Buying Bank of China Aviation 2.7% USD bonds
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.
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%.
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.
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
Time horizon: Medium-term / long-term
— Edited by Clare MacCarthy
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