WSJ : Fashion Giant Faces New IPO Hitch: China’s Cybersecurity Police

Fashion Giant Faces New IPO Hitch: China’s Cybersecurity Police
Beijing is scrutinizing Shein’s data handling for potential national security risks, a move that might delay its planned share sale

SINGAPORE—China’s powerful internet regulator is conducting a cybersecurity review of Shein’s data handling and sharing practices as the fast-fashion company seeks Beijing’s blessing for its planned initial public offering.

The Cyberspace Administration of China is looking into the ways Shein handles information on its staff, suppliers and partners in China, as well as whether the company can effectively protect such data from leaking to overseas parties, people familiar with the matter said.

Beijing is also interested in the type of Chinese data Shein will disclose to the U.S. securities regulator as it seeks a listing in New York, the people said.

The CAC probe represents an escalation of regulatory scrutiny of Shein’s plans to raise potentially billions of dollars through a stock sale. The company is seeking a greenlight from China’s securities regulator before it can list overseas.

In past cases, similar investigations by the CAC take months to complete, and a prolonged review could result in delays to Shein’s stock sale. In the worst case, the plan could be scuttled altogether if the regulator concludes there are any serious problems. The CAC, whose mandate has grown tremendously under Chinese leader Xi Jinping, has hamstrung the overseas listing plans of several large Chinese technology companies.

Beijing launched a similar probe of the Chinese ride-hailing giant Didi Global in July 2021, two days after Didi raised $4.4 billion in an IPO on the New York Stock Exchange. Within a year, the Beijing-based company delisted from the U.S. exchange. TikTok’s parent, ByteDance, in 2021 put on ice its plan to go public after Chinese regulators suggested it focus on addressing data-security risks and other issues, The Wall Street Journal has reported.

Shein and the CAC didn’t respond to requests for comment.

China has stepped up oversight of the country’s dominant internet companies and the flow of data across its borders. In recent years, Beijing has rolled out rules to regulate data processing and overseas data transfers that it considers could have national-security implications.

Founded in 2012 by a group of Chinese entrepreneurs, Shein moved its headquarters to Singapore from the Chinese city of Nanjing several years later. It counts the U.S. as its biggest market, having soared in popularity during the pandemic, selling inexpensive and trendy clothes to millions of shoppers.

Shein confidentially filed to go public in the U.S. in November and has hired Goldman Sachs, JPMorgan Chase and Morgan Stanley as lead underwriters. Its IPO could be one of the biggest in years, with Shein recently valued at $66 billion.

To go forward with its listing, according to people familiar with the issue, Shein will need the blessing of both U.S. and Chinese regulators. Shein has filed the paperwork for its U.S. application with the China Securities Regulatory Commission, an agency overseeing the offshore listings of Chinese companies. According to CSRC rules, it can coordinate with other regulators, including the CAC, should the authority have concerns over whether the company’s overseas listing could potentially jeopardize national security.

Beijing in recent years has required internet platforms holding large amounts of private user data and critical businesses such as banks and telecom companies to engage in a cybersecurity review.

Shein, which sells $5 crop tops and $10 handbags to customers in more than 150 countries, doesn’t sell to shoppers in China. Still, the company’s operations are heavily entwined there, including sourcing from thousands of Chinese suppliers. Such relationships are the main reason why the internet regulator has opened a review into Shein’s data handling, people familiar with the review said.

Shein has also set up and invested in dozens of business entities in China. It is linked to Chinese business entities involved in areas including logistics, warehousing and other supply-chain services, according to Chinese corporate records. It owns a stake in several other Chinese businesses, according to the Chinese corporate database Tianyancha.

Apart from Didi, two other companies that were newly listed in the U.S.—Full Truck Alliance, an operator of truck-hailing apps, and the online recruiter Kanzhun—were also subjected to similar data-security reviews by the CAC around the same time. Regulators said apps operated by the three companies weren’t allowed to register new users until the end of the investigations.

Didi had gone ahead with its share sale without getting a nod from the CAC, the Journal reported. After the CAC opened the investigation, Didi’s share price plummeted. When the company eventually delisted, its shares had fallen 80%. The probe was closed in a year, and Didi was fined about $1.2 billion for flouting China’s cybersecurity, data-security and personal information protection laws.

