Graff Aims For US$1 Billion Fundraising Size With HK$25-HK$37 Per Share Price Range
05/18/2012| 08:25am US/Eastern
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-- Graff to sell shares at indicative price range of HK$25-HK$37 each
-- Plans to raise around US$1 billion selling 210 million-311 million shares
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By Prudence Ho
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London-based jeweler Graff Diamonds Corp is planning to raise US$1 billion from a Hong Kong initial public offering that starts Monday, becoming the latest luxury brand to seek a listing in the city to build its brand among Asia's rich.
The jeweler, known for its almost 24-carat Graff Pink diamond, is selling shares in an indicative price range of HK$25-HK$37 each, translating into 18-24 times 2012 forecast earnings, three people familiar with the situation said Friday. That would make the IPO Hong Kong's biggest after Chinese brokerage Haitong Securities Co. raised US$1.68 billion in April.
The jeweler follows Italian fashion house Prada SpA (1913.HK) and French toiletries maker L'Occitane International SA )0973.HK) among foreign brands that have tapped Hong Kong's market for both funds, and brand recognition across the border, in China. Its IPO also comes five months after Chow Tai Fook Jewellery Group Ltd. (1929.HK), a gold and diamond jeweler owned by tycoon Cheng Yu-tung, went public in the city. Unlike L'Occitane or Chow Tai Fook Jewellery Group (1929.HK), which cater to a mass affluent clientele and appeal to China's growing middle classes, however, Graff is aimed at the ultra-rich, with one transaction valued at US$100 million last year, for instance, the company said in a preliminary prospectus filed with the Hong Kong stock exchange Friday. In 2011, top 20 customers accounted for 44% of company's revenue.
Graff is aiming for a fundraising size of US$1 billion, and plans to alter the number of shares sold to reach that size, the people said. The ultra-high-end jeweler plans to sell 210 million shares based on the high end of the price range and to sell 311 million shares based on the low end of the offering, the people said. The firm, largely owned by founder Laurence Graff and his family, will issue new shares accounting for 85% of the offering. The rest will be old shares. Pricing of the IPO will be on June 1, and the company is set to start trading on the Hong Kong stock exchange on June 8, the people said.
A Hong Kong listing would enable Graff to raise its brand profile in the region at a time when wealthy Chinese are driving much of the world's luxury consumption. Hong Kong valuations are also higher than elsewhere for luxury products. The 24 times earnings it is seeking at the high end of its price range comes as Prada trades at 22 times. But watch and jewelry maker Compagnie Financiere Richemont SA (CFR.VX) trades at 16 times 2013 forecast earnings in Switzerland and New York-based seller of diamond rings Tiffany & Co. (TIF) is trading at 16.5 times. Harry Winston Diamond Corp. (HWD), a diamond and jewellery company that sells ultra-high end diamonds like Graff, is trading at 13 times.
Graff Diamonds opened its first store in London in 1962 and sells its jewelry in 31 locations worldwide, with 18 directly operated stores and 13 franchised. Among its 18 directly operated stores, five are in Asia, seven in Europe and six in U.S., according to a Goldman Sachs report dated May 5. Its sales last year reached US$755.6 million, a 23% increase from US$616.7 million in 2010, while net profit was US$120 million, a 15% increase from US$104.7 million, according to the preliminary prospectus filing Friday.
Asia made up 19% of its retail sales in 2011 but will be the largest contributor to sales growth. In 2012, the company plans to open a directly operated story in each of Hong Kong, Shanghai, Macau and Hangzhou, it said in its filing.
The majority of the proceeds raised by Graff will go towards reorganizing its business, paying debt, and for general corporate purposes, according to a term sheet seen by Dow Jones Newswires earlier. Rothschild is the financial advisor on the Graff IPO, while Credit Suisse Group, Deutsche Bank AG, Goldman Sachs Group Inc. HSBC Holdings PLC and Morgan Stanley are also bookrunners
The company intends to pay 20% of its 2012 net profit to shareholders as dividends, it said in its Friday filing.
-By Prudence Ho, Dow Jones Newswires; 852-2802-7002; prudence.ho@dowjones.com
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