Shein, the online retail giant founded in China, had big ambitions to go public in New York. But as relations between Washington and Beijing deteriorate, the ultra-fast fashion company is starting to think more closely about a relief plan across the Atlantic.
The company is now focusing more on the London Stock Exchange for its IPO, according to two people familiar with the matter. It may not have been the company’s original choice, but it would be a big victory for Britain, which feared its capital was losing its status as a global financial center.
Jeremy Hunt, Britain’s top finance executive, is reportedly courting Shein, hoping a major IPO would boost London’s position as one of the world’s leading financial centers. A Shein spokeswoman declined to comment; The British Treasury also declined to comment.
In many ways, London remains a crucial financial center, where prices of precious metals are set every day, billions of dollars of foreign currencies are exchanged and global insurance contracts are written. But global competition to attract investors – between cities like New York, Hong Kong, Dubai and Singapore – is intense. Listing on stock exchanges is big business, and a major IPO like Shein’s could be seen as an award that strengthens the local financial market and paves the way for other companies to follow.
In an effort to shore up London’s position, British officials are trying to restructure the financial sector to make the city’s stock market more attractive to modern industries, particularly technology companies, rather than relying on sectors , like the banking sector, which historically built London’s financial system. sector.
London’s reputation for financial services also took a hit after Britain left the European Union amid concerns that banks would move money and workers to the continent. Some of these fears were exaggerated, but Brexit has taken its toll. Amsterdam, for example, overtook London as Europe’s largest stock trading center about three years ago, according to Cboe Capital Markets.
The focus on attracting public listings in London is partly due to pride, said Gbenga Ibikunle, professor of finance at the University of Edinburgh’s Business School.
“London was once recognized as the center of the financial world,” he said. “We know that this is no longer the case, and that this has been exacerbated by the fact that we have left the EU, which has led to a reduction in the number of transactions, in terms of volumes, in London. And it also reduces some of the market influence.
Besides pride, analysts say, there are good economic reasons to have a healthy listings pipeline. On the one hand, they support a range of jobs in financial and professional services, from bankers to lawyers. Public companies are also open to greater scrutiny, which can provide a better sense of the state of the economy.
Fears that London is losing its attractiveness for listed companies have grown over the years, as several companies, including building materials company CRH and betting operator Flutter Entertainment, have moved their main listings from London to New York. Others, like oil giant Shell, have acknowledged studying the idea.
Nor have those who leave been replaced by a wave of IPO companies. Last year dealt a major blow when Arm, the British computer chip company, listed its shares on the New York Stock Exchange. This offer, the largest in 2023, raised nearly $5 billion.
New York has long been a destination for IPOs. Many in the financial industry are concerned that the London market, with lower trading volume, results in lower valuations than the New York exchanges can offer.
There is an advantage to being listed alongside similar companies on the same exchange because the rising tide attracts more analysts and investors focused on those stocks, said Scott McCubbin, who leads the IPO team in EY scholarship in the UK and Ireland.
Part of the problem, analysts say, is that the London Stock Exchange is dominated by companies from older sectors, such as banking, mining and oil and gas. Britain has struggled to attract listings from technology companies, and significant failures have compounded the problem. Deliveroo, a London-based food delivery company, went public in 2021 and has been called “the worst IPO in London’s history.” (Its shares are down 63 percent from their peak.)
“The rule change going on now says we need to make ourselves much more attractive to technology companies, especially start-ups, especially companies that don’t have a long history of profitability,” Mr. McCubbin said . These are companies that are based on “what the next 10 years will look like, not what the last 10 years will look like.”
But advisers caution that companies considering an IPO in New York must have a natural connection to the U.S. market to be able to profit. Flutter, for example, generates more than a third of its revenue in the United States. Otherwise, there would be little incentive for investment fund managers to focus on smaller British companies rather than larger ones, more relevant to Americans.
The slowdown in supply in London is part of an industry-wide shortage that has lasted more than a year amid high interest rates, conflict and geopolitical uncertainty. Only 16 companies went public in New York last year, an 84% decline from 2022, according to the London Stock Exchange Group; in comparison, 10 companies went public in London, down 88 percent.
That said, companies IPOs in New York last year collectively raised $9.5 billion, while those in London raised $442.7 million, according to data from the London Stock Exchange Group. However, even if London struggles to compete with New York, it remains a much more popular destination than its European neighbors, such as Paris and Amsterdam.
The British government has announced a series of reforms in recent years to encourage companies, particularly technology start-ups, to raise capital through an IPO in London. For example, Britain reduced the number of shares a company must hold in public hands from 25 to 10 percent and allowed some dual-class listings at the high end of the market, changes intended to encourage tech founders who might want to retain greater control of their company after an IPO
Other planned changes are expected to make it easier for companies to make big acquisitions or other deals without getting shareholder approval.
“We have already seen some reforms in place, but the vast majority are either in the works or planned but not yet coming,” said Julie Shacklady, director of UK Finance, a trade group. “So we are not yet really seeing the benefits of all the reforms. »
But she said she was “cautiously optimistic” about a market rebound later this year and did not expect an election, even if it led to a new government , derail changes.
In Shein’s case, the company said one of the reasons it went public was to be more transparent in the face of accusations of poor labor and environmental practices. London is seen as having high standards for business, with strict reporting requirements and new rules around sustainability.
Beyond Shein, London market traders and promoters point to other promising news for the British stock market. Raspberry Pi, a maker of low-cost computers, has announced plans to go public on the London Stock Exchange.
A corporate adviser said a collection of companies owned by private equity firms – which regularly take the companies they own public, providing a regular source of listings – could list on the stock exchange in London from next year.
As companies debate whether to list in New York or London, Mr Hunt and Bim Afolami, the Treasury minister, met with technology companies this month to promote Britain as a fundraising location .
“For a few years we struggled, but actually this year we are very optimistic and think we have really turned a corner,” Mr Afolami said at an event in London this month.