Full Truck Alliance and Kanzhun resumed adding new users in June 2022 after the two companies issued public statements that they had rectified security issues discovered during the CAC’s probes. Both companies’ shares still trade in the U.S., though their stock prices have dropped significantly.

New rules have been introduced on which companies are subject to cybersecurity reviews.

Meanwhile, the Securities and Exchange Commission hasn’t responded in writing to Shein’s IPO plan, which bankers and lawyers say is unusual. The reasons for the SEC’s silence couldn’t be determined. People close to Shein and in Washington said it could suggest the U.S. regulator’s reluctance to take on a hot-button issue with potential political implications as Shein faces increasing scrutiny over its Chinese roots.

FT : More Heathrow shareholders plan to sell stakes alongside Ferrovial

More Heathrow shareholders plan to sell stakes alongside Ferrovial
USS, Canada’s CDPQ and Singapore’s GIC push to exit, putting £2.4bn deal with Saudis and private equity at risk

Three shareholders in Heathrow that between them own more than a third of the London airport have said they want to sell out alongside majority owner Ferrovial, according to the infrastructure group, as part of £2.4bn deal agreed last year.

Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ), Singapore sovereign wealth fund GIC and the UK’s Universities Superannuation Scheme all intend to exit, according to a person familiar with the deal.

Ferrovial did not name the trio, and all three companies declined to comment.

Ferrovial agreed to sell its 25 per cent stake in the UK’s biggest airport in November for £2.4bn to French private equity company Ardian and the Saudi Public Investment Fund, ending 17 years of ownership.

As part of that deal, the airport’s other shareholders were given the option to sell their own stakes at the same valuation, with the Saudis and Ardian offered first refusal. Ardian originally agreed to buy 15 per cent and the Saudis 10 per cent.

On Tuesday, Ferrovial said that other shareholders that between them owned 35 per cent of the London airport had decided to exercise their “tag-along” rights, throwing a potential roadblock in the way of the transaction.

With 60 per cent of the airport now involved in the sale process, the £2.4bn deal could collapse if all the shareholders cannot find buyers.

Ferrovial added it was a “condition” of the transaction that the “tagged shares” were also sold.

Neither Ardian nor the Saudis are compelled to buy the new shares on offer. The Saudis plan to stick with their original plan to buy 10 per cent and do not want to increase their stake in the airport beyond this, according to a person familiar with the deal. Ardian is considering raising its offer, the person said. 

Another option being considered is for the Saudis and Ardian to find a third investor to come on board to take the fresh stakes.

The change in ownership would represent one of the biggest shake-ups in Heathrow’s boardroom since it was privatised under the Thatcher government in the 1980s.

Any new investors will buy into an asset that has been lossmaking for three years because of the coronavirus pandemic and travel restrictions, but with a history of generating strong returns for shareholders.

Still, plans to build a third runway to generate significant new growth have stalled amid high inflation and rising interest rates.

Heathrow’s management has instead been exploring less radical options to increase passenger numbers, such as upgrading terminals and its road links, the Financial Times reported last month. 

FT : London and other UK cities unprepared for effects of climate change

London and other UK cities unprepared for effects of climate change
Inadequate investment in flood defences leaves capital and other areas at risk, warn two reports

London and other cities across the UK are underprepared for the “disastrous consequences” of climate change, with issues including severe flooding and extreme heat posing a “lethal risk” to vulnerable communities, according to a new report.

The London Climate Resilience Review, commissioned by mayor of London Sadiq Khan and chaired by Emma Howard Boyd, the former chair of the Environment Agency, issued a series of “urgent recommendations”, including that Whitehall should give councils more funding and powers to adapt to global warming. 

Britain’s ruling Conservative party has been accused of backtracking on efforts to tackle climate change after Prime Minister Rishi Sunak rolled back a series of green measures and drew up legislation to encourage more oil and gas drilling in the North Sea.

