By Helen Reid
LONDON (Reuters) – Britain’s financial regulator is taking longer than usual to approve the IPO of fast-fashion retailer Shein as it reviews supply chain oversight and assesses legal risks after an advocacy group for China’s Uyghur population has challenged the listing, two sources said. to the case.
Great Britain Independent (LON:) Anti-Slavery Commissioner, an oversight body of the Home Office, has also raised concerns within the government about a Shein IPO over allegations about labor practices at its suppliers.
Singapore-based Shein, which sells $10 tops and dresses, mainly made in China, in 150 markets around the world, confidentially filed with the Financial Conduct Authority in early June to list in London.
Shein is also awaiting approval from China’s securities regulator for its IPO in London, two separate sources said, adding that the approval would likely come after the FCA’s decision.
Advocacy group Stop Uyghur Genocide (SUG) announced a legal challenge in June and sent the FCA a dossier in August alleging that Shein uses cotton from China’s Xinjiang region.
The US and NGOs have long accused China of human rights abuses in the Xinjiang Uighur Autonomous Region, where they say Uighurs are forced to work to produce cotton and other goods.
Beijing has denied any abuses.
Shein declined to respond to questions from Reuters about the FCA process. Shein has a zero-tolerance policy toward forced labor and is committed to respecting human rights, a company spokesperson said.
The company last week announced a global external ESG advisory board to strengthen its governance.
In a sustainability report published in August, Shein said it had found two cases of child labor in its supply chain in 2023, and no cases of forced labor. Like Primark and other clothing retailers, Shein uses isotope testing service Oritain to verify the origin of its cotton, which makes up 9.9% of the textiles in Shein-branded products.
The FCA declined to comment on the listing and any delays. An FCA spokesperson said timelines for approval of an IPO depend on each individual case. Market experts say it typically takes several months to reach a decision.
The FCA is not required to review evidence from community groups, and will generally let investors take their own view, says Lorna Emson, partner at law firm Macfarlanes. If there were any compliance issues, the tendency would be to discuss them confidentially with the company itself.
But the pressure from NGOs is unlikely to subside.
“Regulators have more to think about – and are required to do so under the watchful eye of the increasingly well-funded and litigious NGO and activist community,” said Lucy Blake, partner at law firm Jenner & Block.
NGOs are not the only ones raising concerns about Shein’s IPO.
The Independent Anti-Slavery Commissioner wrote to the Home Office and the Department of Business in June about the IPO, according to previously unreported letters obtained by Reuters through a freedom of information request.
“Encouraging a company like Shein to enter the UK market inadvertently implies endorsing poor labor practices and prioritizing attracting business to Britain over human rights abuses,” wrote Commissioner Eleanor Lyons.
The Home Office and the Department for Business jointly responded that the FCA independently decides on listings and that Britain has rules to protect itself against modern slavery.
Like other retailers, Shein must comply with new European Union regulations on forced labor and the Uyghur Forced Labor Prevention Act in the US, both of which are considered stronger than the UK’s Modern Slavery Act.
JUDICIAL REVIEW?
The FCA, which recently simplified its listing rules, is facing pressure from the five-month-old Labor government to end an IPO drought.
British Chancellor of the Exchequer Rachel Reeves told the FCA in a letter in mid-November that she wants to ensure “innovative new companies are supported to enter the market.” Reeves also said regulations should be less risk-averse and more focused on growth.
The FCA must review Shein’s governance and ensure its disclosures are bulletproof in the likely event that SUG seeks a judicial review of an IPO approval, a regulator told Reuters, speaking on condition of anonymity.
The FCA declined to comment on SUG’s legal challenge or the likelihood of a judicial review application.
SUG director Rahima Mahmut told Reuters she was meeting with lawyers this week to discuss next steps.
ClientEarth, an NGO, applied last year for a judicial review of the FCA’s decision to approve the initial public offering of oil and gas producer Ithaca Energy (LON:) on the grounds that the prospectus did not sufficiently describe climate risks, but the High Court has ruled the application was rejected.
In this case too, some lawyers believe that a judicial review application by SUG would fail.
For Shein, valued at $66 billion in a fundraising round last year, its IPO performance will depend in part on what risks the FCA decides to include in its prospectus and how they are priced.
Worker exploitation is rife in the supply chains of retailers and brands around the world, not just on the cheap, but also in the luxury realm.
Shein’s revenue is expected to reach $50 billion this year, up 55% from 2023, according to Coresight Research.
