Singapore Aircraft Leasing Enterprise (SALE), provider of financing for over 50 airlines worldwide, wants to position itself as a regional leader in aircraft lease securitizations.
Asia has already seen several future-flow air ticket and cargo receivables transactions. However, despite a sizeable market for aircraft lease ABS in the U.S. and Europe, there has been, to date, no equivalent deals from Asia. SALE wants to rectify this and, if successful, a sizeable asset class could emerge in the next few years.
"Over the next 20 years, it is estimated the aircraft finance business will be worth some $2 trillion, around $100 billion per year," says Robert Martin, SALE's chief executive officer. "The U.S. aircraft lease ABS market was worth $2 billion in 2005, but some investment banks estimate this will rise to around $10 billion this year."
"I do not expect Singapore to see those volumes initially: we have to see a deal first," Martin adds. "To make it viable, I would expect transactions of between $500 million and $1 billion, and the overall market to be worth between $1 billion and $2 billion per year."
To sell deals on such a scale will require strong investor sentiment. Despite the lack of a local precedent, Martin is confident of finding support, pointing to the global nature of the underlying assets as a selling point.
"I think it is reasonable to think there will be a market for these products in Singapore," he asserted. He added that the aviation business features movable assets traded globally in U.S. dollars, and is a genuinely global business - which is unlike domestic property, for instance. This would give, Martin said, local investors exposure to the aviation market on a global basis.
While SALE expects to be ready to launch a first transaction next year, timing depends on the outcome of discussions with local authorities over certain tax and regulatory issues.
"Issuing asset-backed bonds is no problem in Singapore: we've done five corporate bonds; some that have been secured, some unsecured," Martin states. He said that what they are looking to see is things moving to the next stage, to allow them to do securitizations with new equity involved.
"There are three issues that need to be resolved to improve the environment for equity issuance and to improve competitiveness," Martin states. "The first is a domestic issue and that is ensuring a level playing field on the taxes investors presently pay for aviation-related deals. In Singapore, income from shipping enterprises and property vehicles is tax exempt, and we would like these concessions extended to the aviation sector."
Internationally, Singapore's tax framework is a hindrance. Specifically, the city-state does not have treaties with several major nations to prevent double taxation on income.
"We would like to see Singapore expand the number of double taxation treaties it has with foreign countries - particularly with the U.S., India, China and Australia - so it is not at a disadvantage with places like the U.S. and Ireland when it comes to establishing special purpose vehicles for these transactions.
He added that they also want to see the authorities ratify the Cape Town Convention, which is a recently established global aircraft registration system that was made to protect the rights of aircraft owners and financiers.
One reason for SALE to be bullish is that two of its main shareholders - Temasek Holdings and Government Investment Corp. Special Investments - are state-linked investors. According to sources, their backing could be crucial in effecting the necessary regulatory amendments.
Martin made no mention of its influential shareholders, but expressed cautious optimism for a favorable outcome to discussions.
"We are aiming to be in a position to do a deal next year," Martin confirms. "Any process requiring regulatory/taxation change takes time, but we see this as an attainable goal. As soon as the changes we are seeking are in place, we have investment banks that are ready to work with us, so it would not take too long to put something together."
In fact, preparations for the transactions are well underway. Citigroup has already done some advisory work for SALE, although Martin says a deal mandate is still up for grabs.
"We have been preparing for this for a year," Martin states. "The project is basically happening in two stages. The first of these was getting the systems ready internally and Citigroup completed an advisory for us to achieve that during the last year. The external part will involve doing the transaction, and no decision has been [made] on that front."
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