Shein shares plunge up to 28% in grey market ahead of Hong Kong debut

HONG KONG – On the first day of trading, online fashion company Shein saw its shares drop by around 10% in Hong Kong, following its long-awaited initial public offering (IPO). The stock debuted at HK$48.56 per share, matching the final price set during the IPO that raised US$1.7 billion and valued the company at US$26.5 billion. However, the shares quickly fell to HK$43.80, a decline of nearly 8% after the market opened.

Despite the initial drop, Shein's IPO was met with relatively low demand compared to other high-profile deals in the past year. The retail portion of the offering was subscribed 5.63 times, while the international portion was subscribed 2.59 times. Some high-profile deals in the past year were hundreds of times oversubscribed, particularly from Hong Kong's retail investors who closely monitor IPOs.

Dickie Wong, executive director of research at uSMART Securities, expressed skepticism about the IPO, stating that revenue has not been growing and much of the raised money is going back to earlier investors. Additionally, grey market trading had already dropped below the offering price, and the cornerstone lock-up did not provide much protection.

The IPO represents about 6.6% of Shein's expanded share capital. The cornerstone investors took approximately one-fifth of the IPO and are locked up for six months, leaving around 5% freely tradeable. Shein, known for selling affordable clothing like US$5 and US$10 dresses, has been affected by tariff and duty changes in the US and Europe, which have impacted its business model and led to scrutiny of its practices in the West.

The valuation reset highlights concerns over Shein's exposure to tariffs, regulatory risks, and increased competition. The US ended the de minimis duty exemption for e-commerce shipments under US$800 that had helped Shein's direct shipping model, while the European Union recently imposed fees on low-value packages. Shein's net income fell by 39% last year, and it reported a loss in the first quarter, with expectations of a lower operating profit margin in the first half due to higher duties, tariffs, fees, and logistics costs in Europe and the Middle East.

Shein's attempt to diversify beyond its ultra-cheap fast fashion brand has involved expanding its third-party marketplace and acquiring US apparel brand Everlane in May. However, Morningstar's Lorraine Tan noted that lower spending power in developing markets may limit the benefits of growth in emerging markets if delivery costs remain high. The IPO has compensated early investors who invested at higher valuations, making a cash payment totaling about US$3.5 billion and share adjustments to some preferred shareholders.