as the firms meet requirements regarding the use of personal data and state secrets.
For example, Chinese regulators in April said they would support overseas listing of tech firms and approved a US listing for an autonomous driving start-up, Pony.ai.
Despite the softening stance, new Chinese IPOs remain for the most part small and rare. No single Chinese issuer raised more than US$200 million in the US in 2023, a far cry from 2021 when a dozen companies each raised more than that figure.
The situation in 2024 is looking a little better, starting with several non-conventional listings. Those have included Lotus Technology, an electric-vehicle unit of China’s Zhejiang Geely Holding Group. Lotus went public in February in New York through a merger with a blank-cheque vehicle.
Amer Sports raised US$1.37 billion in February, but it was an outlier. Even though the maker of Wilson tennis rackets, Salomon ski boots and Arc’teryx outdoor gear is majority-owned by a Chinese-led consortium, its roots and much of its current operations are focused in Europe and the US, making it less sensitive from a regulatory perspective.
In May, Zeekr Intelligent Technology Holding, the high-end electric car brand under Geely, raised US$441 million, marking the biggest US listing by a China-based company since 2021.
4. Will things go back to how they were any time soon?
That is unlikely, considering all the tension even for companies that are not receiving scrutiny from members of the US Congress.
The SEC has expressed concerns about the quality of Chinese firms’ risk disclosures and continues to demand more of those to protect investors. New guidance on the issue was released in July 2023. At the same time, Chinese companies are coming under pressure from domestic regulators about so-called “risk factors” warning language in their US IPO prospectuses.
As part of new overseas listing rules introduced in 2021, Beijing prohibits investment banks from including comments that misrepresent or disparage China’s laws and policies, or the business environment and judicial situation of the state, the Financial Times reported in January.
If US and Chinese regulators cannot find a characterisation of the risks of investing in Chinese companies that they can agree on, there is little chance of the once-mighty China-to-US IPO pipeline reopening.
5. Shein’s other options
Shein and other companies caught in the China-US tussle – including ByteDance, whose TikTok app faces a ban in the US unless it is sold to a non-Chinese company – have options. None of those options is quite as appealing as a spot on the New York Stock Exchange or Nasdaq.
Hong Kong would make a better alternative for Shein than London, some investors say, given comparable Chinese peers with huge e-commerce footprints such as Alibaba and Tencent Holdings. However, Shein has been trying to play down its China connection, and a Hong Kong listing would run counter to that goal.
If a London listing does not pan out, the company could turn to Singapore, whose IPO market is in even worse shape than London’s. Any venue shift would require Shein to submit a new application with Chinese regulators, who would ask for additional materials and clarifications. BLOOMBERG
