Shein, the online retail giant founded in China, had big ambitions to go public in New York. But as relations between Washington and Beijing soured, the ultra-fast fashion company began taking a closer look at a backup plan across the Atlantic.
The company will now focus more on the London Stock Exchange for its initial public offering, according to two people familiar with the matter. This may not have been the company's initial choice, but it would be a major victory for Britain, which has been wary of its capital losing its status as a global financial centre.
Jeremy Hunt, Britain's top financial official, reportedly courted Shein, anticipating that a major IPO would strengthen London's position as one of the world's leading financial centers. A Shein spokesperson declined to comment; The British Treasury also declined to comment.
In many ways, London is still a crucial financial center, where precious metals prices are set every day, trillions of dollars in foreign currency are traded and global insurance contracts are made. But global competition for investors – between cities like New York, Hong Kong, Dubai and Singapore – is intense. Going public is big business, and a big IPO like Shein's could be seen as a prize that strengthens the local financial market and sets the stage for other companies to follow.
In a bid to bolster London's position, British officials are trying to overhaul the financial sector to make the city's stock market more attractive to modern industries, particularly technology companies, rather than relying on sectors, such as banking, who historically built London's finance. sector.
London's reputation for financial services also took a hit after Britain left the European Union, amid concerns that banks were moving money and workers to the continent. Some of these fears were exaggerated, but Brexit has taken its toll. According to Cboe Capital Markets, Amsterdam, for example, overtook London as Europe's largest stock trading center about three years ago.
The emphasis on attracting public listings to London is partly down to pride, said Gbenga Ibikunle, professor of finance at the University of Edinburgh's Business School.
“London was recognized as the center of the financial world,” he said. “We know that this is no longer the case, and that it has been exacerbated by the fact that we have left the EU, and therefore there is reduced trading, in terms of volumes, in London. And this also reduces part of the weight of the market.”
Pride aside, analysts say, there are good economic reasons to have a healthy listing pipeline. First, they support a range of financial and professional services jobs, from bankers to lawyers. Public companies are also open to closer scrutiny, which can provide greater insight into the state of the economy.
Fears that London is losing its attractiveness for listed businesses 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, such as oil giant Shell, have admitted to studying the idea.
Those that left haven't even been replaced by a wave of publicly traded companies. Last year brought a blow when Arm, the British computer chip company, listed its shares in New York. That offering, the largest in 2023, raised nearly $5 billion.
New York has long been a destination for IPOs. Many in the financial industry express concern that the London market, with lower trading volume, leads to lower valuations than New York stock exchanges can provide.
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 such stocks, said Scott McCubbin, who leads EY's IPO team 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, oil and gas. Britain has struggled to attract listings from technology companies and major flops 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% from their peak.)
“The rule change that's happening right now says we need to make ourselves much more attractive to technology companies, particularly to startups, particularly to companies that don't have a long track record of profitability,” McCubbin said. These are companies that are based on “what the next 10 years will be like, not what the last 10 years have been like.”
But consultants warn that companies considering an IPO in New York must have a natural connection to the U.S. market to benefit from trading there. Flutter, for example, generates more than a third of its revenue in the United States. Otherwise, investment fund managers would have little incentive to focus on smaller British companies over those that are larger and more relevant to Americans.
The slowdown in London's offerings is part of an industry-wide shortage that has persisted for more than a year amid high interest rates, conflict and geopolitical uncertainty. According to the London Stock Exchange Group, just 16 companies went public in New York last year, down 84% from 2022; by comparison, 10 companies went public in London, a decline of 88%.
That said, according to data from the London Stock Exchange Group, companies listed in New York raised a combined $9.5 billion last year, while those in London raised $442.7 million. However, although London struggles to compete with New York, it is a much more popular destination than its European neighbors, such as Paris and Amsterdam.
In recent years the British government has announced a series of reforms to entice companies, particularly tech start-ups, to raise capital through an IPO in London. For example, Britain reduced the number of shares a company must have in public hands from 25% to 10% and allowed some dual-class listings in the premium segment of the market, changes intended to encourage industry founders tech companies who may want to maintain greater control of their company after an IPO
Other planned changes are expected to make it easier for companies to make large acquisitions or other transactions without getting shareholder approval.
“We've seen a couple of reforms already underway, but most are underway at the moment or planned but still to come,” said Julie Shacklady, director of UK Finance, a trade group. “So we are not yet seeing the benefits of the totality of the reforms.”
But he said he had “cautious optimism” about a market recovery later this year and did not expect an election, even if it led to a new government, to derail the changes.
In Shein's case, the company said part of the reason for going public is to be more transparent in the face of allegations of poor labor and environmental practices. London is considered to have high standards for businesses, with strict reporting requirements and new sustainability rules.
In addition to Shein, deal makers and promoters on the London market point to other promising news for the British stock market. Raspberry Pi, a maker of low-cost computers, has said it plans to go public on the London Stock Exchange.
A business consultant said a number of companies owned by private equity firms – which regularly take the businesses they own public, providing a regular source of listings – could hit the London Stock Exchange from next year.
While companies are debating whether to list in New York or London, Hunt and Bim Afolami, the Treasury secretary, met with technology firms this month to promote Britain as a place to raise money.
“For a couple of years we beat ourselves up, but we're actually very optimistic this year that we've really turned the corner,” Afolami said at an event in London this month.