OREANDA-NEWS. BOC Aviation Pte. Ltd.'s (BOC Aviation) proposed partial public listing is neutral to BOC Aviation's current 'A-' ratings and outlook, according to Fitch Ratings. However, there are some elements of the proposed transaction that are incrementally negative.

The motivations for the transaction include diversifying BOC Aviation's capital base and providing liquidity to a portion of BOC China Ltd.'s (BOC) investment. Nevertheless, if BOC were to shift to an approximate minimum 60% ownership position from a 100% ownership position this could be viewed as incrementally negative, all else being equal, because the alignment of interests between BOC Aviation and BOC would be diluted and the likelihood of BOC supporting BOC Aviation could also be subject to revision. The offering would require BOC Aviation to balance the expectations of its parent company with those of its new public shareholders.

Despite the proposed change in ownership composition, BOC's continued majority ownership of BOC Aviation, shared branding and strategic support for the bank's broader efforts in aviation finance remain. This supports Fitch's view that BOC Aviation continues to remain strategically important to BOC, as defined under Fitch's 'Global Non-Bank Financial Institutions Rating Criteria'.

Financial issuers deemed to be strategically important subsidiaries by Fitch are typically rated one- to two-notches below the parent company's long-term Issuer Default Rating (IDR). In BOC Aviation's case, the IDR is one-notch lower than BOC's long-term IDR of 'A', reflecting the parent ownership, shared branding, high level of board representation, cross-selling initiatives, and contingent liquidity support. Counterbalancing these factors are BOC Aviation's small size relative to the broader organization and the fact that it operates in a different jurisdiction.

The proposed listing of BOC Aviation will take place on the Main Board of the Hong Kong Stock Exchange, and the size of the listing is not expected to exceed 40% of the enlarged share capital of the company, with no more than 20% of new, primary shares to be issued by BOC Aviation and no more than 20% existing, secondary shares to be sold. The proceeds of the issuance are expected to be used for capital expenditures and for general corporate purposes.

BOC is expected to sell 90% of the offering to international investors and 10% to Hong Kong investors, while the bank will remain the controlling shareholder of the leasing company. BOC Aviation will remain a subsidiary of the bank and will continue to carry the BOC brand name. The proposed listing is subject to approval by shareholders and relevant regulatory authorities.

BOC Aviation's ratings are primarily sensitive to changes in BOC's ratings given the one-notch differential between the IDRs of BOC and BOC Aviation.

Further, although not expected by Fitch, the leasing company's ratings could be adversely affected should BOC seek to dispose of or meaningfully further reduce its investment in BOC Aviation or there be any other developments within BOC which are perceived by Fitch to alter BOC's willingness or ability to provide support to BOC Aviation. Negative rating action could also be taken if BOC Aviation's operating performance deteriorated, thereby not delivering the return on investment envisaged by BOC, to the extent that this had an impact on Fitch's assessment of the propensity of BOC to provide support to BOC Aviation, in case of need.

Fitch currently rates BOC Aviation as follows:

BOC Aviation Pte. Ltd.
--Long-term IDR 'A-';
--Senior unsecured debt 'A-'.

The Rating Outlook is Stable.