Fund managers give cool reception to prospect of Shein London IPO

UK fund managers have warned that investors will “struggle to support” fashion company Shein’s potential blockbuster flotation in London over concerns about its alleged treatment of workers.

The online fashion group, which was valued at $66bn in its last funding round, is seeking to list on the London Stock Exchange — a possible boost for the City following a dearth of large initial public offerings in recent years.

But top UK institutional investors have said controversy over Shein’s alleged use of forced labour would deter them from investing. Human rights groups have claimed ethnic minorities are being subjected to forced labour in Shein’s cotton supply from Xinjiang, which Shein has denied.

“It’s a tricky one,” said one UK fund manager. “I don’t think anyone with an ESG [environmental, social and governance] team will be able to buy it. It smacks of desperation for the London Stock Exchange — they’ll take anything.”

He said the risk for the LSE was “collateral brand damage”.

Richard Buxton, a former long-standing UK equity fund manager, told the Financial Times: “Whilst the LSE may be rejoicing at attracting such a large listing, I suspect that the uncertainties about ESG and other hygiene factors will mean many UK asset managers will struggle to support this IPO.”

Referring to the UK retail chain, he added: “Would I sell my Next to invest in Shein? No.”

However, other investors said listings such as Shein were crucial for the future of the exchange, which has been losing companies to rivals in the US as they seek higher valuations. Relatively cheap UK-listed companies are also attractive to foreign investors as takeover targets: on Wednesday, Wood Group said it would enter into discussions with Dubai-based Sidara, which could lead to the Aberdeen-based engineering company losing its London listing.

Barry Norris, fund manager at Argonaut Capital, said: “Investors can make up their own mind. Not everyone is an ESG fanatic and as we have seen with our homegrown Boohoo, fast fashion is a rough-and-ready industry.”

Many asset managers have their own ESG standards, which they use as a framework for selecting — or rejecting — certain stocks. The UK’s Financial Conduct Authority also has listing rules that set a standard for companies seeking to float.

Although Shein was founded in China and sources most of its suppliers there, it is headquartered in Singapore and does not sell its products in China. Shein delivered $2bn of profits for 2023. By comparison Inditex, owner of rival Zara, this week reported operating income of €1.6bn ($1.7bn) in the three months to April 30.

Gabriel Caillaux, co-president of General Atlantic, an investor in Shein, said the company could be a catalyst for galvanising the global IPO market.

“We need the [IPO] market to reopen,” Caillaux said. “Whether it’s a company of the quality of Shein, they have the kind of global model, scale, growth, profitability, that’s the kind of company that might reopen the market but we need these IPO markets to function again.”

Shein had planned to list in the US and filed preparatory paperwork with regulators just over six months ago, but this has stalled due to concerns about Shein’s ties to Beijing. China’s securities regulator has not yet given its approval for an IPO in the US, and it remains unclear whether the China Securities Regulatory Commission would approve a UK float.

Another investor said: “Given the corporate governance . . . issues, a Shein IPO could clearly have negative reputational impact on the UK market.”

James Alexander, chief executive of the UK Sustainable Investment and Finance Association trade body, said: “The notion that certain companies with particularly poor human rights practices and sustainability credentials could choose London as a listings destination will not help to make us more competitive in the long run.”

The LSE declined to comment.

A Shein spokesperson said the company had a zero-tolerance policy for forced labour and that it wanted to be held to the highest standards. “We take visibility across our entire supply chain seriously and we are committed to respecting human rights,” the person said.