The fast-fashion retailer Shein looks poised to become the first major Chinese company to list in the United States since Chinese regulators slapped new rules requiring cybersecurity clearance for overseas stock sales. However, it may need to leave China to do so.
Since the start of the year, at least 16 Chinese companies have filed to sell securities in the United States. Overseas issuers from all nations must complete an F-1 filing, normally with an eye toward an initial public offering.
The activity shows that some Chinese companies are not deterred by the fiasco surrounding the listing of Didi Global (DIDI) . The Chinese market leader in ride hailing listed in New York on June 30 last year only to be barred days later from signing new customers by the Chinese authorities, who forced the removal of the company's apps from app stores, too.
Didi, which as I explained in December has filed to delist its U.S. shares, is currently quoted at US$4.38, down 68.7% from its US$14 listing price. Other Internet-focused companies that went public around the same time suffered similar punishment, and Chinese listing activity on Wall Street essentially stopped.
To be clear, Shein has yet to file for a stock offering.
The Cyberspace Administration of China has new rules in place, first circulated last July and effective as of Feb. 15, which require all "platform" companies that do business on the Internet and have personal data on more than 1 million users to submit to a cybersecurity review before they're allowed to list shares overseas. Any company deemed to be running critical infrastructure or anything that constitutes a national security risk must also submit to the same kind of review.
The stock watchdog, the China Securities Regulatory Commission, also said in December that it will require companies to submit filings to it first if they want to list overseas.
The Chinese companies that have filed for IPOs tend to be small. Most recently, the Shanghai-based Spanish tutorial center operator Golden Sun Education Group filed on Feb. 11 to list on the Nasdaq under the ticker symbol GSUN. Golden Sun is affected by the sudden outlawing, effectively, last year of after-school tuition in China. But it is divesting two schools that are affected and seeking to raise US$20.7 million with its listing, on the back of US$15.0 million in revenue. It is now focusing on adult and non-curriculum classes.
Wheelchair-making specialist Jin Medical generates US$20.8 million in revenue and filed on Feb. 4 to list on the Nasdaq under ticker symbol ZJYL. The IPO would raise US$29.3 million for the company.
Shein (pronounced "she-in") would be on another scale altogether. It has secured backing from big hitters such as Sequoia Capital and Tiger Global Management, with the last round in August 2020 valuing the company at US$15 billion, according to Dealroom.co.
Shein was founded in Nanjing in 2008. Entrepreneur Chris Xu, known as Xu Yangtian in China, took a background in search engine optimization at a clothing sourcing and trading company, and started a business-to-consumer site selling wedding dresses that morphed into www.Sheinside.com, and then just Shein.
The company is publicity-shy, though it generates huge amounts of exposure through paid influencers and celebrity endorsements, aiming to undercut brands such as Zara in appealing to Gen Z young women. After originally just sourcing clothing, it now designs and makes its own clothing while selling other brands as well as cosmetics, accessories, kids and men's clothing.
While it makes the clothing in China, it doesn't sell there. It has country-specific sites for the United States, Spain, France, Russia, Germany, Italy and Australia, as well as one serving the Middle East.
Shein is in the process of internationalizing its corporate structure. Its LinkedIn page now lists it as being based in Singapore, and its web site is legally operated by Roadget Business, a Singapore-based company.
Reuters reports that Shein last year de-registered its main business in China, Nanjing Top Plus Information Technology. Xu, the founder and CEO, has become a permanent resident of Singapore, too, according to a document seen by the news agency.
A Singapore permanent resident can apply for citizenship after two years. Xu is considering changing his citizenship to Singapore to make a U.S. listing easier, sources familiar with the listing plans say. Shein responded to Reuters that Xu is "a Chinese citizen with long-time roots in China," but said he would not comment on the matter.
Xu is reported in Chinese media as being born in Shandong Province and graduating from Qingdao University of Science and Technology. However, some U.S. reports say he's American-born and attended Washington University. He has yet to talk to the press.
The intricacies indicate how difficult it will be for large Chinese companies to list overseas. Shein appears to be in the process of recasting itself as a Singapore corporation. Then again, the Chinese authorities have said their long arm applies to companies that do a substantial amount of business there. Because Shein doesn't sell within China, its bid for freedom may just succeed.
Shein shelved plans last year for a U.S. listing but has revived them in New York, with Reuters reporting Shein has hired Bank of America (BAC) , Goldman Sachs (GS) and J.P. Morgan (JPM) to work on an initial public offering.
Shein's sales likely rose some 50% to around C¥100 billion (US$15.8 billion) in 2021, with the company a major beneficiary from home-based online shopping during the pandemic. That increase built on a dramatic 250% leap in sales in 2020, according to Coresight Research, when sales hit US$10 billion.
As a private company for now, Shein says it does not disclose financials. The leap in sales may have driven its valuation as high as US$50 billion. Last year, when Shein denied that it was working on a public offering, the valuation of the IPO was estimated at US$47 billion.
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