BOC Aviation lands bond ahead of IPO

World's fifth largest aircraft operating lessor returns to the international bond markets with a new deal ahead of its prospective Hong Kong Stock Exchange listing.

Bank of China’s aircraft leasing unit, BOC Aviation, returned to the international bond markets for the fist time in a year on Wednesday with a $750 million 10-year Reg S/144a issue.

The A/A-rated company built up a respectable order book of $3.2 billion for its deal, which marks the first under a new MTN programme.

Banker said the deal attracted 203 investors, with Asia accounting for 72% of the deal followed by the US on 16% and EMEA 12%

Funds took up 51% of the deal, followed by insurance and pension accounts on 21%. The rest went to banks (18%) and private banking clients (9%). The remaining 1% went to central banks and sovereign wealth funds. 

The company initially marketed the deal at 235bp over Treasuries, before tightening guidance to 215bp to 220bp over.

Final pricing was fixed at 99.59% on a coupon of 3.875% to yield 3.925%, or 215bp over Treasuries, according to a term sheet seen by FinanceAsia.

"The issuer priced the transaction inside its existing curve," said one syndicate banker.

The closest comparable is the group’s existing 3% March 2020 bond and its 4.375% May 2023 bond. These were respectively trading at 153bp and 185bp over Treasuries, according to bankers familiar with the transaction.

According to Mizuho estimates, fair value is roughly 5bp tighter at 210bp over. This is based on Bank of China’s curve, which has about 3bp per annum on the curve between 2020 and 2025.

Bank of China’s 2.875% June 2020 bond was trading on a G-spread of 118bp on Wednesday, while its 3.875% June 2025 was trading at 133bp over.

Joint bookruners of the latest transaction were: BOCICitiGoldman SachsHSBCJP Morgan, Morgan StanleyBNP Paribas and Wells Fargo Securities.

BOC Aviation is China’s largest aircraft leasing company with total assets of $12.5 billion at the end of 2015 and a portfolio of 270 planes, plus 62 airlines customers across Asia-Pacific region excluding Greater China.

The company is the world’s fifth-largest aircraft operating lessor behind Dutch-based AerCap, Japan's SMBC Aviation and US groups GE Capital Aviation Services and Air Lease.

The company plans to offer up to 40% of its enlarged share capital through an initial public offering on the Hong Kong Stock Exchange. Pre-marketing for a deal that may raise up to $1.5 billion is expected to start within the next couple of weeks.

BOC Aviation hopes its IPO will not only help to bring debt-to-equity levels back down towards the sector average, but also provide the company with much greater visibility as it tries to stamp a larger international footprint. Total liabilities stood at $10.034 billion at the end of 2015 according to its online roadshow presentation. 

Founded as Singapore Aircraft leasing in 1993, the company was acquired by Bank of China in December 2006 and subsequently its name to BOC Aviation in 2007.  


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