Shein misses out on FTSE 100 position

Shein will miss out on a spot in the UK benchmark FTSE 100 Index as City investors start scrutinising one the largest and most controversial floats that have hit the London Market in recent years.

According to sources in the City, the number of shares sold by Singapore’s fast-fashion giant won’t meet the minimum requirement to be included in the FTSE indices. Stock exchange rules state that companies outside of the UK are required to have a free float minimum of 25%.

Sky News reported on Monday that Shein would submit its initial public offering to the Financial Conduct Authority in this month. A source with knowledge of the process stated that the float would not likely take place before the end of the summer holidays, in August.

Shein’s ability of producing an ever-changing range of ultra-cheap clothing, has taken over the fashion industry. Shein, a company founded in China in 2012. has chosen to list in London, after the hopes of New York were dashed by political hostility.

Shein’s most recent fundraise valued the company at $66 billion, or £52 billion. This meant that the rapidly growing online giant could have been one of the ten biggest companies in the FTSE 100. Profits for the retailer exceeded $2 billion in sales of $45 Billion last year.

Shein will raise over £1 billion through the sale of its new shares. Sky Xu’s close friend, who owns about a third in the company, has said that he does not plan to sell his shares at the float.

Index tracker funds that invest a significant portion of the nation’s retirement savings would not have to own shares in Shein if it failed to meet the criteria to be included in the index. Investors and analysts have begun to scrutinize Shein’s controversial model.

Shein delivers orders individually packaged directly from Chinese warehouses, meaning that the value of the consignments is below the PS135 threshold, the import duty rate for clothing.

The Analyst, a researcher who rose to fame after making successful short calls about ecommerce failures like THG and Deliveroo warned that it was “real” that Shein’s “unfair tax advantages” could be regulated into oblivion.

The Analyst, in a research report shared with clients, said that this would have an “material” impact on Shein’s sales and profits. The firm has not yet made a recommendation about Shein but calculates that duty-free exemptions will reduce Shein’s cost by 12 to 16 percent. Shein previously stated that the success of its business is due to , a digitalised supply chain which allows it to respond quickly to fashion trends.

Shein sources its clothing from around 12,000 factories in China

Investors will pay close attention to Shein’s opaque, 12,000-factory supply chain in China. Public Eye, a group that advocates for workers’ rights, conducted a recent investigation and found that the supply chain of Shein worked 75-hour work weeks.

Kunal Kothari is the fund manager at Aviva. He said, “We must understand how suppliers can make it economically viable to supply goods to Shein.” “Views are polarised, but are likely to be skewed towards the negative.” “There will be a healthy amount of scepticism, but the best investment opportunities often come from that.”

One of the City’s leading investors said the size of the UK float was exciting, but that the number of ESG related controversies were “way too high”.

Sources in the City expect Shein will try to fill its shareholder register with US growth funds, which have a higher appetite for high-growth and riskier investments than UK-based institutions.

Shein declined comment. Shein declined to comment.