The Hong Kong/London-listed banking group is selling this business to a Saudi-backed organisation backed by a sovereign wealth fund. It said the sale will boost its CET1 capital buffer and help improve its return on equity, among other effects.
Standard Chartered has agreed to sell its global aviation finance leasing business for an initial consideration of $700 million to the Saudi-owned Aircraft Leasing Company.
The Aircraft Leasing Company, aka AviLease, is owned by Saudi Arabia’s Public Investment Fund, the sovereign wealth fund.
The UK/Hong Kong-listed bank said the consideration is subject to adjustment with reference to the net asset value of the business at the completion of the transaction.
This move follows Standard Chartered's statement in January this year that it was considering selling this business.
Standard Chartered said in a statement that it expects the sale to complete towards the end of 2023. On completion of the transaction, Standard Chartered will record an estimated gain of about $300 million and an increase in Common Equity Tier 1 capital ratio by around 19 basis points.
“The sale of our aviation finance leasing allows us to continue to focus our efforts on those areas where we are most differentiated and to further progress our return on tangible equity journey,” Simon Cooper, chief executive of corporate, commercial and institutional banking and Europe & Americas at Standard Chartered, said. (He referred to the bank’s desire to increase its RoE in a sustainable way.)
The bank’s aviation finance business owns and runs a fleet of more than 120 aircraft on lease to more than 30 airlines. Standard Chartered said that in 2022, this business recorded a pre-tax profit of $18.2 million and a net asset value of $300 million.
Aviation finance is a big, but complex, business. Historically, banks have dominated it, but as these lenders pulled financing during the pandemic, private equity firms and alternative investment platforms filled the gaps and bought new planes originally ordered by airlines. A recent report published by Spherical Insights LLP expects the global aviation asset management market size to grow from $177.79 billion in 2022 to $288.34 billion by 2032 (source: AIP Capital).
"There are a lot of really different and attractive ways to get yield in the environment we are living in right now. I think a lot of people have looked at different parts of that market and said 'Well, the risk/return in X, Y, Z investment is way better than aviation', and I think some of those participants wouldn't have said that a couple of years ago," Jared Ailstock, managing partner at AIP Capital, said.
"Where we have seen success are folks that have either been coming into the space for the very first time, because they view the entry point as being a lot more attractive today because there isn't as much equity in the space, or guys who have been able to weather the storm and they view aviation as a core part of their strategy and they will continue to deploy equity throughout various cycles," he added.
The transaction includes the sale of all shareholdings in each of Pembroke Group (Isle of Man), Pembroke Aircraft Leasing Holdings (Ireland) and Pembroke Aircraft Leasing (Tianjin, China). When concluded, these companies will no longer be subsidiaries of Standard Chartered.
The sale is subject to customary closing conditions, which remain to be satisfied as at the date of this announcement. Standard Chartered used JP Morgan Securities PLC as its financial advisor.