Britain’s financial regulator is taking longer than usual to approve fast-fashion retailer Shein’s IPO because it is checking oversight of its supply chain and assessing legal risks after an advocacy group for China’s Uyghur population will challenge the quote, according to two sources close to the matter.
Britain’s Independent Anti-Slavery Commissioner, a Home Office watchdog, has also raised concerns within the government about Shein’s listing due to allegations over its suppliers’ labor practices.
Singapore-based Shein, which sells $5 blouses and $10 dresses, mostly made in China, in 150 markets around the world, filed a confidential application with the Financial Conduct Authority to list in early June. in London.Shein is also awaiting approval from China’s securities regulator for its London IPO, two separate sources said, adding that approval would likely come after the FCA decision.
Advocacy group Stop Uyghur Genocide (SUG) announced a legal challenge in June and sent the FCA a dossier in August alleging Shein uses cotton from China’s Xinjiang region.
The United States and NGOs have long accused China of human rights abuses in the Xinjiang Uyghur Autonomous Region, where they say Uyghurs are forced to work in the production of cotton and other goods.
Beijing has denied any abuse.Shein declined to answer Reuters questions about the FCA process. Shein has a zero-tolerance policy on forced labor and is committed to respecting human rights, a company spokesperson said.
Last week, the company announced a global external ESG advisory board, to strengthen its governance. In a sustainability report published in August, Shein said it 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 the isotonic testing service to verify the origin of its cotton, which represents 9.9% of the textiles in Shein brand products.
The FCA declined to comment on the listing and delays. An FCA spokesperson said the timelines for IPO approval depend on each individual case. Market experts say it usually takes several months to reach a decision.
The FCA has no obligation to assess evidence presented by civil society groups and generally leaves it to investors to take their own stance, said Lorna Emson, partner at law firm Macfarlanes. If I detected compliance issues, I would tend to address them confidentially with the company itself. But pressure from NGOs is unlikely to ease.
“Regulators are being given more to think about, and are required to do so under the close scrutiny of an increasingly funded and litigious community of NGOs and activists,” said Lucy Blake, partner at law firm Jenner. & Block.
NGOs are not the only ones that have expressed concern about Shein’s IPO. The Independent Anti-Slavery Commissioner wrote to the Home Office and 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 list on the UK market inadvertently supports poor labor practices and prioritizes attracting businesses to the UK over human rights abuses,” wrote Commissioner Eleanor Lyons.
The Home Office and the Department for Business jointly responded that the FCA decides independently on contributions and that the UK has rules to protect 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 considered stronger than Britain’s Modern Slavery Act.
JUDICIAL REVIEW?
The FCA, which recently simplified its listing rules, faces pressure from the five-month-old Labor government to end an IPO drought. Britain’s Finance Minister Rachel Reeves told the FCA in a letter in mid-November.
Reeves also stated that regulation should be less risk-averse and more growth-focused. The FCA should assess Shein’s governance and ensure its disclosures are bulletproof in the likely event that SUG seeks a judicial review of an IPO approval, a regulatory lawyer 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 chief executive Rahima Mahmut told Reuters she would meet lawyers this week to discuss next steps.
Last year, ClientEarth, an NGO, sought a judicial review of the FCA’s decision to approve the IPO of oil and gas producer Ithaca Energy, claiming its prospectus inadequately described climate risks, but the High Court rejected the application. Also in this case some lawyers consider that an application for judicial review presented by the SUG would be rejected.
In the case of Shein, valued at $66 billion in a fundraising round last year, the performance of its IPO will depend in part on what risks the FCA decides it should include in its prospectus and how they are included in the price.
Labor exploitation has been a widespread phenomenon in the supply chains of retailers and brands around the world, not only in low-cost fashion but also in luxury. SheIn’s revenue is expected to reach $50 billion this year, up 55% from 2023 according to Coresight Research.
With information from Reuters.
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