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Graff Diamonds Corp. is the latest firm to feel the chilly wind blowing through the fine jewelry sector.
This story first appeared in the May 31, 2012 issue of WWD. Subscribe Today.
The luxury firm on Wednesday pulled its planned initial public offering in Hong Kong. The offering was expected to close today following investor meetings in Manhattan when its road show closed, but word trickled out late Tuesday that the high-end jeweler was having trouble receiving orders for the planned offering.
RELATED STORY: Graff’s IPO Price Turned Off Investors >>
A company spokeswoman said Wednesday night: “Graff Diamonds Corp. 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 statement noted that it “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.”
The spokeswoman said because the decision was made just “hours ago,” there was no timetable for when it might consider a relisting, although that “remains an option.”
The jewelry firm is the first among the luxury-fashion companies seeking to go public to hit a brick wall despite the love that investors seem to have for fashion IPOs. The blockbuster Michael Kors Holdings Ltd. IPO in December had many firms rethinking their strategy and considering whether they too might be able to grab a moment in the IPO spotlight. Kors was followed by comparably successful IPOs by Tumi Holdings Inc. in New York and Brunello Cucinelli SpA in Milan.
There have been signs that the fine jewelry segment is seeing a slowdown, even as the overall luxury goods market appears to still be buoyant. Tiffany & Co. said last week when it posted first-quarter results that decelerating sales in the Americas and Asia-Pacific pushed the New York-based retailer to revise its annual profit guidance lower to between $3.70 and $3.80 a share from a range of $3.95 and $4.05, a far weaker outlook for the year. Signet Jewelers Ltd. said that it experienced a slowdown at the high end of its offering, while Zale Corp. indicated softness in its U.S. business.
The last successful jewelry firm to go public in Hong Kong was Chow Tai Fook Jewellery Group, which enjoys a larger customer base than the ultrahigh-net-worth consumers that Graff targets. Chow Tai Fook went public in December, raising $2 billion.
Market conditions were different then. In Hong Kong, the benchmark Hang Seng Index reached a high at 21,760.34 in mid-February, and has since declined 14.1 percent to 18,690.22 Wednesday.
The global equity markets this week also have been volatile, given the concerns in Europe over the weakness of Spanish banks and the upcoming Greek election.
In Asia, speculation Tuesday that China could be readying a new stimulus package helped to fuel optimism. The Asian market indices ended Tuesday’s trading sessions up, only to fall in trading Wednesday when hopes for Chinese stimulus spending faded.
Graff isn’t the first to pull its planned IPO in Hong Kong either. Copper producing firm China Nonferrous Mining Corp. and automobile dealer China Yongda Automobiles Services both pulled their planned IPOs in the past week.
Executives at the London-based firm, which began their road show last week, were aware of the choppy Hong Kong market conditions, yet elected instead to tout the planned upcoming $1 billion listing on the Hong Kong exchange.
On Sunday, the company known for its collection of large, rare diamonds set a preliminary price range of between 25 Hong Kong dollars, or $3.22, and 37 Hong Kong dollars, or $4.76 per share. Conversions to U.S. dollars are at current exchange. The midpoint at that price range would have valued the jewelry firm at $3.48 billion. The final pricing range was to have been set on Friday, with the first day of public trading set for June 7.
Graff’s chief executive officer François Graff had touted Hong Kong as a “very natural option” for the company’s IPO, in part due to optimism over growth in Asia.
As reported, the company had planned to use the IPO proceeds to repay debts, buy inventory from company founder Laurence Graff’s indirectly controlled firm DiamondWorks and purchase outstanding shares of its Monaco retail operations and Safdico, Graff’s procurement and polishing division, as part of a restructuring program aimed at lifting the company’s profit margins.
One concern voiced by financial analysts in Hong Kong earlier in the week was that Graff has a high sales concentration in Europe and there could be issues over how the economic backdrop there might have on Graff’s business.