The review said “significant climate adaptation and resilience action” was already taking place across London, but warned that it would not be enough to meet forecast rises in global temperatures and the accompanying “disastrous consequences” of climate change. 

In 2021, the capital was hit by flash floods that caused damage to homes and businesses across the city, while in the following year there was a heatwave, with temperatures hitting 40C. Last year was the hottest on record globally, and the second hottest in the UK. 

“We need to recognise that Londoners now face lethal risks, and a step change is needed,” said Boyd. “In the absence of national leadership, regional government has a more significant role to play. We need pace not perfection.”

London’s main climate risks included rising sea levels, as well as surface water flooding, extreme heat, wildfires and drought hitting water supplies, the report said. 

It added that the sea level in the Thames Estuary was expected to rise by about 1.15m by the end of this century and warned that only 9km of the 126km in flood defences west of the Thames barrier were “sufficiently high to last beyond 2050”. 

The warnings came as MPs on the cross-party public accounts committee warned that the risk of flooding had increased across the country, with 5.7mn properties in England and Wales at risk in 2022/23.

The MPs pointed out that although the Department for Environment, Food and Rural Affairs (Defra) had pledged in 2020 to create “a nation more resilient to future flood and coastal erosion risk”, it had set no overall targets so could not measure progress. 

They added that the Environment Agency, the regulator responsible for maintaining flood defences, had estimated that 40 per cent fewer properties than planned would receive protection in part because of spiralling construction costs and “the bureaucracy associated with approving projects”. 

The MPs pointed out that lack of funding prevented the agency from properly maintaining assets, such as flood defences and barriers, while Defra had failed to provide adequate support and leadership to local authorities on how to address the risk of flooding. Meanwhile, new housing is still being built on flood plains without adequate protection.

Sir Geoffrey Clifton-Brown MP, deputy chair of the committee, said flood resilience must become an “ever-increasing priority”. The “alarming truth” is that the “approach to keeping our citizens safe in this area is contradictory and self-defeating, not least in the continuing development of new housing in areas of high flood risk without appropriate mitigations”.

Defra has been approached for comment.

FT : Investors raise billions to buy discounted stakes in start-ups

Investors raise billions to buy discounted stakes in start-ups
Buyers return after secondary market for private shares was hit by higher interest rates

Investment firms are raising billions of dollars to buy stakes in venture capital-backed technology start-ups, as a long drought in acquisitions and initial public offerings forces early investors to offload their stock at discounts.

The start-up secondary market, where investors and employees buy and sell tens of billions of dollars’ worth of shares in privately held companies, is becoming an increasingly important trading venue, in the absence of traditional ways of cashing out and given a slowdown in start-up funding.

Venture secondaries buyers are primed for a busy year as start-up employees look for a way to sell their stock and investors look to return capital to their own backers or reallocate it elsewhere.

Secondary market specialist Lexington Partners last week announced a new $23bn fund to buy up stakes from “large-scale investors”. Lexington had originally aimed to raise $15bn, but upped its target on the back of high demand, and said it was “in the early stages of a generational secondary buying opportunity” that could last years.

The fund will predominantly buy shares from private equity funds but also expects to invest as much as $5bn into venture capital secondaries, said a spokesperson.

“We are seeing crazy amounts of LPs [limited partner investors] that are distressed and need to lighten their venture load,” said the head of a $2bn venture capital firm.

The latest Lexington fund “speaks to the sheer demand” from LPs that feel “over-allocated” to private capital including to start-ups, they said.

Other specialist firms such as Pinegrove Capital Partners, a joint vehicle created by Brookfield Asset Management and Sequoia Heritage, and StepStone have also been raising multibillion-dollar funds to target venture secondaries.

StepStone has raised an initial $1.25bn for its latest fund, according to Securities and Exchange Commission filings and earnings transcripts, and is targeting a total raise of more than twice that, said a person with knowledge of the deal.

The large sums of new capital point to a return to high levels of trading after a two-year downturn, according to investors.

The secondary market has grown massively over the past decade, with major banks, asset managers and trading firms all investing in various trading platforms. It has also become a critical release valve for start-up employees who have been unable to realise the value of their stock because of the lack of IPOs. In the last year companies including OpenAI and Elon Musk’s SpaceX have arranged the sale of employee stock via the secondary market.

