Shein's Potential London IPO Could Revitalize LSE Amid Geopolitical Tensions

Shein, the Chinese fast fashion giant, may list on the London Stock Exchange, aiming to invigorate the UK market after US-China geopolitical tensions hindered its NYSE plans.

Shein Shifts IPO Plans to London Amid US-China Tensions, Raising Hopes for LSE's Revival

In a recent report by Morningstar, the Singapore-domiciled company initially sought a listing on the New York Stock Exchange, but this fell through due to rising tensions between the United States and China. Shein has now switched attention to London, potentially ending the LSE's IPO drought and introducing a $60 billion-plus stock to the FTSE.

According to David Swartz, a senior equity analyst at Morningstar, the New York Stock Exchange may be interested in listing Shein due to its significant size. Pitchbook Data estimates Shein's value at $66 billion as of May 2023¹.

However, geopolitical conflicts have proven too difficult to overcome.

"There is just a huge amount of animosity between the US and China recently on trade," he stated.

Swartz also brings up the controversy surrounding Shein's use of cotton from China's Xinjiang area, where the Chinese government is supposedly forcing the Muslim minority Uyghur population to work in labor camps.

"There's also issues with the way that Shein gets around tariffs. So, in the US shipments below $800 are not subject to them. And so, this allows Shein to get around the rule because they ship directly to the American consumer," he added.

"But Shein would be a large IPO in the apparel industry. There aren't that many apparel companies in the world with valuations that large. Yet Shein is stuck in the middle of greater geopolitical forces."

Dan Coatsworth, an investment analyst at AJ Bell, highlights the ESG concerns involved with the float.

"The key negative is that Shein comes with more baggage than a celebrity takes on holiday. Questions continue to be asked about its corporate governance standards, working conditions, supply chain, and accusations of intellectual property theft," he said.

The float is likely to elicit mixed reactions on the exchange and in the UK government, which has recently tightened regulations on foreign companies from sensitive countries such as China listing in London. For example, Huawei, a Chinese telecom company, has been barred from the UK's 5G network.

"Shein wants to be seen as a global player, not simply a Chinese firm flogging cheap togs overseas. It will have to do things the right way and become a good corporate citizen to support this ambition, so it's on a learning journey. London Stock Exchange will publicly welcome the company with open arms but behind closed doors, it will no doubt be hoping Shein has no skeletons in its closet," Coatsworth added.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, agrees with the ethical problems that the IPO would raise:

"While this would be a boost for the City, it is likely to present deep ethical issues for investors to navigate. Shein has come under significant criticism for its enormous volumes of cheap clothes, the lack of transparency in its supply chain, and its appropriation of other designers' work. Given these concerns, investors may be worried about putting ESG on their priority list if the firm does list in London.”

Shein's $66 Billion Valuation Could Propel It to Top of FTSE 100, Pending IPO Details

PitchBook, a Morningstar business, estimated Shein's worth at $66 billion (£52 billion) in May 2023. Surprisingly, this would make the corporation the 12th largest in the FTSE 100, surpassing the London Stock Exchange. However, given we do not yet have the prospectus, this is just a supposition. Here are some considerations.

• A lot depends on the "free float" and how many shares are available to buy at IPO. Arm Holdings' free float is just 10% of the company
• FTSE Russell reshuffles its indices every quarter, including the FTSE 100, so the following window is likely to be September for a promotion
• Will Shein opt for a premium listing with higher regulatory hurdles or a standard listing?
• The company's value could be even higher than in 2023, especially if there is hype around the float

Shein's IPO Could Bolster LSE Amid Competitors' Nasdaq Success and London's High-Profile Delistings

An IPO of Shein's scale would be welcome, as it has lost ground to its more prominent and liquid competitors, the NYSE and the Nasdaq.

Cambridge-based chip manufacturer Arm Holdings shunned London in favor of a better Nasdaq valuation, and the company has subsequently succeeded, with shares up over 60% this year.

Flutter, a betting startup, has recently shifted its central London listing to New York. At the same time, Darktrace, a cyber security powerhouse set to go public in London in 2021, has accepted a US private equity deal. BHP's proposed takeover of Anglo American might cause the London-listed miner to exit the FTSE 100, while diamond manufacturer De Beers could be listed on the LSE.

Investors may be wary of London's recent high-profile IPOs: Deliveroo (ROO) has a long way to go before reaching its stratospheric IPO price. Darktrace shares were erratic before the business was acquired. Wise (WISE), a currency and transfer specialist, had London's most prominent tech float in 2021, but shares are trading at just under 800p. At current pricing, the stock is worth £8 billion; therefore, Shein's estimated value of £50 billion dwarfs that.

"Obviously it is quite good for the London market regardless of what you think about fast fashion, it is a giant company, and it could be one of the largest stocks if it's on the FTSE 100," Kathleen Brooks, research director at XTB UK, stated.

"We have had some other delistings, so it is always good to get somebody on and to have that flow coming in. But we cannot forget that they are having quite some outflow."

According to Chris Beauchamp, chief market analyst in the UK and head of market analysis at IG Group, the news demonstrates that Britain is still open for business and that corporations can access liquidity outside of Manhattan.

"It certainly helps to diversify the index. We talk about the FTSE 100 as being banks and miners. It would help to diversify the index a bit more and to get something of what I might call the new economy into it rather than an index mostly dominated by old-fashioned stocks.”

"It adds a bit more and certainly a bit more glamour to the London stock market."

Shein Joins Trend of Chinese Firms Listing Abroad Amid Political, and Economic Instability in China

According to XTB's Brooks, Shein is following a trend of more giant Chinese corporations listing outside China in response to political and economic instability in the Asian behemoth.

She also observes that the fast fashion brand's leadership is becoming more reserved, moving away from becoming larger-than-life figures like Jack Ma, co-founder of the Alibaba Group, who was later caught up in China's regulatory crackdown on technology behemoths in 2020 and 2021 and disappeared for one month. Ant Group's IPO, which was spun off from Alibaba, was halted in 2020 due to Chinese government intervention.

"They are not commenting, we have not seen any extensive interviews. There does not seem to be any one person behind it to avoid scrutiny from Beijing.”

Although tensions between the US and China have impacted Shein's plans to list in New York, Brooks believes President Joe Biden's recent tariffs package against China will not affect it.

"US officials now seem very focused on technology and EVs, not clothing. Now is probably a good time for them to list before they could be targeted," she said.

Photo: Shein/YouTube Screenshot