Shein would lose all its shine in a Hong Kong IPO

Samsonite SA

02/07/2024 02:26

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Una Galani
       MUMBAI, July 2 (Reuters Breakingviews) - As geopolitics
deteriorate, capital is becoming less global. For fast-fashion
giant Shein, it means the destination for its initial public
offering will make a big difference to its fortunes.
     The online retailer will debut in Hong Kong if its plan to
list in London at a 50-billion-pound ($63 billion) valuation
falls apart, the Financial Times reported on Friday, citing five
people familiar with the situation. The company has given up on
New York and is encountering rising scrutiny in the UK because
of its Chinese roots and supply chain, as well as its
contribution to fashion waste. But there are major downsides to
its Plan C. 
 An IPO in the Chinese territory would slash the valuation Shein
can secure, because there would be less demand for it. U.S.
funds, such as the $857 billion Federal Retirement Thrift
Investment Board, are shunning Hong Kong stocks on fears
Washington may tighten investment restrictions.
    Nor would Shein have any peers in Hong Kong to benchmark
itself against; rivals including Zara-owner Inditex  ITX.MC ,
Amazon  AMZN.O , and even Temu - via its Chinese parent
Pinduoduo  PDD.O  - trade on Western bourses, not Asian ones. 
    Worst of all, a Hong Kong listing might leave Shein as a
large orphan stock in the city with inadequate equity research
coverage. Analysts in the Asian hub may not understand the
competitive nuances of fast-fashion in the United States,
Shein’s most important market where it competes against Amazon.
Other global companies traded in the Asian hub, like L'Occitane
 0973.HK  and Samsonite  1910.HK , want to leave the bourse, or
are planning back-up listings elsewhere. 
    Finally, opting to go public in Hong Kong will bolster the
perception that Shein is a Chinese company ripe for Western
scrutiny. The company chaired by Donald Tang moved its
headquarters to Singapore to distance itself from its roots in
the People's Republic. It has not, though, convinced
stakeholders that it is, like Apple  AAPL.O  or Tesla  TSLA.O ,
just another global company with a big supply chain there. 
    Ultimately, stocks in the Asian hub suffer from a discount:
Hong Kong's Hang Seng Index  .HSI  trades at 9 times 12-month
forward earnings, versus 11 for London's FTSE 100 and 21 times
for New York's S&P 500 Composite.
    All these issues help explain why the city's bourse has not
hosted a multi-billion-dollar IPO for years, which adds another
risk to the heap. The closer Shein edges to Asia, the worse its
fortunes look. 
Follow @ugalani on X
     
    CONTEXT NEWS
    Online fast-fashion group Shein has a back-up plan to seek a
listing in Hong Kong, as its ambition for an initial public
offering in London encounters rising scrutiny in the UK and
China, the Financial Times reported on June 29, citing five
people familiar with the situation. 
     
    ($1 = 0.7886 pounds)

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(Editing by Antony Currie and Katrina Hamlin)
((For previous columns by the author, Reuters customers can
click on  GALANI/   mailto:una.galani@thomsonreuters.com))