“The main exit for VCs is primarily IPOs and M&A [mergers and acquisitions], and neither of those are happening,” said Tom Callahan, chief executive of Nasdaq Private Market, a trading venue. “It creates this immense pressure . . . [and] incredible opportunities for investors coming in and buying companies at deep discounts.”

However, it is still more lightly regulated, more opaque and far less liquid than public markets. One venture investor described it as “a messy backwater market dominated by brokers on the phone”.

Carta, a $7.4bn software company backed by investors including Goldman Sachs, Andreessen Horowitz and Silver Lake, last week said it would shut down its employee-focused secondaries platform following allegations that it had tried to trade customers’ shares without their consent.

IPO activity is expected to pick up later this year, but it is still likely to take several months for volumes to normalise.

Secondaries trade stalled in 2022 as start-up valuations were belatedly hit by higher interest rates. Nasdaq Private Market’s Callahan said that at points in the past two years, venture capital firms were demanding prices 30 per cent higher than potential buyers were willing to pay.

Marcus New, chief executive of trading platform InvestX, said valuation gaps had begun to shrink as venture capital firms became “more and more distressed”, leading to an increase in the supply of shares for sale. However, he and Callahan both said hedge funds and institutional investors have remained cautious about buying shares in all but the largest and most well-known private companies.

Investors and trading platforms are hoping the arrival of specialist secondary buyers with billions of dollars to spend will make up for that and drive up volumes.

“Values will get adjusted down this quarter,” said Hans Swildens, a secondaries investor and founder of Industry Ventures. “There will be a markdown across the market. If that happens then the volume [of trade] will start spiking.”

Forge Global, a publicly traded secondary exchange for privately held stock, reported a more than 50 per cent quarter-on-quarter increase in trading volumes in the third quarter of 2023, and chief executive Kelly Rodriques told the Financial Times “that trend will continue”.

On average, recent share sales on Forge were priced at about a 50 per cent discount to each company’s most recent primary fundraising.

InvestX’s New said those willing to brave the market before the broader IPO market recovers could pick up bargains.

“We’ve been successful in putting in low-priced bids [where] we’re the only person in the market,” he said. “I think the next few months will be the best time to be a buyer of these types of securities in the past half decade.”

FT : The music industry’s fightback is picking up rhythm

The music industry’s fightback is picking up rhythm
Universal Music creates a new royalties model for streaming

New year messages from managers do not often set hearts singing. Universal Music chief executive Lucian Grainge’s annual memo to staff is an exception. His musings are closely read by equity analysts as they can set the tone for industry-wide changes.

At the turn of 2023, the head of the world’s largest record company called for a new royalties model for streaming, to combat the rise of what he referred to as “noise”. His 2024 memo suggests the industry is not finished battling threats such as fraud and generative artificial intelligence.

Music is a prime example of a sector that has faced repeated disruption in the past quarter of a century — and has so far managed to survive near existential threats.

Last year, Grainge followed through on his resolutions. In September, Universal struck a deal with French music streaming service Deezer that marked the first major change in streaming royalties since the advent of the industry in the late noughties.

Streaming platforms such as Spotify, which launched in 2008, helped to revive an industry that had, from the late 1990s onwards, struggled against illegal file-sharing and downloads.


Streaming drove global recorded music industry revenues to double between 2014 and 2022. Yet the royalties model had not evolved in the past 15 years, despite the emergence of new threats. The ability for almost anyone to create and stream content led to a surge in uploads, which is only expected to accelerate with the proliferation of generative AI. This threatened to dilute professional artists’ — and music labels’ — share of royalties paid.

Under Universal’s agreement with Deezer, professional artists who generate larger numbers of streams are remunerated better than creators of other content, including computer-generated sounds. Rival Warner Music also later signed up to the Deezer model in France.

Grainge’s 2024 memo suggests other platforms may soon follow what he has coined an “artist-centric” approach. A separate agreement between Universal and Spotify struck last year has similar principles.

