Everbright plans Silk Road fund for aviation leasing and related businesses

Capital raised will be used for aircraft purchases and investments in infrastructure projects in what could be 60 ‘Belt and Road’ nations

PUBLISHED : Wednesday, 31 January, 2018, 5:37pm
UPDATED : Tuesday, 03 July, 2018, 9:07pm

China Everbright and its Hong Kong-listed aircraft leasing unit are planning to launch a Silk Road Fund to invest in aircraft leasing and related businesses, to ride on the back of the expected regional aviation boom, says its CEO, Chen Shuang.

He said discussions were ongoing with mainland Chinese institutions and departments on collaborations, but could not yet estimate how large the fund might be.

China’s “Belt and Road Initiative” is expected to create huge new amounts of traffic – both people and goods – within Asia and with the rest of the world, as China’s strives to expand trade with nations along ancient silk trade routes, onwards to Europe.

“Funds [being spend on projects] these days are all very large. We hope to partner with Chinese institutions involved in outbound investments,” he said.

The capital raised will be used to buy the actual aircraft and make investments in related infrastructure projects such as airports and logistics parks, Chen said, in any of the over 60 markets along the land and maritime corridors that make up the initiative.

The aircraft investments are expected to include the ARJ21 regional jet manufactured by state-owned aerospace firm Commercial Aircraft Corporation of China (Comac), which is determined to break the near two decade duopoly of aircraft manufacturing giants Boeing and Airbus.

China Aircraft Leasing Group (CALC), the unit Everbright owns a 32.3 per cent stake of, has ordered 60 ARJ21 aeroplanes, which Chen said could be leased to carriers operating short domestic routes, with flying times of one to one-and-a-half hours.

The first ARJ21s will be leased to an Indonesia-based airline, in which CALC chief executive has interests in.

Funds these days are all very large. We hope to partner with Chinese institutions involved in outbound investments
Chen Shuang, Everbright

Chen said CALC was in a transition to become a China aircraft asset and fund management company, using a business model operating funds as platforms to acquire aircraft to be leased out, relieving it of the pressure to draw on its own capital to buy assets.

It will also raise funds from the securitisation of its leasing receivables under agreements with airlines, he said.

CALC said it completed such transactions for 21 aircraft last year, transferring the risks and returns to investors.

Hong Kong has ambitions to build itself into a global aircraft leasing centre, to vie for a slice of the expanding global market, which will see the city pitting itself against established hubs, such as Ireland and Singapore.

It has cut taxes for leasing companies by half to draw more lessors to set up business in the city, and Chen – who chairs the Hong Kong Aircraft Leasing and Aviation Finance Association – said the industry body was also tapping into global networks of government agencies such as the Hong Kong Trade Development Council, to secure more double taxation agreements with other territories and countries.

The agreements spare firms from paying taxes on profits twice, in both their domicile country and where they are incorporated.