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29 November 2023

Chinese sovereign fund seeks partner to bid for AIG unit

CIC has approached ICBC and Bank of China to discuss the possibility of jointly bidding for ILFC. (REUTERS)

By Reuters

China Investment Corp (CIC), a $200 billion (Dh734.62bn) sovereign wealth fund, is in talks with local banks to jointly bid for American International Group's $8bn aircraft leasing unit, sources said yesterday.

In the last couple of months, CIC has approached at least two of China's biggest lenders – Industrial and Commercial Bank of China (ICBC) and Bank of China – to discuss the possibility of jointly bidding for International Lease Finance Corp (ILFC), the sources said.

ILFC needs a buyer with access to cheap capital and a large balance sheet so it can finance the purchase of aircraft before leasing them out.

ICBC is the world's biggest commercial bank by market value, while Bank of China, the country's top foreign exchange lender, is China's most international bank in terms of overseas network.

Bank of China already owns Asia's largest aircraft leasing business, the Singapore-based BOC Aviation.

"ILFC is too big for just one fund or company to buy and it is not too cheap either," said one of the sources.

"CIC has the money but it will be happier to team up with a Chinese bank that knows the business, making the deal more likely a strategic investment to ILFC," he added.

The sources declined to be identified due to the sensitive nature of the deal.

AIG is selling assets, including ILFC, to repay the US government after it was bailed out last year.

ILFC, the biggest customer for Boeing's new 787 Dreamliner, is widely regarded as an attractive asset although few buyers are in a position to make such a big outlay.

Initial bidders for ILFC included private equity firms Carlyle Group and Kohlberg Kravis Roberts & Co, as well as sovereign wealth funds Temasek Holdings, Istithmar World, Kuwait Investment Authority and CIC, Reuters reported last month. A second round of bids is set for late this month, with would-be buyers expected to form bid consortia, sources said.

Representatives for CIC and ILFC could not be immediately reached for comment, while officials in charge of financial leasing businesses at Bank of China and ICBC declined to comment.

In 2006, Bank of China acquired Singapore Aircraft Leasing Enterprise for about $1bn. The renamed BOC Aviation is a major client of Airbus, Boeing's main competitor.

Other potential Chinese partners for CIC's bid for ILFC include Bank of Communications Co Ltd, China's fifth-largest bank by assets and smaller rival China Minsheng Banking Corp, said the sources.

In early 2007, the Chinese government allowed domestic banks to get into the leasing business following a 10-year ban imposed after the loosely regulated industry suffered from reckless investment and poor management in the 1980s and 1990s.

Since then, Chinese banks including ICBC, Bank of China, Bank of Communications and Minsheng have set up financial leasing companies with a focus on aircraft leasing.

Beijing wants more planes to be leased from domestic rather than foreign owners, industry experts have said.

"If not for the financial crisis, AIG would not be willing to sell ILFC, so it is certainly a rare and good opportunity for Chinese banks or CIC to take," said a source. "But the problem is whether the price is comfortable and whether CIC can find a domestic partner to do the joint bid."

One source said ICBC was unlikely to team up with CIC for an ILFC deal because of concern it could erode its capital base. On the other hand, if CIC cannot find a domestic partner, it would be unlikely to make such an investment alone, the sources said, and cannot team up with a foreign partner.

CIC's two highest-profile investments, stakes in US financial firms Morgan Stanley and Blackstone Group, have incurred substantial paper losses.