U.S. News

Graff Diamonds Founder Lists Again

Paul J Davies

Laurence Graff has, in the words of one admirer, “a feeling for gem stones that is almost unrivalled”. He has also shown a knack for following the money.

Phillip Hayson | Photolibrary | Getty Images

Listing his Graff Diamonds company to raise almost $1 billion on the Hong Kong stock exchange, which for the past three years has been the largest market for new share sales in the world, looks likely to be the latest example of the latter skill.

For himself and his wider family, it will mean a total cash windfall of up $650 million if the listing – which enters its final week of marketing this week – proves popular enough to require an “overallotment” option.

The Hong Kong listing is meant to deliver not only the investors happy to back a high-end brand in volatile stock markets, but also a bridgehead for the company’s move into the blossoming Chinese market.

The self-made Mr Graff has managed to catch two previous waves of burgeoning wealth. The first was among the newly cash-rich oil sheikhs of the 1970s who frequented his first flagship store in their London playground of Knightsbridge.

Then, in the 1990s, his move to Mayfair was in sync with the neighborhood's takeover by Russian oligarchs and hedge fund managers.

The Knightsbridge move was part of a retail expansion during Graff’s first run at being a listed company. He floated the business in London in 1973 at 57p a share, raising just over £1 million, but things did not end well. After four years he had a bust-up with minority shareholders that ended up in court.

In volatile times when faith in banking and even money itself is shaken, Shlomo Tidhar, a globe-trotting Israeli entrepreneur, reckons investors increasingly “want something tangible, something they can hold to”, writes Paul J Davies.

Gold has seen a strong run of demand over the past several years, but so have diamonds. Growing wealth in China and India is partly driving demand for precious metal and stones, but Mr Tidhar is betting there is a growing market for diamonds as a financial asset as well as one for display.

In July, he is launching the Singapore Diamond Exchange, the latest in a handful of attempts to make diamonds an investable – if not especially tradable – asset. A few funds have been launched in recent years, but are generally trading below net asset values.

Mr Shlomo says the exchange will source diamonds for investors at wholesale prices and then store them, although customers have the option of keeping them at home instead.

Over the past 30 years, diamonds have produced average returns of more than 4.5 percent, slightly better than other collectibles, according to studies, but with much greater volatility.

He recommends that customers hold the diamonds for at least a year before they ask the exchange to resell them on the wholesale market.

Clients will be able to design their own portfolios based on risk appetite. The bigger the stones, the higher the risk involved, he says, because there are fewer people able or willing to buy them.

“There is a saying: once you become a diamantier, you are a diamantier for eternity,” he says. “You can never sell all of your inventory; there are always stones you will be stuck with forever.”

He had tried to buy out minority holders for just 28p in 1976 after failing to pay an interim dividend so the money could be used to buy more inventory.

Those who held out for more were doubly upset because the slim vote in favor of the deal was in no small part due to many shares being held by unit trusts managed by Hambros Bank, the original underwriter to the 1973 offering, which had found itself stuck with a chunk of unwanted stock. The minority investors were eventually bought out for 50p a share.

Mr Graff told the FT in 2010 he would never again float his company. This invites a question as to why he has had a change of heart, especially as the company itself does not appear to need the cash.

Almost half of the new money raised, more than $350 million, is being paid out to Mr Graff directly as part of a reorganization of businesses, properties and other assets such as aircraft and art.

The next largest chunk is being used to pay down $150 million of debt, much of which is owed to Mr Graff and two business partners. The rest is available for store openings and inventory acquisition, but the company says it does not need much for this.

Mr Graff says, via email, that in 2010 he had no idea that it would be possible to do such a listing in Hong Kong. He adds that the listing will help bring all his businesses under one roof and provide a way to recognize over the long term the contribution of his son François, chief executive.

“This IPO crystallizes a plan for succession and at the same time gives us a structure which optimizes our business model,” he says. “Last time we floated, it was another time, world and business. It was a mistake to have floated a one-man company.”

There has been widespread talk that the main driver of the listing was to fund a divorce settlement, but his Hong Kong spokeswoman insists this is not true. Mr Graff and his wife of almost 50 years remain together, in spite of the birth in 2009 of his daughter from an extramarital affair.

The talk may have been fuelled by the fact that it is his wife who is selling all of the $150 million in existing shares that are on offer. Mr Graff will only sell some of his existing stock, held separately from his wife’s, if the overallotment option is needed.

“I don’t need the money, and this IPO will not change my lifestyle,” Mr Graff himself writes. “My wife and I are completely co-ordinated around this transaction.”

Within the industry, the main view seems to be that Mr Graff is preparing to get out of the business. Mr Graff has described his son François as a real salesman, but only time will tell if he will also prove a true diamantier, or diamond specialist, with the same deep sense for stones.