Shein’s London IPO could go ahead, despite forced labour concerns

Chinese fast fashion retailer Shein's IPO could be on course to be approved in London, despite concerns over allegations of forced labour in its supply chains.

London’s IPO market has been subdued for months, and the listing of £50 billion-valued Shein would provide a welcome boost to the beleaguered London Stock Exchange.

However, it’s not quite that simple. Law firms and advocacy groups have been making a strong case in recent months that the firm should not be allowed to list in the UK.

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Shein’s potential London Stock Exchange listing has been in the offing since May when US regulators indicated that a listing in New York wouldn’t be feasible.

While UK lawmakers were quick to embrace the possibility of a household name like Shein pursuing a London listing, advocacy groups were far less enamoured with the idea.

Amnesty International called the proposed listing a “badge of shame” for the London Stock Exchange, while human rights group Stop Uyghur Genocide, supported by law firm Leigh Day, launched a legal campaign in June to pressure the FCA into blocking the listing.

Ricardo Gama, senior associate solicitor at Leigh Day, tells MoneyWeek that there is "a likelihood of forced labour" in Shein's supply chains which, if true, would constitute an offence under the Modern Slavery Act.

Now, though, the regulator appears to be laying the groundwork for Shein’s IPO to be approved. While declining to comment on Shein specifically, FCA chief executive Nikhil Rathi appears to be making the case that alleged legal breaches are none of its concern.

Rathi told the Financial Times that parliament has not asked the FCA “to be a broad regulator around every aspect of corporate behaviour and every company listed in the UK, everywhere around the world”.

He also said that it was “not unusual” for companies listed in the UK to carry legal risks and that the FCA’s concern was that these were disclosed so that investors can understand and price that risk.

Dan Coatsworth, investment analyst at AJ Bell, explained to MoneyWeek that Rathi’s comments “provide a reminder that the London Stock Exchange contains companies across the risk spectrum.

“As long as these risks are disclosed and the listing rules are followed, IPOs will not be blocked by the regulator simply because there is negativity and/or uncertainty around how a company might do business.”

Leigh Day, however, disagrees. "Our case is that the FCA’s remit is wider than that," says Gama. "If it’s aware of criminality, or likely criminality, then it shouldn’t allow the company to obtain a listing."

What are the concerns around a Shein IPO in London?

Shein is alleged to have used forced labour in its clothing supply chains: specifically, that cotton used in its clothing could have been sourced from Xinjiang, a controversial Chinese state whose Uyghur population has been shown in courts to have been subject to widespread human rights abuses.

In August, Stop Uyghur Genocide (SUG) sent the FCA a dossier containing a copy of a letter it has written to Shein as well as evidence demonstrating forced labour in its supply chains. SUG maintains that this use of forced labour contravenes the Modern Slavery Act, and that Shein would therefore have to explain company profits in light of proceeds of crime laws.

In 2024, the Court of Appeal upheld an appeal by SUG against the High Court’s dismissal of a judicial review into the National Crime Agency’s refusal to investigate evidence of forced labour in Xinjiang. The Judge in the appeal identified a “striking consensus” as to exploitation and abuses against Uyghurs in the cotton industry.

Lab tests conducted in 2022 for Bloomberg News found evidence linking Shein’s cotton to the Xinjiang region.

"We've said it would be irrational for the FCA to approve a listing in those circumstances," says Gama.

Why might the FCA approve Shein’s IPO?

London’s IPO market has been enduring a drab few years.

In 2021, 126 IPOs took place on the London Stock Exchange. In almost three years since, the combined total is just 82. Capital raised has plummeted, from £16.9 billion in 2021 to just £3.4 billion since.

Assuming Shein is green-lit to list in London and that it achieved the £50 billion valuation that it appears to be seeking, it would be the largest listing in terms of market cap in the exchange’s history. It’s plain to see, then, why the FCA would be reluctant to block a listing unless it absolutely had to.

Further, the FCA loosened its own rules on listings in July, in a bid to make it more straightforward for companies to list in the UK. Chancellor Rachel Reeves, who had at the time been recently elected to government, called the relaxation of the rules “a significant first step towards reinvigorating our capital markets”, and added that they would help the UK “attract the most innovative companies to list here”.

“The relaxing of the UK listing rules in July could attract companies hoping to take advantage of looser regulations, but ultimately any listings will only get away if there is adequate investor support,” says Coatsworth. “The regulator certainly isn’t turning a blind eye to things.”

When will Shein’s IPO happen?

Assuming that the FCA does clear Shein to list in London, it is likely to take place in the first quarter of 2025, according to The Times.

Shein is thought to be targeting a valuation of £50.3 billion, which would make it the largest company ever to list in London by market cap.

If and when a date is announced for Shein’s IPO, Coatsworth recommends that investors considering buying Shein stock pay close attention to the fine print.

“The most important part of an IPO prospectus is the risk section,” he says. “Shein’s might run longer than the average company because it’s been accused of many things over the years, from improper working practices to intellectual property theft. Prospective investors will have to read the risk section thoroughly and decide whether they want to own the shares and at what price they are prepared to pay.”