China Aircraft Leasing Group (CALC) raised $300 million from a debut dollar-denominated bond offering on Thursday, joining a fundraising rush of Chinese borrowers.
The unrated three-year Reg S deal comes one week after A-/A- rated BOC Aviation, the aircraft leasing unit owned by Bank of China, sold a $750 million 10-year bond.
The Hong Kong-based company, which is partly owned by state-owned conglomerate China Everbright Group, is raising funds to almost triple its fleet to 172 by the end of 2022.
It plans to keep up China's growing demand for eco-friendly aircraft and the need to replace older aircraft.
Thanks to a strong support from anchor onshore and offshore mainland investors, the group captured an order book of $550 million with participation from 46 accounts.
One banker said the entire book was well covered by institutional investors, leaving less allocation for private banking investors contrary to what many market participants had been expecting.
A total of 48% went to banks, 15% to private banks, 10% to funds and insurers and 27% to corporates and other.
"The company received very strong indications of interest after a series of roadshows in Hong Kong and Singapore," the banker commented.
The Hong Kong-listed company initially issued guidance around the 6% area, before tightening it to 5.9 to 5.95%.
The issue vehicle was CALC 1 Ltd with a guarantee from the parent. Final pricing was fixed at par on a yield of 5.9% according to a termsheet seen by FinanceAsia.
Bankers said the closest comparable was unrated Founder Information’s 5.5% 2018 bond, which was trading on a cash price of 102.25% to yield 4.36%, or a Z-Spread of 343bp on Thursday.
The other was China Energy Reserve’s unrated 5.25% 2018 bond, which was trading on a cash price of 99.75% to yield 5.38%, or a Z-spread of 446bp.
A third comparable from a similar sector Hong Kong Airlines unrated 6.9% 2019 bond outstanding. This was trading Thursday on a mid-yield of 6.69%.
According to the group’s preliminary offering circular, total debt to total assets stood at a fairly high 86.7% at the end of 2015, while the interest coverage ratio was a fairly low 1.76 times. The group also said that current liabilities exceeded current assets by HK$1.87 billion.
However, its recent 2015 annual results were in line with forecasts with revenue coming in at HK$1.55 billion and net profit up 26% to HK$380 million.
The group was listed on the Hong Kong Stock Exchange in July 2014. At the end of 2015 it had a fleet of 63 aircraft. It has also started to make ground overseas delivering five aircraft to Air India and four to Air Macau.
DBS Vickers reports that overseas clients now account for 14% of its client mix by fleet number. Over the longer term it hopes to achieve a 50/50 split between domestic and overseas clients.
As with many Chinese companies, investors will have been aware of the credit’s key man risk.
Last year, the company's founder and former chief executive officer, Mike Poon, disappeared for about six months and was said to be assisting a graft probe surrounding China Southern Airlines. According to the company's annual report, Poon resigned as chief executive on June 18.
Joint bookrunners for the bond deal were China Everbright Bank (Hong Kong) and DBS, while Bocom International and CEB International as joint leads.
This article has been updated since first publication with final deal stats.
