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China's trade data posted overnight showed scant evidence of the Sino-US trade war with exports steady and imports on the rise. It is likely too early for the US tariffs to skew the data much yet, however, and another drop in Chinese equities shows that the situation is far from resolved.
Medium term
/
Buy
Trade view / 09 October 2017 at 7:26 GMT

Buying Bank of China Aviation 2.7% USD bonds

Fixed income Specialist / Saxo Bank
Denmark
Price target: 99.10
Market price: 99.10
Background

Bank of China Aviation is a global aircraft leasing company. It focuses on the production of narrow-body jets.  BoCA has the best operating fundamentals among its peers with a steady balance sheet growth, resilient margin trend and a decreasing leverage. S&P has upgrade BoCA’s rating to A- from BBB+ in June this year. Airlines are increasingly opting to lease planes so demand looks solid. Also, we remain positive on China’s economy that will support growth in its aviation capacity.

Investment

We believe that BoC Aviation 2.75% senior unsecured notes due 2022 offer an attractive yield (approx. 3.0%) in terms of risk-return profile. BoC Aviation 3.5% offers only +50bps more for 5 years longer maturity. The company trades wider then its peers as Air Lease Corp 3% 2023 (BBB) offers the same yield for longer maturity and a lower rating while  AerCap  4.625 2022 (Baa3/BBB-) offers 2.8%.

Chinese Airline Passengers


Management and risk description

BoC Aviation is exposed to changes in shareholder control as bonds would lack strategic support from the parent company (BoC). The company is also exposed to the performance of the Chinese market and changing demand for jets.


Parameters

Minimum piece is 200,000 nominal USD with 1,000 nominal USD increments. Return objective is primarily repayment and price appreciation in the mid-term as China’s leading indicators pick up.


Entry: indic 99.10 which corresponds to 2.95% yield

Stop: Maturity

Time horizon: Medium-term / long-term

— Edited by Clare MacCarthy

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