Such an approach is, of course, also label-centric. It is in Universal’s interests for the model to become systemic. Industry-wide revenue growth from streaming has slowed in recent years. Universal’s subscriptions and streaming revenue is forecast to rise 7.5 per cent to €5.72bn for 2023, according to analyst estimates on Visible Alpha. It had racked up growth of 19 and 17 per cent respectively in 2022 and 2021.


Shares in Universal fell 11 per cent in the first half of 2023 as investors fretted over the consequences of generative AI, including the rise of “deepfake” songs that mimic the voices of professional artists. However, price rises and the Deezer agreement have since helped push the shares up more than 30 per cent.

Other factors should help growth. Citi’s Thomas Singlehurst points to price rises: platforms including Spotify and YouTube lifted costs for listeners in 2023, but the effects should still be felt this year.

Universal struck an agreement announced in October to start distributing vinyl and CDs from artists signed to rival BMG, although it is expected to be a low-margin activity. Grainge has promised “efficiencies”, or job cuts. This, Singlehurst believes, should help keep margins “at least stable” in 2024.

Other innovations are needed to stay ahead of disruption. Grainge hinted that Universal is looking at how it can monetise the relationship between artists and their closest followers with “superfan experiences”. It is easy to imagine dedicated fans paying for exclusive content.

The music industry’s battle against AI and fake content is only at the start. But investors can at least gain confidence that Universal is on the offensive.

Activist interest suggests the UK has a management problem
The UK’s persistently undervalued stock market is irresistible to global activist shareholders. Campaigns rose across Europe last year, according to data from consultants at Alvarez & Marsal. The UK was the most popular location for the seventh year running.

This is a dubious distinction, given concerns about the UK’s equity market malaise and longstanding underperformance. But the agitators appear to have had some success. Two years after an activist shareholder campaign, according to the data, UK company share prices beat the wider market by 9.2 per cent. Campaigns in the US and Europe generated lower outperformance of 6 per cent on average.

The UK’s appeal to activist investors makes sense. Not only does it have more listed companies than other European markets but share registers are more open. Larger free floats help in two ways. There are fewer large influential owners, including families or founders, who wield influence over the company. A more distributed shareholder register can also mean a more willing investor audience to coalesce behind activists’ demands.

But the market may also simply be ripe for their intervention. A&M’s analysis suggests activist campaigns focused only on dealmaking, governance or environmental and social factors reap lower rewards than those that home in on operational performance. Bumpitrage efforts — where shorter-term activism can boost takeover offers — yielded positive results at deals for tobacco group Swedish Match and UK software group Aveva.

The UK market trades at roughly a one-third valuation discount to global stocks. There is much debate about whether sector composition, growth outlook, income-focused investors or waning domestic pension money is the root cause.

The repercussions, however, are clear given the rise in private equity-backed takeovers and a growing roster of companies, such as Tui, CRH and Ferguson, opting to move their listing overseas. The A&M findings add weight to the optimists’ case that UK stocks trade at lower multiples because they offer lower returns. Once adjusted for this, the discounts often disappear.

>>> US After Hours Summary: PI +10.7% higher on bullish guidance; PLXS -6.4% low

After Hours Summary: PI +10.7% higher on bullish guidance; PLXS -6.4% lower on guidance; CVGW -7% as it delays Q4 report, exploring sale of unit

After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: PI +10.7%, EOLS +5.5%, PRGS +3.6%, WAFD +0.8%

Companies trading higher in after hours in reaction to news: RCUS +7.1% (RCUS announces survival data from ARC-8, a Phase 1b study co-developed with GILD), NTRA +5.6% (verdict reached in patent case; no willful infringement, damages significantly less than what Ravgen was seeking), NRIX +2.1% (receives FDA Fast Track Designation for NX-5948), GPRO +1.3% (to acquire Forcite Helmet Systems), CMP +0.8% (names new CEO), CRSP +0.1% (FDA approves CASGEVY)

After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: BGFV -7.7%, PLXS -6.4% (lowers DecQ guidance, citing inventory corrections and weaker demand in Healthcare/Lifesciences and Industrial markets; also announces new $50 mln share repurchase program), FULT -4.1%, IBKR -2.4%, PNFP -1.4%

