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BOC Aviation, which completed a $1.1 billion initial public offering in Hong Kong on Wednesday, is now setting its sights on helping Asian investors and the wider public understand the aviation leasing business as it becomes the sector's first major public company in the region.
“We are tasked with synthesising the information in a simple way so that people can easily understand,” Robert Martin, chief executive officer of BOC Aviation, told FinanceAsia in an exclusive interview.
Investor education is one of the top priorities for the aircraft leasing unit of Bank of China because it has tapped a pool of investors who are new to the industry.
“We haven’t been tapping into the existing shareholders of our US competitors. We built a whole new shareholder base,” Martin said. “Now our work is to keep them interested and understand the business so they remain as our long-term investors.”
Before officially launching the IPO, BOC Aviation conducted as many as 170 investor meetings to explain the business, Martin said, underscoring the huge demand for information.
Asian investors are not particularly familiar with the aircraft leasing business because there is hardly any analyst coverage of the sector from bulge-bracket investment banks, largely due to the absence of aircraft leasing companies in Asia.
Martin is looking forward to more leasing firm listings on Asian markets, including CDB Leasing's potential Hong Kong IPO later this year, because together they would create a new sector large enough for equity researchers to spend resources on.
“We welcome the likes of CDB Leasing and other lessors to the market because they could bring more attention for the industry,” he said.
Competitive advantage
In spite of the rising number of new lessors entering the market, Martin does not see them as a threat to BOC Aviation’s business because it possesses advantages that these new rivals do not.
Aircraft leasing is a highly capital-intensive business and competitiveness is often a function of scale and financing costs. BOC Aviation is clearly ahead of many of its competitors in terms of its financial might given its backing by state-owned Bank of China and unused credit facility of $2.5 billion, which allows it to expand during economic recessions by buying planes at cheaper prices.
Thanks to the Bank of China backing, BOC Aviation is rated A- by both Standard & Poor’s and Fitch and has an average funding cost of 2%, the lowest among global aircraft lessors.
Such advantages allow the company to move ahead faster than its peers. “Shortly after the global financial crisis in 2008, when our competitors worried about rolling over debt, we did $2.5 billion of new business in three months,” Martin told FinanceAsia. “Our huge capital and financing edge allows us to play at all points of the economic cycle.”
In contrast, new Chinese lessors may struggle with their liability management because many rely on short-term borrowings, which could be harder to roll over and service during weaker economic periods.
Asia focus
Martin believes BOC Aviation’s broader regional focus also helps to differentiate it from local Chinese lessors. “We are headquartered in Singapore, listed in Hong Kong, and we have a Chinese bank as our parent. We are truly Asian,” Martin said.
Being a global aircraft lessor with an Asian focus allows BOC Aviation to tap into a region flooded with funding in recent years. Apart from the IPO, the firm has completed two dollar bond issues since May last year and raised a combined $1.5 billion.
Taking advantage of the excess liquidity in Asia, BOC Aviation has also issued debt in other Asian currencies including the Chinese yuan, Aussie dollar, and Singapore dollar, and swapped them into US dollars.
Martin said he believes the overall lease rate for aircraft will surge in the coming years as interest rates are raised in the US. Over the longer term more airlines are expected to lease rather than buy aircraft to help preserve capital as competition becomes more intense.
Instead of tying up their capital on aircraft, more airlines will lease them and free up their cash to invest in other areas such as route expansion, marketing, and better catering facilities, which could improve their competitiveness against other airlines, Martin expects.
That helps to explain why low-cost carriers tend to lease more aircraft because they have to defend tighter profit margins.
BOC Aviation is not in a rush to expand its fleet but will instead pick the right deals that provide the best return on equity for shareholders, Martin told FinanceAsia. The firm has consistently delivered ROE of over 15% in the last few years, which is the highest among its global peers, according to syndicate research reports for the company's IPO.
BOC Aviation's share price surged by as much as 4.4% over the HK$42 IPO price early Wednesday before retreating to close flat on its debut.
