By Yantoultra Ngui, Casey Hall and Helen Reid
HONG KONG, Sept 1 (Reuters) - Chinese online fashion giant Shein's Hong Kong debut on Tuesday caps a years-long effort to tap capital markets after trying to list in vain in the West, but may bring little comfort to investors with an expected lacklustre start to trade.
Gray market prices quoted by brokerages in the Asian financial hub on Monday indicated its stock at more than 10%below its IPO price. The offering also valued Shein at around $26.5 billion,
far below its 2022 peak of nearly $100 billion.
"Never been bullish on this IPO. Revenue's not growing, and a lot of the money raised is basically going back to the earlier investors," said Dickie Wong, executive director of research at uSMART Securities in Hong Kong.
"Grey market already dropped below the offering price, cornerstone lock-up doesn't really help."
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.
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 undermine the foundations of its business.
Intense scrutiny of its business practices in the West also hampered its attempts to list in New York and London, which were ultimately blocked by Chinese authorities.
"The valuation reset reflects more than just slower growth," said Jianggan Li, CEO of consultancy Momentum Works, adding investors now regard Shein as exposed to tariffs, other regulatory risks and competition.
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.
"New markets could help offset slower growth in the U.S. and Europe, but lower spending power in developing markets may limit the benefit if delivery costs stay high," said Lorraine Tan, director of equity research at Morningstar.
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.
In its prospectus it said it aims to offer marketplace and supply chain services to more brands, in the footsteps of French brand Pimkie, and British brand Missguided, which it bought in 2023.
MANY INVESTIGATIONS
But 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 examining the company's handling of illegal products, the potentially addictive design of its platform and the transparency of its recommendation systems, while Ireland's Data Protection Commission is investigating whether transfers of European user data to China comply with EU privacy rules. French authorities have also scrutinized illegal products sold through Shein's marketplace.
"Investors will want to see whether Shein can defend its low-price model while absorbing higher trade costs," said Sheng Lu, professor of fashion and apparel studies at the University of Delaware.
"That is the key question after the listing."
The listing in Hong Kong is in many ways a full-circle moment for Shein, which famously moved its headquarters to Singapore and has had to re-embrace its Chinese roots to go public.
At about $27 billion, Shein's valuation puts it on par with H&M but far behind competitors such as Zara owner Inditex and Uniqlo owner Fast Retailing.
Shein retains an edge over traditional fashion retailers through its highly responsive, on-demand supply chain, but its position has come under pressure as Temu, owned by China's PDD Holdings, has emerged as a formidable rival in low-cost cross-border e-commerce.
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," Momentum Works' Li said.
(Reporting by Yantoultra Ngui and Summer Zhen in Hong Kong, Helen Reid in London and Casey Hall in Shanghai; Editing by Sumeet Chatterjee and Edwina Gibbs)
