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Shein IPO: what to know

Fast fashion giant Shein is purportedly planning to launch its Initial Public Offering in London later this year. Here's the key details.

lse ipo Source: Getty

A London launch would be the second-largest Initial Public Offering (IPO) in the city’s corporate history. Here’s everything you need to know.

When could the Shein IPO take place?

Sky News were first to break the story. Citing city sources, the broadcaster noted that ‘the confidential filing (of a prospectus) could take place as soon as the coming week, although it could yet take place later this month.’

Of course, filing a prospectus with the FCA does not mean a London listing will happen, as there are plenty of regulatory hurdles to overcome — including the gauntlet of listing authorities approvals and fund manager meetings. However, it is a significant step and arguably makes an IPO fairly likely.

Based on typical timelines, a summer or perhaps early autumn debut seems very possible. Morgan Stanley, JP Morgan and Goldman Sachs are advising on the deal.

What will Shein be valued at and what will the share price be?

Shein was valued at $66 billion in its latest funding round, though this was early last year, so this figure may be out of date. For context, it was valued at more than $100 billion in 2022, more than both H&M and Inditex (Zara owner) combined. Arguably, these two titans of fashion are Shein’s main competitors.

Many analysts consider that the company would command an initial market capitalisation of circa £50 billion, raising over £1 billion from the sale of new shares. The share price would depend on the total number of shares floated, but Shein may want to match H&M which is currently trading for circa $17 per share.

It’s worth noting that even with deals this size, underwriters can and do under or overprice an IPO as they seek to balance raising capital with ensuring all shares sell quickly. Post-launch, investors tend to experience significant volatility as price discovery continues until a settled valuation is found — indeed, some investment banks can deliberately underprice an IPO to ensure a strong first few days of trading.

A significant component of IPO volatility is that private companies usually value themselves on pure fundamentals, while public companies are also exposed to factors including sentiment, reputation and publicity. You also need to consider any lock-up periods on sizeable insider or major shareholder stock, and how the company might respond once this period ends.

It’s important to consider your risk management strategy, and how it may be modified around IPO launches.

What is Shein’s business model?

Shein is a fast fashion business founded in China, but headquartered in Singapore. It owns Missguided among other brands and is focused on fast-changing trends at low prices. It invests heavily in customer data analysis to pivot towards what’s popular at any one time and has a vast network of suppliers across China to produce the clothes quickly and cheaply.

By cutting out the middlemen and also marketing the business through social media more than traditional advertising, Shein is able to reach the mass market while charging less than many competitors. In particular, it works with micro-influencers on platforms like TikTok who are better able to resonate with younger audiences.

There are two further significant factors to consider: the company reduces waste by producing new clothing designs in small batches to start with, and then scaling up should they prove to be popular. It also has a global reach, operating in more than 150 countries with more than 150 million customers.

Perhaps the key takeaway is that the business model is uniquely designed to be cheap, large-scale, effective and profitable.

Shein ESG concerns

Shein has been accused of using cotton from the Xinjiang region of China, where evidence suggests Uyghur Muslims are forced to pick the material. The region accounts for 20% of global cotton production and 80% of China’s domestic production. Shein has also faced allegations that its factory workers suffer excessively long hours for low wages and often in unsafe conditions.

Critics note that Shein is fairly guarded about its supply chain, though you could argue there are good corporate reasons for this.

Environmentally, fast fashion in general contributes to energy wastage, textile rubbish and water pollution. And on the governance front, Shein has also been accused of copyright infringement, in particular of smaller companies which lack the financial firepower to hold the company to account.

Of course, many of these concerns could also be laid at the feet of Shein’s competitors, but the IPO will doubtless be a controversial affair.

Importance of a Shein IPO to London

The past couple of years have not been kind to London. Not only has there been a dearth of Initial Public Offerings, but many larger companies believing they can command higher valuations elsewhere, have left or are considering leaving the FTSE.

Flutter, CRH, Indivior, Shell and TUI are the household names, as is ARM, which was once dual-listed and has now chosen to be only in New York.

But it’s not just the FTSE 100 — many mid-caps like Curry’s, Direct Line and Hotel Chocolat are facing continued private equity bids — and the small cap market on AIM is also dealing with a delistings crisis as loss-making growth companies struggle to access capital on fair terms.

This is a problem because a healthy stock market is imperative to financial services, which accounts for 10% of the UK’s GDP, generating some £90 billion a year in tax.

Accordingly, a blockbuster IPO like Shein would be a coup for London and could potentially reinvigorate the market. For context, this would be one of London’s largest ever launches, second only to Glencore.

The company had reportedly targeted a New York listing but struggled with political opposition and tepid regulators. However, Executive Chairman Donald Tang met Jeremy Hunt and LSEG executives earlier this year — and has also talked extensively with frontbench Labour politicians including shadow business secretary Jonathan Reynolds. It’s even approached former Chancellor Sajid Javid about a potential role.

In other IPO news, personal computer maker Raspberry Pi, pharmacist Boots and digital bank Monzo could all be listing in London later this year.

The IPO market may be finally waking up.

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