Graff considers Hong Kong listing

Diamonds are suddenly centre stage. At the end of last week, Anglo American announced the purchase of the Oppenheimer family's stake in De Beers (see p1), and this week there are reports that Graff Diamonds Ltd is planning to raise US$1 billion in an initial public offering (IPO) in Hong Kong.

London-based Graff Diamonds is still owned by Laurence Graff, who established the firm in 1960 as a retailer of high-end jewellery. The company is reported to be in negotiations with underwriters, and has hired Rothschild as a financial adviser for the expected listing.

The money raised is expected to be used to open stores in Asia, for a larger inventory of gemstones and to expand production of expensive jewellery.

Graff does not have any mining assets but Mr Graff has a direct stake of 14% in Gem Diamonds Ltd, with which the company has a purchase agreement.

Gem Diamonds last month sold the 550ct Letseng Star to an undisclosed third party for US$16.5 million. Previous large stones recovered from the Letšeng mine in Lesotho have been bought by South African Diamond Corp (SAFDICO), in which Laurence Graff is the controlling shareholder.

In November last year, Graff bought a 25ct pink diamond for a record auction price of US$50 million, which trumped the previous record of US$26 million in December 2008 for the 36ct Wittelsbach diamond.

The Graff listing (which would value the company at about US$5 billion) could set the benchmark for other jewellery retailers in the region, including Chow Tai Fook Jewellery Co, which is seeking approval from the Hong Kong Stock Exchange for an IPO of up to US$4 billion.

Chris Searle, corporate finance partner at accountants BDO, described the Graff news as "another example of a Western brand seeking to list its shares on a Far Eastern stock market, where it believes that it will not only achieve a higher valuation but it will also gain good PR in an increasingly important market for its products."

Mr Searle said "it is another sign of the shift in economic power to the high growth Far East from the stagnant West. Although the US is still the largest market for diamonds, it can't be too long before it will be overtaken by China. It thus makes sense for a company like Graff to list in Hong Kong."

China overtook Japan last year to become the second-biggest buyer of diamonds behind the US. Chinese purchases of luxury items will comprise as much as 20% of the world market by 2015, according to McKinsey.

In September, Tiffany & Co announced plans to be "more aggressive" in financing diamond mines in return for preferential access to the rough stones.