Shein shares slide 10% in long-awaited Hong Kong trading debut

HONG KONG witnessed a 10% decline in Shein's shares on their debut in early trading on Tuesday. The company's long-awaited IPO aimed to raise US$1.7 billion, valuing Shein at US$26.5 billion, a far cry from its 2022 peak of nearly US$100 billion. The stock opened at HK$48.56 per share, aligning with the final price set in the IPO and later dropped to HK$43.8.

Despite initial demand being tepid compared to other high-profile IPOs, Shein's shares still saw a 5.63 times subscription in the retail tranche and a 2.59 times subscription in the international portion. Dickie Wong, executive director of research at uSMART Securities, expressed skepticism about the IPO, stating that the revenue was not growing and a significant portion of the raised funds was being returned to early investors.

The grey market price had already fallen below the offering price, and the cornerstone lock-up did not provide much solace. Cornerstone investors acquired approximately one-fifth of the IPO and are locked for six months, leaving about 5% freely tradable. The company's revenue primarily consists of $5 and $10 dresses, which have been impacted by tariff and duty changes in the US and Europe, as well as increased scrutiny of its business practices in the West.

Chinese authorities ultimately blocked Shein's attempts to list in New York and London. The valuation decline reflects not only slower growth but also the exposure to tariffs, regulatory risks, and intense competition. In 2022, Shein's net income fell by 39%, and it reported a loss in the first quarter of the year.

Shein anticipates a slight decline in its first-half operating profit margin due to higher customs duties, tariffs, fees, and logistics costs in Europe and the Middle East. The company is looking to expand beyond its own-label ultra-cheap fast fashion by introducing a third-party marketplace and acquiring US apparel brand Everlane in May. Its goal is to offer marketplace and supply chain services to more brands, following the strategies of French brand Pimkie and British brand Missguided, which it acquired in 2023.

The IPO has enabled Shein to compensate early investors who invested at higher valuations by making cash payments totaling around US$3.5 billion and adjusting shares for some preferred shareholders. This event is not merely a fundraising exercise but also a significant capital-structure event for Shein.