Graff Diamonds Corp. has pulled its planned Hong Kong listing after receiving orders for just half its $1-billion (U.S.) initial public offering less than two days before its deadline – the latest sign of weakness in global equity markets.
The ultra-high-end jeweller had been pinning its hopes for getting the offering away on a final U.S. sales push, said people close to the aborted offering.
Management and advisers had been in New York and had planned to meet more than 80 U.S. investors before the end of Thursday, when the offer would have closed.
But on Wednesday the company said: "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."
Graff is the third company in the past week to pull a Hong Kong IPO, after China Nonferrous Mining Corp., a copper producer, and China Yongda Automobiles Services, an automobile dealer, also scrapped deals.
Graff had wanted to use the money to treble its Asian store count in the next two years and fund a reorganization that involved buying a substantial diamond inventory from Laurence Graff, the company's founder and chairman.
"The restructuring will almost certainly be put on hold," said a person familiar with the company's decision to pull the IPO.
Store rollouts will not be affected, however, the person said, because "the funding needed for future growth is relatively low and can be met from the company's existing resources."
Some analysts questioned why the London-based company chose to list on the Hong Kong market, which has performed particularly poorly in recent weeks.
Hong Kong's Hang Seng has dropped 11.4 per cent over the past month while London's FTSE 100 has fallen 7.7 per cent.
"We've seen several luxury companies follow the example of Prada and list in Asia, where a lot of their growth is coming from, but it could be a disadvantage to be joining a market where the most active investors have been losing money," said Nick Einhorn, an analyst covering the IPO at Renaissance Capital in New York.
But the person familiar with the company's decision rejected the notion that the choice to list in Hong Kong had affected the deal.
"The company marketed to the same investor base it would have if the listing was anywhere else," the person said. "It was simply market conditions that led to postponement."
"Market conditions are atrocious," said one dealmaker, adding that investors were reluctant to commit money to any live IPO with such volatility and when other deals were failing.
Another dealmaker said U.S. investors may have been put off committing to the Graff deal after the disappointing market debut of Facebook last week.
The order book for Graff had been well on its way to meeting the $1-billion target early last week after the company launched a roadshow around Asia, according to one source close to the company.
Graff's offering would have given it a market capitalization of about $3.5-billion. That would equate to a value of five times last year's sales and about 30 times 2011 earnings, compared with three and 22 respectively for Richemont, its closest listed peer.
The jeweller's reliance on a handful of clients had concerned some deal watchers. Just 20 customers have accounted for more than two-fifths of revenues in each of the past three years.
Insiders insist, however, that the figure does not reflect the depth of interest in the most expensive, unique pieces that make up those sales.
While Graff would have had no truly comparable rival among listed companies, Philippe Espinasse, author of IPO: A Global Guide, said its valuation was "pretty rich" compared with groups such as Prada, Tiffany and Chow Tai Fook, which have themselves been under pressure in markets recently.
Shares in Tiffany are down almost 15 per cent this year after the company offered lukewarm guidance for the rest of the year, while shares in Chow Tai Fook have fallen almost a third since their listing in Hong Kong late last year.
Graff's troubles come at a time of intense scrutiny of big-name IPOs worldwide. Shares in Facebook have lost a quarter of their value since the social network raised $16-billion two weeks ago. Formula One is preparing for a $3-billion float in Singapore next month.