Bloomberg News

Graff Seeks $1 Billion in IPO, Plans New Asia Stores

May 18, 2012

Graff Diamonds jewelry on display in a store window. Photographer: Kevin Winter/Getty Images

Graff Diamonds jewelry on display in a store window. Photographer: Kevin Winter/Getty Images

Graff Diamonds Ltd., the London jewelry retailer that’s planning a $1 billion Hong Kong initial public offering, will open five new stores in Asia this year to tap demand for luxury goods in the region.

Graff, which has 18 stores globally including one in Beijing opened last year, plans to add new stores in Shanghai, Hangzhou, Hong Kong, Macau and Tokyo, according to a filing to Hong Kong’s stock exchange yesterday. Chinese consumers account for about 20 percent of global spending on luxury goods and will make Asia the fastest growing market for luxury goods in the world, Graff said in the filing.

Graff may offer its shares in a range of 18 to 24 times estimated 2012 earnings, or HK$25 to HK$37 each, to raise as much as $1 billion, three people with knowledge of the matter yesterday. About $850 million of the funds raised will go to Graff, and $150 million to selling shareholders, they said.

“The valuation looks rather high, investors could have a lot of choices at such multiples,” said Edwin Fan, an analyst at BOC International Group yesterday. “Graff doesn’t have a very high penetration in China. It is not the perfect time to price such an expensive IPO.”

In the proposed range, Graff’s valuation would be similar to that of Prada SpA which is trading at about 21 times estimated earnings for the year ending January 2013, according to data compiled by Bloomberg. The Italian fashion house is up 11 percent from its June 2011 IPO, which raised $2.5 billion.

LVMH, Richemont

LVMH Moet Hennessy Louis Vuitton SA (MC), PPR SA, maker of Gucci, and Cie Financiere Richemont SA (CFR), owner of the Cartier brand, trade at an average of about 15 times the current year’s estimated earnings, the data show.

Graff’s profit rose 15 percent to $120 million last year, as sales increased 23 percent to $756 million, according to the exchange filing. The company generated most of its revenue last year from U.K. and Europe.

Graff has one store in the Peninsula Hotel in Hong Kong, where Chinese consumers take advantage of lower tax rates than in the country’s mainland and splurge on luxury goods. The company plans to open a second store in the Hong Kong Ritz Carlton hotel and in Wynn Macau Ltd. (1128)’s casino in the former Portuguese colony.

Graff, “relies on a very niche market, such as the super rich in China whose net worth have been affected by the falling property prices,” said Fan. China’s home prices fell in 46 of 70 cities tracked by the National Bureau of Statistics, the agency said yesterday.

Volatile Markets

Graff is pushing ahead with the offering even after Chow Tai Fook Jewellery Group Ltd. (1929), the world’s biggest listed jewelry chain, dropped 33 percent in the five months since its Hong Kong debut. Chow Tai Fook currently trades at 12.4 times estimated earnings for the year ending March 2013, data compiled by Bloomberg show.

Stock-market volatility stemming from turmoil in the euro region has curbed investor demand for new equity. Companies have raised $1.4 billion in IPOs in Hong Kong this year, the lowest amount for any similar period since 2003, data compiled by Bloomberg show. With Europe’s debt crisis deepening, the MSCI Asia Pacific Index (MXAP) fell into losses for the year yesterday.

The company plans to start trading on June 8, one of the people with knowledge of the matter said. This is a day later than was disclosed a term sheet sent to investors on May 7.

Proceeds from the share sale will be used partly to pay back debt, according to the term sheet. Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc. and Morgan Stanley are managing the offering. N M Rothschild & Sons acted as financial adviser.

Chow Tai Fook dropped 9.6 percent on May 16, the most since its $2 billion IPO in December, as gold prices tumbled. Sales of jewelery, watches and valuable gifts in Hong Kong rose 19 percent in March from a year earlier, slowing from 55 percent growth in March 2011, according to data compiled by Bloomberg.

To contact the reporters on this story: Fox Hu in Hong Kong at fhu7@bloomberg.net; Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net


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