Shein makes lacklustre Hong Kong debut as investors fret about growth and regulatory risks

Shares in online fast-fashion retailer ‌Shein ​ended flat in their Hong Kong debut on Tuesday, failing to gain a typical first-day pop amid worries about setbacks that have undermined its competitive advantage. Known globally for selling $5 tops and $10 dresses, Shein has been humbled by tariff and duty changes in the U.S. and Europe that have contributed to a dramatic decline in valuation for the company.

Founded in China in 2012 and headquartered in Singapore since late 2021, ‌Shein spent years touting its credentials as a global company before re-embracing its Chinese roots to list in Hong Kong. That capped a four-year quest to go public after failing to list in New York and London. Intense scrutiny of its business practices also hampered its attempts that were ultimately blocked by Chinese authorities.

Its shares finished at HK$48.50, compared to its HK$48.56 IPO price after rebounding from an earlier slide of as much as 10%. That valued the company at about $26.3 billion, compared to its peak of nearly $100 billion in 2022. "As a new company listed ‌in Hong Kong, we will continue to innovate, optimize, and cooperate with our supply chain partners for mutual benefit and win-win results," Shein Chief Financial Officer Leigh Gui said at the opening gong ceremony.

Founder and CEO Sky Xu, known for disliking the limelight, did ‌not speak at the event though later took pictures with Shein employees on stage. That was in keeping with his reclusive personality but unusual for the head of a major company at a milestone public event. He declined to respond to Reuters' questions.

VALUATION STILL SEEN AS EXPENSIVE Investors and analysts have worried about Shein's slower growth, higher trade costs and tighter regulatory scrutiny.

"I think the weak debut shows that even after the huge valuation reset, investors still don't see Shein as obviously cheap," said Charu Chanana, chief investment strategist at Saxo. She said Shein was valued at 15 times forward earnings, more than double the multiple for PDD, the owner of rival Temu, ⁠which meant "investors were ​being asked to pay a premium despite weaker growth visibility and significant ⁠regulatory and trade risks."

Demand for Shein's stock during the IPO was tepid compared to high-profile offerings from the AI and robotics sectors. The retail tranche was subscribed 5.63 times, while the international portion was subscribed 2.59 times. Some deals have been hundreds of times oversubscribed, especially from Hong Kong's army of retail investors who track IPOs very ⁠closely.

Despite Shein's growth worries, existing investors who participated in the IPO included billionaire Michael Bloomberg's family office Willett Advisors, French billionaire entrepreneur and investor Xavier Niel, and Microsoft, a filing showed on Monday. Indian billionaire Mukesh Ambani's Reliance also bought more shares in Shein, according to the filing, as did Bolivian American billionaire Marcelo ​Claure's Claure Group, and the SoftBank Vision Fund.

The amount sold in the IPO represents about 6.6% of Shein's enlarged share capital. Cornerstone investors took about one-fifth of the IPO and are locked up for six months, leaving roughly 5% freely tradeable. FIRST-QUARTER ⁠LOSS, NEW STRATEGIES

Last year, the U.S. ended the de minimis duty exemption for e-commerce shipments under $800 that had powered Shein's direct-shipping model. The European Union recently followed suit, imposing fees on low-value packages. Shein's net income slid 39% last year and it swung to a loss in the first quarter.

Shein has said it expects first-half operating profit margin to ⁠be ​slightly lower than in the first quarter, hurt by higher customs duties, tariffs, fees and logistics costs in Europe and the Middle East. "Daily active users in Europe have fallen around 45% since the EU scrapped its duty exemption on small parcels, and Temu has seen a similar drop," said Josh Gilbert, lead analyst for Asia-Pacific at eToro.

"This is less a Shein problem, but more so the end of an era for cheap cross-border shipping. The brand's reach is unquestionable, but a large share of that loyalty has always belonged to ⁠the price tag." Shein has been trying to widen beyond its own-label ultra-cheap fast fashion, having expanded its third-party marketplace and bought U.S. apparel brand Everlane in May.

Regulatory risks remain a concern. Shein has disclosed an ongoing U.S. Federal Trade Commission consumer protection investigation that ⁠could result in significant penalties. The European Commission is also examining the company's ⁠handling of illegal products, the potentially addictive design of its platform and the transparency of its recommendation systems.

The IPO has helped Shein compensate early investors who invested at much higher valuations. The company has agreed to make cash payments totaling about $3.5 billion and share adjustments to some preferred shareholders. "This IPO is not just a fundraising event — it is also, and probably more of, a capital-structure event," said Jianggan ‌Li, CEO of consultancy Momentum Works.