Graff Diamonds Corp. (1306) shelved a $1 billion initial public offering in Hong Kong as Europe’s debt turmoil drives first-time stock sales to the lowest level since the collapse of Lehman Brothers Holdings Inc.
Graff, which depends on just 20 customers for almost half its revenue, cited “consistently declining stock markets” in an e-mailed statement. It had sought a valuation of as much as 24 times estimated full-year earnings, a higher multiple than those of luxury-goods companies including Harry Winston Diamond Corp. (HWD:US) and PPR SA.
Demand for new equity collapsed as world stock markets lost about $4 trillion since the start of May, pulled down by speculation that Greece may exit from the euro. Investors have become more skittish about valuations as Facebook Inc. (FB:US) tumbled 26 percent from its IPO price.
“The global IPO markets are dead until European Union issues abate, worldwide economic indicators improve and the overall stock market regains some footing,” said Jim Krapfel, an IPO analyst at Morningstar Inc. in Chicago. “No company wants to go public at a time when investors are applying the brakes.”
IPOs have raised $58.9 billion globally since January, according to data compiled by Bloomberg, the slowest start to a year since 2009, when equity capital markets were reeling from Lehman’s bankruptcy.
Asian stocks are set for the biggest monthly drop in more than three years, with the MSCI Asia Pacific Index (MXAP) down about 11 percent in May. U.S. 10-year Treasury yields reached a record low of 1.595 percent today after Spanish credit default swaps surged, spurring demand for safer assets.
Companies have scrapped or delayed $2 billion of IPOs in Asia this year, data compiled by Bloomberg show. China Yongda Automobiles Services Holdings Ltd., China’s biggest distributor of BMW cars, this week canceled plans to raise as much as $430 million in Hong Kong. Sany Heavy Industry Co. cut the size of a planned share sale in the city to $2 billion, people with knowledge of the matter said May 30.
Some companies are pushing ahead with IPOs. Felda Global Ventures Holdings Bhd., the Malaysian palm oil and rubber producer, has set a price range for a sale that may raise as much as $3.3 billion in Malaysia, according to a term sheet sent to investors today.
Formula One, owner of the auto-racing series, is planning an IPO in Singapore that may raise as much as $3 billion, people with knowledge of the matter have said. The company plans to push ahead with the deal and will meet potential investors early next week, one person said today.
Graff was offering as many as 311.2 million shares at HK$25 ($3.22) to HK$37 apiece, according to a sales prospectus. The company was targeting a $1 billion IPO, including stock sold by an existing shareholder, the document shows.
The jeweler’s price range had valued it at 18 times to 24 times full-year earnings as estimated by bankers arranging the IPO. Harry Winston, the Toronto-based diamond mining company and jewelry retailer, trades at 13.7 times estimated full-year earnings, data compiled by Bloomberg show.
Tiffany & Co. (TIF:US), the world’s second-largest luxury jeweler, is trading at 15.1 times earnings on that basis. Last week, Tiffany cut its profit and sales forecasts for the year, sending its shares tumbling.
Graff’s IPO is “too expensive for the current market to digest,” said Jason Yuan, head of research at Pegasus Investment Management in Beijing, which has $500 million assets under management.
Graff, founded by Laurence Graff in 1960, says its ability to find, cut and polish the finest diamonds sets it apart from competitors. Those include the Magnificence, a 243.96-carat stone that was certified in 2008 as the world’s largest “Emerald Cut, D Colour, Flawless diamond,” according to Graff’s listing document.
The company said in a January statement that it provided the diamond for actress Drew Barrymore’s engagement ring. Other customers have included Oprah Winfrey and Victoria Beckham, according to the New York Times.
Graff marketed its IPO amid a slowdown in luxury-goods spending in Hong Kong, where Chinese tourists splurge to take advantage of lower tax rates than in the country’s mainland. Sales of jewelery, watches and valuable gifts in Hong Kong rose an average of 17 percent in the first three months of the year from a year earlier, according to data compiled by Bloomberg. That’s down from growth of about 37 percent in the last quarter of 2011, the data show.
Still, demand for high-end diamonds will increase in China and other Asian countries as the ranks of the “super rich” swell, Graff Chief Executive Officer Francois Graff, the son of Laurence Graff, told reporters on May 28 in Hong Kong.
Graff directly owns 18 stores globally and plans to open five others in Hong Kong, Shanghai, Macau, Hangzhou and Tokyo this year, Graff said. He also plans to open six more across Asia.
“The company is committed to growing its business and will continue to do so irrespective of today’s announcement,” Graff Diamonds said in the statement.
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