BOC Aviation tests the bond market in the midst of a troubled global aviation sector.
The company will value its 5-year bonds at a premium of 330 basis points over US government bonds.
BOC’s client base includes more than 90 airlines, providing greater security to potential investors.
The Singaporean aircraft leasing company BOC Aviation is testing the bond at a time when most global airlines are either reducing or halting operations due to the ongoing coronavirus pandemic.
Bank of China Ltd is selling dollar bonds at a relatively wider spread compared to a similar issue in January. Since then, the aviation sector has been in trouble to contain the effects of the travel bans that have paralyzed the industry’s operations. Only a few days ago, we witnessed the collapse of Virgin Australia Holdings Ltd (OTCMKTS: VBHLF) due to the impact of the pandemic.
It is expected that BOC Aviation will list its proposed 5-year bonds at a premium of 330 basis points over the US government bonds in the foreseeable future, leaving 100 basis points over a similar issue in January.
The ongoing slump in the global aviation sector affects aircraft leasing companies in the same way as airlines. If, for example, companies they lease aircraft were to collapse, the leasing companies would face increased recovery costs.
But even in the midst of difficult times, this is a silver lining for the aviation sector as a whole. Most countries consider their local airlines too important to fail, and a few governments have already indicated support.
BOC Aviation counts more than 90 airlines among its customers and offers a greater variety to its bond investors.
“BOC Aviation has a strong balance sheet and is set to win in the current climate as aircraft prices will remain under pressure for some time and many airlines will now be even more eager to sell and lease aircraft through sale-and-lease-back to raise money,” said James Teo, analyst at Bloomberg Intelligence.
In its December 2019 financial report, the aviation giant stated that its revenues had increased by 15% year-on-year to around £1.5 billion. Profit before tax and net profit after tax increased by 13% to £626 million and £567 million respectively from 2018.
The Board recommended a dividend of £0.17 per share for 2019, subject to approval by a member of the Board planned for next month.
BOC Aviation’s operations span more than 40 countries and regions with a fleet portfolio of more than 500 aircraft.
The company is also a member of the Bank of China Group.