BOC Aviation’s $1.1 billion initial public offering (IPO) is the first of two anticipated listings expected out of China’s leasing sector this year, as issuers seek to cash in on investor appetite for US dollar cash flows, such as aircraft rental streams.

This is partly being fuelled by the depreciation of the Chinese yuan. China’s central bank on 24 May set the yuan's opening rate at its weakest level against the dollar in more than five years.  

The Singapore-based lessor, which is still majority-owned by the Bank of China, says it will use the proceeds of the IPO to secure pre-delivery payments for its upcoming aircraft deliveries. The offering was more than 38 times oversubscribed, and attracted 11 cornerstone investors which took up 52% of the shares.  

China Development Bank’s leasing arm, which is 88.95% controlled by bank, is also planning a $1 billion public offering of shares this summer. The Shenzhen-based lessor filed for the offering in Hong Kong on 29 February and intends to use the proceeds to fund its growth plans.

At the time of IPO application, it listed an owned fleet of 179 aircraft, plus 11 managed units and 181 other committed aircraft.

Just two years ago China Aircraft Leasing (Calc), which is partly owned by the state-owned conglomerate China Everbright, became the first publicly-listed Chinese lessor with a $94 million offering in Hong Kong - a move that helped set the tone for these recent deals. Calc said, at the time, the proceeds would help finance its remaining Airbus orderbook.

"Asian investors increasingly are turning to aviation because they can take yield of 4-5%, ‎plus some security in aircraft," says a lessor, commenting on increased investor appetite for aviation deals. "That is a lot better than many other investments on offer."

Another lessor adds: "These IPOs are good for news for the industry as ‎they show the strength of the asset class, particularly with 11 cornerstone investors on BOC’s deal. And the flood of new investors continues with new names, such as Korean pension funds, trying to get a slice of the action."

A notable difference in BOC Aviation's IPO and Calc’s offering is a $30 million investment by Boeing. Now all eyes are on CDB Leasing's upcoming IPO to see if Boeing repeats the move, or if Airbus will step in with a financial investment.

A contribution from Airbus seems unlikely as its chief operating officer for customers, John Leahy, told Airfinance Journal that the manufacturer was "surprised” by Boeing’s investment,  Airbus believes in “working with lessors, not picking one or two as the winners and trying to support them," he says.

While the move was seen as unusual by a number of market participants, one aviation financier, who has been working in Asia for more than 20 years, says he “almost anticipated the move”.

The banker adds: “Having Boeing’s brand name attached to the IPO is a sign of prestige and something that I almost expected from a Chinese lessor…Boeing’s name is like a giant sticker of approval.”

While Boeing's investment is not a large one financially, it is very much symbolic of the deepening business relationship between China and the aircraft manufacturer. Market observers indicate this relationship has been further supported by the Bank of China's nod for assistance with pre-delivery payments in Iran, and by Boeing's selection of China for its 737 Max completion centre.

The exact regional location for the centre has yet to be decided by Boeing.

Follow the leader

Minsheng Financial Leasing is also looking to take advantage of strong investor demand and is preparing for a public listing of it shares. The lessor, which was founded in 2008 by China Minsheng Bank, plans to list in Hong Kong and Shanghai by 2018. 

Last year, the lessor signed a memorandum of understanding at the Paris air show for the purchase of 30 737 aircraft, a mix of Next Generation and Max units.

According to its website, Minsheng has a fleet of approximately 300 units, including 154 corporate aircraft and 39 commercial units, “serving airlines in China, other Asian countries and European countries”.

In addition to a weak yuan, this positive wave of investor sentiment for aviation finance is also being spurred by the long-term outlook for air travel demand in the region.

Asia is expected to be the largest travel market in the world, growing at 6.1% annually, according to Boeing’s Current Market Outlook through 2034.

Looking specifically at China, domestic passenger traffic has grown 12% annually during the past decade, according to data of the Civil Aviation Administration of China.

As the market continues to grow, Boeing anticipates airlines in China will need 4,630 new single-aisle aircraft, valued at $490 billion.

Like the domestic market, international passenger traffic also has increased at double-digit rates. Boeing expects that by 2021, passenger travel between China and the United States will triple. 

This growth will drive a need for at least 1,500 new widebody aircraft, valued at $450 billion. Included in this number is a demand for 190 widebody freighters, valued at $60 billion. 

Laura.Mueller@euromoneyplc.com