Hana Financial Investment Co. Ltd. will acquire mezzanine debts of $50 million in an aircraft fund set up to buy a Boeing 777-300ER which Qatar Airway Co. operates, and sell them down to South Korean institutional investors soon.
The aviation fund comprises equity interests, and senior and mezzanine debts. Senior notes will be underwritten by the Australia and New Zealand Banking Group (ANZ), while an unidentified domestic institution will acquire equity interests, according to investment banking sources on April 2. The sums of the senior debts and the equities were not available immediately.
The underwriting by Hana, a brokerage arm of a leading South Korean banking group, accounts for the whole mezzanine tranche in the aviation fund. They are expected to generate an average annual return of between 5% and 6% through 2026.
Qatar Airways will lease the aircraft, which was delivered to the airline three years ago, in a sales and lease back contract. The Qatar government owns 100% stakes in Qatar Airways.
The 777-300ER is the most favorite aircraft model to invest among South Korean institutional investors because it is in high demand in the used aircraft market.
HI Investment & Securities Co. Ltd., an affiliate of South Korean shipbuilder Hyundai Heavy Industries Co. Ltd., has recently established an offshore aircraft leasing company to buy two used Boeing 777-300ER aircraft from a Chinese leasing firm for $209 million, jointly with nine other institutional investors.
Korean investors also prefer mezzanine tranches in aircraft funds in search of stable returns, although growing competition in the aviation financing market is driving expected returns lower.
Last year, the Public Officials Benefit Association (POBA) and the Yellow Umbrella Mutual Aid invested $34 million in mezzanine debt to fund Air France’s $115.7 million lease of the Boeing 777-300ER model, to become the first South Korean institutions to participate in a major European airline’s plane funding.
By Daehun Kim and Sanghun Oh
<Edited by Yeonhee Kim>