Shein’s embattled IPO signals mounting troubles for fast fashion giant

Fast fashion giant Shein’s troubles continue to mount after its much anticipated London initial public offering (IPO) reportedly hit a fresh roadblock.

The e-commerce behemoth is now aiming for a Hong Kong listing after failing to receive approval from Chinese regulators for its much hyped London IPO, Reuters reported Wednesday.

A London listing had been seen as a boon for the 16-year-old Chinese-founded company, providing international legitimacy and access to a deep and mature pool of Western investors. Analysts nevertheless said they were unsurprised by the move given ongoing scrutiny surrounding the firm.

“We’ve always said that we thought Hong Kong would be a safer IPO option for Shein,” Samuel Kerr,      head of global equity capital markets at Mergermarket, told CNBC’s “Squawk Box Europe” on Thursday.

“For international investors, this was always going to be an IPO that had a lot of hair on it, and perhaps it’s going to play better to a domestic audience,” he added.

Neither Shein nor Chinese regulator China Securities Regulatory Commission (CSRC) responded to CNBC’s request for comment on the plans. Hong Kong Exchanges and Clearing Limited said it does not comment on individual companies.

Shein has faced an uphill battle in its listing ambitions as it seeks to shake allegations over the use of forced labor to produce its $5 t-shirts and $7 shoes. While it vehemently denies the claims, Shein last year shifted its focus from a New York listing to London after facing continued pushback on such issues from U.S. lawmakers.

Meanwhile, concern over its commercial practices prompted an EU investigation, which earlier this week found the company in breach of consumer protection laws, including the use of fake discounts, pressure selling and misleading shoppers over sustainability claims.

The closure this month of the U.S.’s de minimis loophole for low cost goods — and possible similar measures by the EU and the U.K. — have only added to the company’s woes.

“The barrage of criticism, which looked set to intensify leading up to a London listing, is considered to be partly why Chinese regulators were reluctant to give the IPO the green light,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, wrote in a note Wednesday.

Shein’s proposed London listing was also seen as providing a much needed boost to the U.K.’s lackluster IPO market after a string of delistings and defections amid intense competition from other financial markets.

“This will be a blow for London’s ambitions to attract bigger names to list in the capital, but given the obstacles piling up, it’s not surprising [that] the company seems to be veering off in another direction,” Streeter said.

Still, some expressed worry that positioning the controversial listing as the face of London’s IPO revival could send the wrong signal to investors.

“There was a bit of concern from some in London that Shein would be seen as a benchmark barometer for the future of the London Stock Exchange and for IPOs coming back to London. I think that would have been problematic,” Kerr said.

Additional scrutiny in the U.K. was also seen as piling pressure on Shein’s valuation amid comparisons to other listed retail peers, such as Asos, Next and Boohoo. The company was already reportedly under pressure to cut its London listing valuation to around $30 billion, according to Bloomberg, down from a previously estimated $50 billion.

“Going away from the U.K. and away from those U.K. peers will probably allow it to get a higher valuation,” Kerr noted.

Meantime, a Shein listing could market a further boon for Hong Kong in what is shaping up to be a strong year for the market following fresh flows of capital from on- and offshore investors.

“It would have been a meaningful milestone for Shein to list in either London or New York, given the maturity, depth, and valuation potential of those markets,” Rui Ma, founder and analyst at Tech Buzz China, told CNBC via email.

“That said, markets are ultimately shaped by the quality of their listings and participants. Shein’s listing is a win for Hong Kong — but not yet a turning point,” she added.

Shein investors CNBC spoke to declined to comment on the listing’s reported relocation.