Corporate China

ILFC's new China chief: sale still alive?

ILFC's announcement of a new China chief could hint that talks about selling the company to a Chinese buyer group are still alive, with a deal possible by year end.

PUBLISHED : Tuesday, 08 October, 2013, 11:13am
UPDATED : Wednesday, 09 October, 2013, 4:33pm

It's a relatively slow news day as much of China returns to work after the weeklong National Day holiday, so I thought I'd have some fun trying to read between the lines of a low-key announcement about a new Greater China chief at ILFC, the world's biggest aircraft leasing company owned by US insurance giant AIG (NYSE: AIG). The naming of industry veteran Peter Chang as ILFC's new Greater China head certainly underscores the importance of the market, which is ILFC's largest in the world. But more intriguingly, perhaps the announcement hints that a previously announced deal to sell ILFC to a group of Chinese investors may still be alive, despite some major turbulence that saw the buyers miss several deadlines earlier this year.

Before we look at the latest news, it's probably helpful to backtrack and recount some highlights from the original landmark deal first announced late last year. (previous post) That deal saw a group of Chinese investors, which included banking giant ICBC (1398.HK; Shanghai: 601398), in talks to buy ILFC for $4.8 billion (HK$37.2 billion), in what would have been the biggest purchase ever of a US asset by a Chinese buyer. The fact that AIG was selling ILFC wasn't a huge surprise, since it had been slowly selling off many of its non-core assets to repay a $182 billion (HK$1.41 trillion) bailout it received from the US government in 2008 at the height of the global financial crisis.

I had previously predicted the deal could run into trouble due to political resistance, since it was disclosed in the midst of a US presidential campaign filled with anti-China rhetoric. But the deal's true enemy turned out to be the Chinese themselves, who missed several deadlines after failing to obtain the necessary financing. In the meantime, the US last month approved the similarly controversial $4.7 billion (HK$36.4 billion) sale of the country's biggest pork supplier Smithfield (NYSE: SFD) to Chinese buyer Shuanghui, showing that Washington was willing to allow such sales of such sensitive assets.  

All of that brings me back to my original whimsical speculation, namely that this latest announcement of Peter Chang's appointment as ILFC's new Greater China head hints that a potential sale to the Chinese group is still alive. The announcement itself is quite brief, pointing out that Chang has more than 25 years of experience in the industry, including stints at Aircastle Advisor and Aviation Capital Group. It also points out that Greater China is ILFC's single largest market, with about 200 airplanes leased to various airlines there.

Following the apparent stalling of the original talks, a number of other credible reports have also emerged about AIG's plans for the unit. Those have included talk in August that AIG was considering an IPO for the unit, and also that it was still in talks with the Chinese buyer group. One report in August also said the Chinese buyer consortium suffered a setback when one of its key members, Barclays-backed New China Trust Co, decided to pull out of the group due to concerns over getting Chinese regulatory approval.

What all this seems to be saying is that ILFC's fate is still very much a moving target, with AIG appearing to prefer an outright sale to the Chinese group with an IPO as the main back-up. I know it's a bit of a jump to read so much into this new announcement. Still, the timing of the announcement and fact that ILFC even bothered to release the news on a mainstream platform do seem potentially significant. If the talks are indeed still alive, I would expect to see a deal announced in the next two months, which would be the first anniversary of the original disclosure. If it can't reach a deal by year end, I would expect AIG will finally decide to scrap the talks and go ahead with the back-up IPO plan.

Bottom line: ILFC's announcement of a new China chief could hint that talks about selling the company to a Chinese buyer group are still alive, with a deal possible by year end.