British Luxury Jeweler Graff Diamonds Prepares Hong Kong IPO

Graff Said To Be Shooting For US$1 Billion IPO

Graff currently has two points of sale in mainland China

The latest in a string of high-end brands listing in Hong Kong to fuel expansion in the Greater China region, Britain’s Graff Diamonds is expected to seek approval this week from the Hong Kong stock exchange for an initial public offering of as much as US$1 billion. As Reuters notes, this would surpass the $600 million listing by the property fund of Tesco’s Thai unit, the biggest IPO in the Asia-Pacific region so far this year. Though, as Reuters points out, no timetable has yet been set for Graff to start meeting with possible investors, Hong Kong IPO candidates have generally started this process around a week after approval from the stock exchange.

Graff’s long-expected IPO will come on the heels of similar moves by other now more Asia-focused luxury brands — not all of which proved stellar. Last summer, Prada’s Hong Kong IPO raised US$2.14 billion by pricing its shares at the bottom of its guidance in what the Wall Street Journal said was a “reflection of deteriorating stock market conditions and concerns about the Italian luxury retailer’s valuation and a potential tax charge.” More recently, jeweler Chow Tai Fook raised US$2 billion in its November 2011 IPO, saying it expected long-term sales in the region to stay strong despite weakening demand at the end of last year. These relatively disappointing debuts followed a nearly year-long tear of IPOs that saw brands like L’Occitane and the Chinese cosmetics powerhouse SaSa International successfully list in Hong Kong. As Aaron Fisher, CLSA Asia Pacific Markets regional head of consumer research, said last year, Hong Kong-listed retailers are best positioned to benefit from growing spending power in the Chinese mainland, since “a greater percentage of their earnings are derived from Chinese customers.”

Peng Wei for Graff Diamonds (Image: Robb Report Lifestyle)

With Hong Kong’s stock market showing signs of improvement in the first quarter of this year, rising 14.4 percent, Graff’s IPO may come at a better time than those by Prada, Samsonite or Chow Tai Fook. Less exposed to price fluctuations than gold-focused jewelers like Chow Tai Fook, and catching a period of rising demand for diamonds, Graff stands to do well, as long as investors pull through. Currently, China is the second-largest buyer of diamonds worldwide after the United States. While demand in the US rose seven percent last year, however, China recorded a 25 percent surge. As Jing Daily wrote last September, in response to this booming demand, major diamond retailers like Harry Winston — which just opened its first China flagship in Shanghai — Van Cleef & Arpels, Tiffany & Co. and others have geared up for massive expansion in mainland China. Over the past two years, as diamond engagement rings have become a “must” for young couples, luxury consumption has surged, and wealthy urbanites have started to see the precious stones as good “portable investments.”

Though Graff Diamonds is comparatively new to China, with only two points of sale in mainland China, the company has poised itself for success in China, first gaining a foothold in Hong Kong, then plotting a deliberate expansion into Beijing and Shanghai (opening counters at the Peninsula Hotel in both cities), and last May linking up with the Chinese artist Peng Wei on a nationwide advertising campaign. If Graff’s planned $1 billion IPO proves successful, and attracts local investor interest, the company’s China expansion efforts could go far beyond its upcoming Macau and Hangzhou flagships.


Market Analysis, Retail