Bohai buys lessor Avolon for US$7.6 billion after lowering bid

SEP 4, 20151:08 PM

[BEIJING] China's Bohai Leasing Co agreed to buy Avolon Holdings Ltd, the Dublin-based jet lessor whose private- equity backers include Oak Hill Capital Partners, in a deal with an enterprise value of US$7.6 billion.

Avolon accepted a US$31-a-share offer that was lower than a US$32 bid placed on Aug 10, reflecting "significant volatility across global equity markets," the companies said Thursday. The price was 25 per cent more than Avolon's close on July 30, a day before disclosing that it had non-binding bids from Bohai and an unidentified suitor.

The deal underscores the increasing prominence of China's leasing companies in one of the world's fastest-growing aviation markets. Leased planes account for 36 per cent of the total airliner fleet in the Asia-Pacific region, according to Bloomberg Intelligence, second only to Europe.

"Chinese companies have been growing rapidly in aircraft leasing in recent years," said Kazunori Morisaki, an analyst at Japan Aviation Management Research in Tokyo. "China has a very large domestic aviation market, so there is room to have a big aviation leasing industry."

Bohai agreed to boost its deposit by US$100 million to US$350 million to show its commitment to the deal. The sum, which represents US$4.25 per Avolon common share, is payable to the leasing company under certain circumstances if the transaction isn't consummated.

Avolon backers Oak Hill, CVC Capital Partners, Cinven Ltd and GIC and their syndicate investors have agreed to vote their shares to support the takeover, as has HNA Group Co, Bohai's largest shareholder, the companies said. Haikou-based HNA Group has also guaranteed the purchase price.

The US shares of Avolon jumped 16 per cent on July 31 when the company said it was considering the competing offers. On Aug 10, Avolon signed a pact granting Bohai exclusive rights to negotiate an acquisition until Sept 7. Avolon shares rose 0.4 per cent to US$28.68 Thursday in US trading.

The transaction is expected to close by the first quarter of next year.

Asian leasing companies are boosting fleets and expanding across the continent, which is set to overtake the US as the world's largest plane market in two decades. Economic growth in China, India and Southeast Asia is encouraging more air travel. Hong Kong billionaire Li Ka-shing and Malaysian low-fare carrier AirAsia Bhd. also entered the aircraft-leasing market last year.

China's government said last year it will encourage local leasing companies to expand overseas and compete with bigger international players such as AerCap Holdings NV and General Electric Co's GE Capital Aviation Services unit.

Founded in 2010, Avolon has more than 260 planes delivered or on order, and its fleet's average age of 2.6 years is the youngest among major lessors, according to a company fact sheet. Cinven Ltd, CVC Capital Partners and Oak Hill are its three largest shareholders, based on data compiled by Bloomberg.

"Avolon has delivered significant returns for all shareholders and we believe Bohai are the right shareholder for the Avolon business in the next stage of growth," Avolon Chairman Denis Nayden said in a statement.

BLOOMBERG