3 days ago
Losing this £50bn stock market listing is a humiliation for Reeves
We were willing to relax our listing standards. The Chancellor Rachel Reeves flew out to Beijing to beg for investment in Britain. And perhaps, most importantly of all, we were willing to turn a tactfully blind eye to the multiple allegations of brutal working conditions, poverty wages, and environmental carelessness.
The City of London was planning to go to sometimes embarrassing lengths to secure the IPO of the Chinese fast fashion giant Shein. And yet, it has this week apparently decided on Hong Kong instead.
There is no escaping a simple conclusion: this is a humiliation for London. The sorry saga should be a wake-up call for regulators who now have to take urgent action – or else the London market will soon disappear completely.
It was meant to be the blockbuster new listing that would revive the London stock market. Shein was estimated to be worth upwards of £50bn, and while its dirt cheap T-shirts and dresses may not be to everyone's taste, it is a hugely successful business.
It pioneered the model of manufacturing up-to-the-moment clothes in factories in China and then shipping them directly in small packages to customers across the United States and Europe.
It faces plenty of competition, but it has still taken a big chunk of the market from both online and high street rivals such as Boohoo and Primark, and built a major company with sales last year of $38bn (£28bn), up by 19pc year-on-year, and profits of more than $1bn. By any standards, it is a formidably successful business.
The Shein IPO would have been a coup for London, and it was one that regulators were desperate to secure. There were plenty of challenges.
New York's Nasdaq market wouldn't touch it because of allegations of human rights abuses. The regulators took a lot longer than usual to approve a potential IPO amid questions over its labour standards. There were even questions raised by the UK's Anti-Slavery Commissioner. But all that was eventually brushed aside. The City decided it needed this listing, and it would do whatever was necessary to secure it.
The market certainly needed a shot in the arm. The number of companies listed in London has fallen from 2,400 a decade ago to just 1,600 now. Businesses have left for the United States, where valuations are more generous, accepted takeover offers, or else simply decided the rules are too cumbersome and opted for private ownership instead.
There are hardly any IPOs to replace them. There were only 18 listings last year, raising a mere £770m, an 18pc fall on a year earlier. There have been virtually none of any significance so far this year, and well-known companies such as Deliveroo are leaving the market. Shein might have been controversial but staging its IPO in London would at least have shown the City was still a contender on the global stage.
The decision to list in Hong Kong instead is a humiliating blow. True, with the trade war started by President Trump still raging, the Chinese regulators may have decided that this was not the moment to list a company in the West (and Beijing still clearly makes the final decisions in these matters). And, in fairness, new levies on small parcels in both the US and Europe will be a challenge to Shein's business model, making it less attractive to investors.
London doesn't need another over-hyped IPO of a company that then collapses in value. And yet, those caveats aside, the blunt truth is this: if London can't attract Shein, especially after it made so many concessions to try and nail it down, it won't be able to attract any global companies.
It is hard to see that it is going to get any better over the next few years. There are very few new growth companies emerging in the UK, and the catastrophic decision to end the 'non-dom' rule that allowed foreign entrepreneurs to limit their tax liabilities in the UK is driving many more entrepreneurs abroad.
Only this week we learnt that Guillaume Pousaz, the billionaire founder of fintech giant Checkout, has become the latest to leave, and we can be sure that his $10bn-plus company won't now be listed in the UK if he decides to float the business. The outlook is getting worse all the time.
Shein's decision should be a wake-up call for both the Government and the regulators. On current trends, the last company to leave the market will delist around 2040 and the London stock market, once one of the greatest in the world, will cease to exist. We used to have vibrant stock markets in Manchester, Birmingham and Liverpool, but they all gradually disappeared.
We shouldn't assume the same thing won't happen to London. Another 10 years, and it may simply be a sub-market of New York, and the jobs, taxes and wealth the City's equity traders create will all have vanished.
The City needs to start ripping up the cumbersome governance codes that have made a quote painfully time consuming and expensive to maintain.
The Government should scrap the stamp duty on shares so that trading is cheaper. It should ditch all the ESG – environmental, social and governance – junk that clutters up annual reports and restricts investment. And it should admit it made a huge mistake ending nom-dom status and bring back the tax break so that London can welcome the world's entrepreneurs again.
Shein was always going to be a controversial IPO. But it was also a vital one for London. Now that it has been lost, the City needs to find something to replace it – because very soon it will be too late to rescue the stock market from terminal decline.
