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London moves to revive its reputation as financial center
She inside, the online retail giant founded in China, had big ambitions to go public in New York. But as relations between Washington and Beijing soured, the ultra-fast fashion company began taking a closer look at an alternative plan across the Atlantic.
The company is now focusing more on the London Stock Exchange for its initial public offering, according to two people with knowledge of the matter. That may not have been the company’s initial choice – but it would be a big win for Britain, which has been wary of its capital losing its status as a global financial center.
Jeremy Hunt, Britain’s top finance official, allegedly courted Shein, anticipating that a major IPO would reinforce London’s position as one of the world’s leading financial centers. A spokeswoman for Shein declined to comment; the British Treasury also declined to comment.
In many ways, London remains a crucial financial center, where prices for precious metals are set daily, billions of dollars in foreign currency are traded, and global insurance contracts are concluded. But global competition for investors – between cities like New York, Hong Kong, Dubai and Singapore – is intense. Stock listing is a prominent business, and a major IPO like Shein’s can be seen as a prize that strengthens the local financial market and sets the stage for other companies to follow.
In an effort to bolster London’s position, British authorities are trying to reform the financial sector to make the city’s stock market more attractive to modern industries, especially technology companies, rather than relying on sectors such as banking. , which historically built London’s financial market. sector.
London’s reputation Financial services also took a hit following Britain’s exit from the European Union, amid concerns that banks would move money and workers to the continent. Some of these fears were exaggerated, but Brexit has taken its toll. Amsterdam, for example, overtook London as Europe’s biggest stock trading center about three years ago, according to Cboe Global Markets.
The emphasis on attracting public listings to London is partly due to pride, said Gbenga Ibikunle, professor of finance at the University of Edinburgh’s Business School.
“London used to be recognized as the center of the financial world,” he said. “We know that this is no longer the case and this has been aggravated by the fact that we have left the EU and therefore there are a reduced number of negotiations, in terms of volumes, in London. And this also reduces part of the influence that the market has.”
Beyond pride, analysts say, there are good economic reasons to have a healthy flow of listings. On the one hand, they support a range of financial and professional services jobs, from bankers to lawyers. Public companies are also open to greater scrutiny, which can provide more information about the state of the economy.
Fears that London is losing its attractiveness for publicly listed companies have increased over the years as several companies, including building materials company CRH and betting operator Flutter Entertainment, have moved their main listings from London to New York. Others, like the oil giant Shellacknowledged studying the idea.
Those that left were also not replaced by a wave of companies that went public. Last year brought a significant blow when British computer chip company Arm listed its shares in New York. This offer, the largest in 2023, raised almost US$5 billion.
New York has been a long-time destination for IPOs. Many in the financial industry point to concerns that the London market, with its lower trading volume, will lead to lower valuations than the New York exchanges can provide.
There is an advantage to being listed alongside similar companies on the same exchange because the rising tide attracts more analysts and investors focused on those stocks, said Scott McCubbin, who leads EY’s IPO team in the UK and Ireland.
Part of the problem, analysts say, is that the London Stock Exchange is dominated by companies in older sectors such as banking, mining and oil and gas. Britain has struggled to attract listings from technology companies and high-profile failures have compounded the problem. Deliver, a London-based food delivery company, went public in 2021 and was called “the worst IPO in London history.” (Its shares are down 63% from their peak.)
“The rule change that’s happening now says we need to become much more attractive to technology companies, especially start-ups, especially companies that don’t have a long history of profitability,” McCubbin said. These are companies that are based on “what the next 10 years will be like, not what the last 10 years were like”.
But consultants caution that companies considering an IPO in New York must have some natural connection to the US market to benefit from trading there. Flutter, for example, generates more than a third of its revenue in the United States. Otherwise, investment fund managers would have little incentive to focus on small British companies at the expense of larger ones that are more relevant to Americans.
The slowdown in London offerings is part of an industry-wide shortage that has been going on for more than a year, amid high interest rates, conflict and geopolitical uncertainty. Only 16 companies went public in New York last year, an 84% drop compared to 2022, according to the London Stock Exchange Group; in comparison, 10 companies went public in London, a drop of 88%.
That said, companies that went public in New York last year raised a collective total of $9.5 billion, while those in London raised $442.7 million, according to data from the London Stock Exchange Group. Still, although London struggles to compete with New York, it is a much more popular destination than its European neighbors such as Paris and Amsterdam.
The British government has announced a series of reforms in recent years to encourage companies, especially technology start-ups, to raise capital through an IPO in London. For example, Britain reduced the number of shares a company is required to have in public hands from 25% to 10% and allowed certain dual-class listings at the premium end of the market, changes that are intended to encourage technology founders who may want to maintain greater control of their company after an IPO
Other planned changes are expected to make it easier for companies to make large acquisitions or other transactions without obtaining shareholder approval.
“We have seen some reforms already in place, but the vast majority are either on the horizon at the moment or planned but still to come,” said Julie Shacklady, director of UK Finance, a trade group. “So we’re still not really seeing the benefits of the full extent of the reforms.”
But she said she had “cautious optimism” about a market recovery later this year and did not expect an election, even one leading to a new government, to derail the changes.
In case of She inside, the company said part of the reason for going public is to be more transparent in the face of accusations of poor labor and environmental practices. London is considered to have high standards for businesses, with strict reporting requirements and new sustainability rules.
In addition to Shein, traders and market drivers in London point to other promising news for the British stock market. Raspberry Pi, a maker of low-cost computers, said it plans to go public on the London Stock Exchange.
A corporate consultant said a number of companies owned by private equity firms – which regularly take businesses they own public, providing a regular source of listings – could hit the London stock exchange from next year.
As companies debate whether to list in New York or London, Hunt and Bim Afolami, the Treasury minister, met this month with technology companies to promote Britain as a place to raise money.
“For a few years we have been self-destructing, but actually this year we are very optimistic that we have really turned the corner,” Afolami said at an event in London this month.