High-End Jeweler Graff Pulls IPO

GRaff Jewelers
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GRaff Jewelers

Graff Diamonds has pulled its planned Hong Kong listing after receiving orders for just half its $1 billion initial public offering less than two days before its deadline – the latest sign of weakness in global equity markets.

The ultra-high-end jeweler had been pinning its hopes for getting the offering away on a final U.S. sales push, said people close to the aborted offering. Management and advisers had been in New York and had planned to meet more than 80 U.S. investors before the end of Thursday, when the offer would have closed.

But a company spokesman on Wednesday night said: “Graff Diamonds Corporation confirms that owing to adverse market conditions it has decided to postpone its planned IPO and listing on the Hong Kong Stock Exchange.

“The Company enjoyed high-quality engagement on its business and strategy from a very broad range of prospective investors, however consistently declining stock markets proved to be a significant barrier to executing the transaction at this time.”

Its efforts to raise funds for expansion in Asia had come as the Eurozone crisis triggered another slide in the world’s financial markets. Other companies have already been forced to pull their IPOs in Hong Kong.

The FTSE All World Index has fallen 8 percent this month. The Hang Seng has dropped 11.4 per cent over the same period. The order book for Graff had been well on its way to meeting the $1 billion target early last week after the company launched a roadshow around Asia, according to one source close to the company.

“Market conditions are atrocious,” said one dealmaker, adding that investors were reluctant to commit money to any live IPO with such volatility and when other deals were failing.

In the past week, two companies have pulled IPOs in Hong Kong. China Nonferrous Mining Corp, a copper producer, had hoped to raise $313 million and China Yongda Automobiles Services, an automobile dealer, scrapped a $434 million deal.

Graff’s offering would have given it a market capitalization of about $3.5 billion. That would equate to a value of 5 times last year’s sales and about 30 times 2011 earnings, compared with 3 and 22 respectively for Richemont, its closest listed peer.

The company had wanted to use the money to treble its Asian store count in the next two years and fund a reorganization that involved buying a substantial diamond inventory from Laurence Graff, the company’s founder and chairman.

The jeweler’s reliance on a handful of clients had concerned some deal watchers. Just 20 customers have accounted for more than two-fifths of revenues in each of the past three years. Insiders insist, however, that the figure does not reflect the depth of interest in the most expensive, unique pieces that make up those sales.

While Graff would have had no truly comparable rival among listed companies, Philippe Espinasse, author of IPO: A Global Guide, said its valuation was “pretty rich” compared with groups such as Prada, Tiffany, and Chow Tai Fook.

Graff’s troubles come at a time of intense scrutiny of big-name IPOs worldwide. Shares in Facebook have lost almost a quarter of their value since the social network raised $16 billion two weeks ago. Formula One is preparing for a $3 billion float in Singapore next month.