Breakingviews - Shein disclosure row flags London's IPO quandary
As recently as May, Shein's London listing seemed dead in the water. Back then, the Singapore-based company, which sells $20 dresses, failed to get the nod from the Chinese regulator for a planned UK float. It therefore seemed destined to debut in Hong Kong. But on Tuesday, the Financial Times reported that the company led by Executive Chairman Donald Tang is hoping the UK may back down on some of its disclosure requirements that had stymied the London listing.
That would be a big step. Late last year, Financial Conduct Authority Chief Executive Nikhil Rathi said, opens new tab the regulator would not seek to stop a company with legal risks from listing, as long as it disclosed those dangers to investors. In Shein's case that would require it to reveal details about its supply chain, including whether any of the cotton in its T-shirts and sweatshirts comes from the Xinjiang region where China has been accused of using forced labour. Shein says it strictly prohibits forced labour in its supply chain globally. However, the language in the group's planned prospectus was not approved by Beijing, effectively forcing the retailer to abandon London, the FT says.
Rathi is already bending over backwards to win fresh IPOs and stop listed firms decamping to New York. He recently changed the requirement for companies to adopt shareholder protections like equal voting rights to get a London premium listing. Investors for their part are more accepting of higher executive pay, a key lure of the New York market. But so far neither have made a difference. In the first half of this year, fundraising from IPOs plummeted to its lowest level in 30 years and the five listings that did feature only raised 160 million pounds, according to Dealogic data.
It's possible the UK could find a way to tweak the prospectus language so as to avoid angering China. However, watering down disclosure rules would be a risky move. It could encourage other companies to push the boundaries and potentially leave British pension funds and asset managers exposed to greater risks. The snag is that if London is unable to revive its flagging IPO market, the FCA is likely to come under more pressure to find ways to make the City appealing. Ever looser rules, however, may have diminishing returns.
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