BOC Aviation finds new investors in the renminbi bond market

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BOC Aviation has expanded its investor base with the launch a yuan (CNY) 1 billion ($164 million) bond issue that closed on 20 November.

The offshore unsecured notes, which priced at a coupon of 4.5%, represent the lessor’s first offshore yuan-denominated bond.

The financing continues to maintain a “good net all-in cost” in US dollars via a cross currency swap, says BOC Aviation’s managing director and chief executive Robert Martin in an interview with Flightglobal.

The transaction was executed within 10 hours with a price guidance at 4.7%, which eventually launched at a tighter level at final price.

The oversubscribed financing was issued under the company’s $2 billion euro medium-term note programme. The deal was jointly arranged by parent BOC International, HSBC and Standard Chartered Bank.

The majority of the notes, or 56%, were distributed in Hong Kong, 27% in Singapore, 11% in Taiwan and 6% in Europe and other regions.

In regard to allocation, 53% will head to private banks and commercial banks, 26% to insurers and sovereign funds, 16% to asset managers and fund managers and 5% to corporates and others.

In an unsecured notes offering earlier this year, commercial and private banks took about a third of the deal, insurers another 31%, fund managers had 29% and 7% went to miscellaneous investors.

As the reminbi market is a relatively new market compared with the US bond market, the dynamics and investors are different, says Martin.

“It is much more a ‘take and hold’ market at the moment, and hence why you get much more private bank and commercial bank involvement from those who are looking for currency appreciation and a higher yield by holding to maturities,” he explains.

“If we did a longer term issue (say 10 years) then we would expect more insurance companies to join, but then the cross currency swap market may be thinner, so a longer term issue in reminbi would likely be for a smaller amount at this stage in the market’s development.”

BOC Aviation immediately swapped the reminbi back into floating rate US dollar via cross currency swap with its banks, giving the lessor a net US dollar floating rate risk as of the funding date to match its floating rate leases.