London-based jeweller Graff is eying a Hong Kong initial public offering to fortify its position in a rapidly changing diamond industry and arm itself with extra capital to push expansion plans in Asian and other major cities, its founder and chairman said.

Founded by Laurence Graff in 1960, the privately held diamond and precious gems firm has found it increasingly difficult to compete with large brands on a global scale due to their ample cash flows and business support.

While Graff, known for its giant gems and rare diamonds, has a solid client base worldwide, it wants extra capital to open stores in prized locations and expand its inventory base to keep up with a growing pool of customers, particularly in Asia . The listing, seen next year, is expected to raise $1 billion according to banking sources.

Unless you are a certain size you haven't got a chance at all, Graff, 73, told Reuters inside his flagship Hong Kong store in the Peninsula hotel.

Competition in time is going to be less and less because you have to be a giant in the industry to support the stocks that you have, support these high rentals, support new design, new effort and to be able to experiment in new countries, the grey-haired billionaire said.

Born to Jewish immigrant parents in London, Graff has kept control of the jewellery firm since its beginning. The firm has attracted a host of clients, including royals and celebrities such as the sultan of Brunei, Oprah Winfrey and Imelda Marcos.

A potential Hong Kong initial public offering would help put Graff closer to its fastest-growing market, China, and develop elsewhere in the region. Sales are currently split equally between the United States, Europe and Asia.

Graff expects the firm's Asia growth will continue to accelerate at a much faster rate than in other regions.

U.S. and Europe sales are still performing well despite a tumultuous economic picture because Graff's super-wealthy clients are comparatively immune to a global slowdown.

We feel less impact from these gyrations. What we have seen since 2008 is a very quick recovery from the impact that we suffered, to beyond the business that we were doing at that time, Graff's son Francois, a managing director, said.

Graff, one of Britain's richest men, remains bullish on the outlook for the diamond industry, particularly for larger quality diamonds, although in the near term there could be slight dips in prices.

I think prices of large quality diamonds will get stronger and stronger because there is a limited amount of them, said Graff.

The company is planning to open two new stores in China next year, one in Macau's glitzy gambling enclave at Steve Wynn's Wynn Macau <1128.HK> casino and the other in Hangzhou, an affluent city an hour from Shanghai by train.

GLITTERING ASIA

In a move intended to dazzle customers at the Hong Kong showroom, Graff has flown in three 100 karat diamonds to display. The Flame, a pear shaped diamond, the Constellation, a circular brilliant diamond and the octagonal Star of America are encased behind large glass windows and fervently watched by an entourage of suited body guards.

Graff, famous for his contemporary heirloom pieces and crisp designs, established himself as a jeweller in London at the age of 24 but his global empire only took off during a visit to Singapore a few years later, when he encountered one of his UK counterparts in need of jewellery to fill a new store. Visits to Hong Kong and the rest of Asia followed suit.

I remember coming to Hong Kong with my little bag of samples in my old wholesale days and going round the stores and not speaking a word of Chinese. Most of the stores were Chinese owned, there was no branding, there were no superstores.

Luxury brands are increasingly eager to tap Hong Kong as an IPO destination to cash in on the strength of the Chinese consumer.

Italian fashion house Prada <1913.HK> listed earlier this year. Chow Tai Fook Jewellery Group, controlled by Hong Kong billionaire tycoon Cheng Yu-tung, has started pre-marketing for a $3 billion Hong Kong IPO, and U.S. luxury goods maker Coach Inc is expected to go ahead with plans for a secondary listing by the year-end.

CLSA Asia Pacific Markets estimates Greater Chinese demand will account for 44 percent of the global luxury goods market by 2020.

Graff currently owns a 15.2 percent stake in Gem Diamonds, a publicly traded mining company. His fully integrated diamond firm includes a retail empire of 32 stores from Taipei to New York, and manufacturing operations in Antwerp, New York, Botswana and Johannesburg.

(Editing by Jonathan Hopfner)