Companies trading lower in after hours in reaction to news: CVGW -7% (delays Q4 report, expects revs below consensus; delays 10-K filing, board says certain matters merit "enhanced evaluation"; also exploring sale of its Fresh Cut Business to F&S Fresh Foods), ALEC -6.4% (stock offering), INTR -3% (stock offering by selling shareholders), GILD -1.7% (RCUS announces survival data from ARC-8, a Phase 1b study co-developed with GILD), DH -1.5% (CEO steps down, reaffirms Q4 guidance), SPWR -1.3% (adopts restructuring plan to reduce operating costs due to slower sales), KNTE -0.8% (to reduce workforce by 56%), MS -0.1% (Direct Lending Fund commences 5 mln share IPO), REPX -0.1% (reduces debt outstanding by $30 mln), PB -0.1% (authorizes new 5% share repurchase program)

>>> US Close Dow -0.62% S&P -0.37% Nasdaq -0.19% Russell -1.21%

Closing Stock Market Summary
The stock market started this short week on a soft note. The Nasdaq Composite logged a 0.2% decline, the S&P 500 fell 0.4%, and the Dow Jones Industrial Average declined 0.6%. Small cap stocks were relative laggards, leading the Russell 2000 to log a 1.2% loss.

A jump in market rates contributed to the selling activity in the stock market today. The 2-yr note yield settled seven basis points higher at 4.22% and the 10-yr note yield jumped 12 basis points to 4.07% after falling to 3.99% earlier.

This price action was partially a reaction to comments from Fed Governor Waller (FOMC voter), who indicated that the Fed could begin cutting rates this year, but reiterated the Fed's estimate for three cuts rather than six cuts that the market expects.

The fed funds futures market is now pricing in a 66.9% probability of a 25 basis points rate cut at the March FOMC meeting versus an 81% probability on Friday, according to the CME FedWatch Tool.
Some hesitation in front of the bulk of Q4 earnings also contributed to the downbeat price action. Goldman Sachs (GS 380.45, +2.70, +0.7%), Morgan Stanley (MS 85.97, -3.73, -4.2%), and PNC (PNC 149.02, +0.10, +0.1%) were the latest names to report quarterly results, garnering mixed responses.

On a related note, the S&P 500 financial sector was among the worst performers, dropping 0.6%. Other laggards included follow economically-sensitive sectors like energy (-2.4%), materials (-1.2%), and industrials (-1.0%).

The lone sector to close with a gain was information technology (+0.4%), which was boosted by gains in Microsoft (MSFT 390.27, +1.80, +0.5%) and NVIDIA (NVDA 563.82, +16.72, +3.1%).

The sector was also boosted by news that ANSYS (ANSS 327.42, -19.06, -5.5%) will be acquired by Synopsys (SNPS 509.68, +15.28, +3.1%) in a transaction that values ANSYS at $35 billion.
Today's economic data was limited to the NY Empire State Manufacturing Index, which doesn't normally move the market that much, but plunged to -43.7 in January from -14.5 in December.
  • S&P 500: -0.1%
  • Nasdaq Composite: -0.5%
  • Dow Jones Industrial Average: -0.9%
  • S&P Midcap 400: -2.5%
  • Russell 2000: -4.9%

Looking ahead, Wednesday's economic calendar features:
  • 7:00 ET: Weekly MBA Mortgage Index (prior 9.9%)
  • 8:30 ET: December Retail Sales (consensus 0.4%; prior 0.3%), Retail Sales ex-auto (prior 0.2%), December Import Prices (prior -0.4%), Import Prices ex-oil (prior 0.2%), Export Prices (prior -0.9%), and Export Prices ex-agriculture (prior -1.0%)
  • 9:15 ET: December Industrial Production (consensus -0.1%; prior 0.2%) and Capacity Utilization (consensus 78.8%; prior 78.8%)
  • 10:00 ET: November Business Inventories (prior -0.1%) and January NAHB Housing Market Index (consensus 38; prior 37)