Chinese sovereign fund behind bid for Avolon

China’s sovereign wealth fund has emerged as a key backer of the original bid for Dublin-based aircraft leasing group Avolon. That interest triggered a $2.55 billion (€2.3 billion) counter-bid for the business from another Chinese investor.

Avolon declared the counter-bid from Beijing-based Bohai Leasing to the New York Stock Exchange on Friday, saying its offer of $31 per share for 100 per cent of its stock followed an approach from an unnamed third party at $30 per share. The original bid is understood to be led by AVIC Capital, a unit of Aviation Industry Corp of China, in partnership with China Investment Corp, the country’s sovereign wealth fund. The fund’s portfolio was recently valued at about $740 billion.

China Investment Corp teamed with AVIC a year ago in an unsuccessful takeover approach for Avolon, which was established in 2010 by aviation entrepreneur Domhnal Slattery.

Flotation

The Irish firm opted instead for a flotation, launching on the New York market last December with a valuation of $1.6 billion. Avolon’s major shareholders include private equity firms Cinven, CVC Capital Partners and Oak Hill.

The Bohai bid values Mr Slattery’s personal stake in the business at about €31 million.

Bohai’s parent is HNA group, a $72 billion conglomerate whose aviation business is the fourth-largest in China and includes Hainan Airlines. HNA has been expanding in Europe, agreeing last week to buy air cargo handler Swissport International for 2.7 billion Swiss francs (€2.54 billion). The Bohai offer was 25 per cent more than Avolon’s closing price in New York on Thursday, when the market value of the business was $2.01 billion.

Negotiations

Avolon has now instructed its advisers, JP Morgan investment bank and legal firm Weil, Gotshal & Manges, to “continue negotiations” with both bidders.

The proximity and scale of their opening offers presents a clear opportunity for Avolon to prise a higher price for the business, which owns 153 aircraft and has another 107 on order. Although the Avolon board has not accepted or rejected either bid, the fact neither was rejected outright points to a willingness to engage in discussions on a possible transaction around the valuations mooted.