Cheung Kong Submits Non-Binding Bid for Awas Aircraft Assets

Aug 03, 2014 11:50 pm ET

(Updates with analyst’s comment in fourth paragraph.)

Aug. 4 (Bloomberg) -- Li Ka-shing’s Cheung Kong Holdings Ltd. made a bid to buy a portfolio of planes from lessor Awas as the Hong Kong billionaire’s flagship company diversifies its investments into infrastructure.

Cheung Kong has submitted a preliminary, non-binding proposal for the assets, the company said in a Hong Kong Stock Exchange statement without providing details. The announcement confirms a possible bid reported by Bloomberg News Aug. 1.

The acquisition would be Li’s first major investment in aircraft leasing as Asia’s richest man expands his businesses from real estate, retailers, ports and power producers. Awas, the aircraft-leasing company of Terra Firma Capital Partners Ltd., plans to break up its fleet of about 280 planes and sell about 100 newer aircraft for as much as $5 billion, people with knowledge of the matter told Bloomberg News last week.

“The group as a whole is an investing machine,” said Jonas Kan, a Hong Kong-based analyst at Daiwa Securities Group Inc., referring to the number of companies owned by Li. “In the past, Cheung Kong had a lot of capital tied up in property development in China, but that’s now coming to fruition. With surplus cash, they’re considering areas outside of property and investing in infrastructure is not too great a risk.”

Cheung Kong will increase investments in the infrastructure sector, Li said on July 31 in the company’s earnings report. The company reported a 59 percent increase in first-half profit. Li has a net worth of $32.4 billion, according to the Bloomberg Billionaires Index.

Li’s Takeovers

So far this year, Li’s companies have announced a A$2.4 billion ($2.2 billion) purchase of Australian natural gas distributor Envestra Ltd. as well as a deal for Canadian airport parking assets. The billionaire’s Hutchison Whampoa Ltd. also revived talks to merge wireless assets in Italy with VimpelCom Ltd., people familiar with the matter said last month.

Cheung Kong fell 0.6 percent to HK$142.80 as of 11:41 a.m. It has gained 17 percent this year, compared with the 5.6 percent gain in the benchmark Hang Seng Index.

“The company has been exploring new investment opportunities to generate additional stable revenue streams to drive forward its growth momentum,” Hong Kong-based Cheung Kong said the statement.

A deal would make it the leasing industry’s third multi- billion-dollar transaction in the past 2 1/2 years, following Aercap Holdings NV’s purchase of International Lease Finance Corp. and Sumitomo Mitsui Financial Group Inc.’s takeover of Royal Bank of Scotland Group Plc’s aviation unit, according to data compiled by Bloomberg.

Asian Growth

Awas’s assets are valued at about $11 billion and are expected to increase to as much as $17 billion in 2016, Chief Executive Officer Ray Sisson said in May. Terra Firma bought Awas from Morgan Stanley in 2006 for $2.5 billion and later merged it with Pegasus Aviation Finance Co., which it took over for $5.2 billion in 2007.

Asian leasing companies are boosting their fleet and expanding across Asia as the region is set to overtake the U.S. as the world’s largest plane market, spurred by demand from China, India and Southeast Asia. Last month, China said it will encourage its lessors to look for opportunities overseas.

China Aircraft Leasing Group Holdings Ltd., which last month became the first Asian plane lessor to go public, told Bloomberg News that it plans to expand across Asia even as it relies on China for most of its business.

Chinese Demand

Air travel demand in Asia is projected to expand 5.7 percent in the four years through 2017, the second-fastest pace in the world, with routes within or connected to China being the single largest driver, according to an International Air Transport Association’s study last year.

Airlines globally will buy aircraft worth $4.4 trillion in the next two decades as more Indians and Chinese fly, Airbus said last year.

Asia will push commercial aircraft sales to $5.2 trillion over the next 20 years as China overtakes the U.S. as the world’s largest aviation market, Boeing Co. predicted last month.