Graff Diamonds Said to Prepare $1 Billion IPO for Hong Kong

Graff Diamonds Ltd., the producer and retailer whose founder twice set records buying gems at auction, plans to raise about $1 billion in an initial public offering in Hong Kong, according to a person with knowledge of the matter.

Graff plans to list next year, said the person, declining to be identified as the information is private. The London-based company, which runs a store in the Peninsula Hotel in Hong Kong, will use the proceeds to increase production, the person said.

The business is following brands such as Prada SpA to Hong Kong, seeking to raise money in a region where demand for luxury goods is accelerating as the European and U.S. economies stall. Sales of luxury items in China such as clothes, handbags, fine jewelry and watches will more than double to about 180 billion yuan ($28 billion) in 2015 from last year, McKinsey & Co. says.

“This is yet 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,” Chris Searle, corporate finance partner at BDO LLP, said by e-mail.

Rothschild is advising Graff on the IPO, the person said. It was reported today by the Financial Times. Graff officials weren’t immediately able to comment when Bloomberg called.

Grayish Blue

Founder and London jewelry dealer Laurence Graff last year bought a diamond in a Swiss sale for a record auction price of 45.4 million Swiss francs ($50 million). Graff previously 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 auction.

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.

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

Prada raised $2.5 billion in a Hong Kong offering in June. Coach Inc., the largest U.S. luxury leather goods maker, also plans to list depositary receipts in Hong Kong in late November, a person with knowledge of the matter said last month.

Commodities producers have also sought funds from a region that’s now the world’s growth engine for raw materials demand, with United Co. Rusal Ltd., the largest producer of aluminum, raising HK$16.7 billion ($2.2 billion) in Hong Kong last year.