UK Watchdog Delays Shein’s Stock Market Listing Over Supply Chain Concerns
The UK financial regulator is delaying approval of Shein’s stock market listing due to concerns about its supply chain and legal risks. These delays come after a group advocating for China’s Uyghur population raised objections to the listing.
The UK’s Independent Anti-Slavery Commissioner has also expressed concerns to the government about Shein’s initial public offering (IPO), pointing to claims about poor labor practices at its suppliers.
Shein, a Singapore-based fast-fashion company selling inexpensive clothing like $5 tops and $10 dresses in 150 countries, applied for a London listing confidentially in early June.
Shein is waiting for China’s securities regulator to approve its London stock market listing, according to two sources. They said this approval will probably come after the UK’s Financial Conduct Authority (FCA) makes its decision.
In June, the group Stop Uyghur Genocide (SUG) announced a legal challenge and sent the FCA a report in August claiming that Shein uses cotton from China’s Xinjiang region.
The U.S. and human rights groups have accused China of forcing Uyghurs to work in Xinjiang to produce cotton and other goods. China has denied these accusations.
Shein did not answer Reuters’ questions about the FCA process. A company spokesperson said Shein does not tolerate forced labor and is committed to human rights.
Last week, the company announced a global advisory board to help improve its governance.
In its sustainability report from August, Shein said it found two cases of child labor in its supply chain in 2023, but no cases of forced labor. Shein, like other clothing retailers such as Primark, uses a service called Oritain to check where its cotton comes from. Cotton makes up 9.9% of the fabric in Shein products.
The FCA (Financial Conduct Authority) did not comment on the listing or any delays. A spokesperson said the approval process for IPOs depends on each case and usually takes several months to complete.
The FCA does not have to consider evidence from civil society groups and generally allows investors to make their own decisions, according to Lorna Emson, a lawyer at Macfarlanes. If the FCA finds any compliance issues, it would usually address them privately with the company.
NGOs are not likely to back down. “Regulators have more to consider, and they are being closely watched by well-funded NGOs and activists who can take legal action,” said Lucy Blake, a partner at the law firm Jenner & Block.
NGOs aren’t the only ones worried about Shein’s IPO. The Independent Anti-Slavery Commissioner wrote to the Home Office and the Department for Business in June about the IPO, based on letters obtained by Reuters through a Freedom of Information request.
“Allowing a company like Shein to list on the UK market suggests support for poor labor practices and prioritizing business over human rights,” wrote commissioner Eleanor Lyons.
The Home Office and Department for Business responded that the Financial Conduct Authority (FCA) makes the final decision on listings, and the UK has rules to prevent modern slavery.
Like other retailers, Shein has to follow new rules from the European Union about forced labor and the Uyghur Forced Labor Prevention Act in the US, both of which are stricter than the UK’s Modern Slavery Act.
The Financial Conduct Authority (FCA), which recently made its listing rules easier, is under pressure from the new Labour government to fix the slow pace of IPOs (initial public offerings).
In mid-November, Rachel Reeves wrote a letter to the FCA saying she wants to help “innovative new firms” enter the market. The UK’s finance minister also said that rules should focus more on growth and be less cautious.
The FCA will need to check Shein’s management practices and make sure its financial reports are solid, in case SUG asks for a legal review of an IPO approval, according to a regulatory lawyer who spoke anonymously to Reuters.
The FCA refused to comment on SUG’s legal challenge or the chance of a judicial review.
SUG’s executive director, Rahima Mahmut, told Reuters she is meeting with lawyers this week to decide what to do next.
ClientEarth, a nonprofit organization, tried to get a court to review the Financial Conduct Authority’s (FCA) decision to approve the stock market listing of oil and gas company Ithaca Energy last year. They argued that the company’s prospectus didn’t properly explain climate risks, but the court rejected their request.
Some lawyers believe that a similar request by SUG will also not succeed.
For Shein, a company valued at $66 billion in a funding round last year, its stock market debut will partly depend on what risks the FCA decides should be included in its prospectus and how those risks are reflected in the company’s value.
Worker exploitation has been common in the supply chains of many global retailers and brands, not just in low-cost fashion but also in luxury goods.
Shein’s revenue is expected to reach $50 billion this year, a 55% increase from 2023, according to Coresight Research.
Published: 12th December 2024
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