Graff Diamonds to Use Planned IPO Proceeds on Asia Stores

Graff Diamonds Ltd., the jewelry retailer whose founder twice set records buying gems at auction, plans to use funds from a proposed share sale to add stores in Asia as the region’s demand for luxury goods grows.

The company plans to open outlets in Macau and Hangzhou, the largest city of Zhejiang province in eastern China, next year, Laurence Graff, 73, the chairman and founder of the London-based company said in a Nov. 18 interview with Bloomberg TV. The retailer has 32 stores worldwide including in Tokyo, Hong Kong, Shanghai and Taipei, according to its website.

Graff, who is preparing to raise $1 billion in an IPO in Hong Kong next year, according to a person familiar with the matter, is following brands such as Prada SpA, which are tapping Asia’s accelerating demand for luxury goods as the European and U.S. economies stall. Sales of luxury items in China including clothes, handbags, fine jewelry and watches will more than double to about 180 billion yuan ($28 billion) in 2015 from last year, McKinsey & Co. estimates.

“Graff is the ideal type of company to be listed in Hong Kong,” said Graff at his only shop in Hong Kong. “We intend to open up even more stores in Asia.” He didn’t elaborate on the company’s share sale plans.

Chow Tai Fook

Billionaire Cheng Yu-tung’s Chow Tai Fook Group plans to start trading its jewelry unit in Hong Kong on Dec. 15 after an initial public offering, according to a term sheet obtained by Bloomberg News.

“These new IPOs will offer the market more diversity, instead of just one or two top-tier luxurious brands,” said Edwin Fan, an analyst at Bank of China. “Their share sales may even give the overall sector a more reasonable valuation.”

Chow Tai Fook Group’s sale of a stake of as much as 15 percent may raise as much as $4 billion, two people with knowledge of the matter said earlier this month. That may value it at $26.7 billion, more than double Tiffany & Co.’s $9.6 billion market value.

Millionaires in the Asia-Pacific region outnumbered those in Europe for the first time in 2010 as gains in emerging market stocks and real estate boosted assets, according to a June report by Capgemini SA and the Merrill Lynch wealth management unit of Bank of America Corp.

China’s Demand

The London-based jeweler’s business in China is becoming one of its most lucrative, Graff said, without elaborating. Graff has hired Rothschild to advise it on the IPO in Hong Kong, a person with knowledge of the matter said earlier this month.

Chinese purchases of luxury items will grow 18 percent annually and make up 20 percent of the world market by 2015, according to McKinsey.

China surpassed Japan to become the second-biggest buyer of diamonds behind the U.S., where demand rose 7 percent last year, compared with 25 percent in the communist country, according to De Beers. Supplies of rough diamonds, polished before being set in jewelry, will be flat in the next five years and won’t meet demand driven by China and India, RBC Capital Markets has said.

Millionaires in China may account for about half of the rich people across 10 major economies in Asia and hold more than half the wealth by 2015, according to a study by Julius Baer Group and CLSA Asia Pacific Markets.

Diamond Sourcing

Graff on Nov. 3 bought 1.46 million shares of Gem Diamonds Ltd., the London-listed diamond mining company, increasing his stake to 15.12 percent, according to data compiled by Bloomberg.

The English jeweler is involved in every stage of diamond production, from the sourcing of rough diamonds to cutting and polishing and the design of the gem pieces.

“We’re a vertically integrated company so we can control everything,” said Graff.

Graff, who started working at the age of 15 in the Hatton Garden Jewelry district in London, paid 16.4 million pounds ($26 million) for the 35.56-carat grayish-blue Wittelsbach Diamond at Christie’s International in London in December 2008, then the highest price for a gem at an auction.

“It’s my life’s work,” said Graff, dipping into his jacket pocket to show what he said was a diamond worth $50 million. “I can’t live without diamonds.”

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