IPOs: BOC Aviation Draws Big Names, Didi Eyes 2018 Listing in US

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Bottom line: A strong field of cornerstone investors indicates BOC Aviation’s IPO could post moderate gains in its trading debut, while Didi’s IPO plan shows that New York remains an attractive option for Chinese firms that are leaders in their sectors.

Fosun, Boeing buy into BOC Aviation

A couple of major IPOs are in the headlines today, led by some encouraging signs for an upcoming listing from BOC Aviation, the aircraft leasing arm of Bank of China (HKEx: 3988; Shanghai: 601398) that’s in the process of making a $1.1 billion offering in Hong Kong. Meantime, we’re getting some of the first concrete signals of the IPO plans for Didi Chuxing, the homegrown Chinese equivalent of Uber, which is reportedly eyeing a US listing in 2018.

Let’s jump right in with BOC Aviation, which looks like an attractive IPO to me since it should benefit from China’s booming demand for air travel. Yet despite that potential, the offer has stumbled somewhat since Bank of China first announced its plans to make a separate listing for the unit back in March. BOC Aviation was initially hoping to raise up to $1.5 billion, but pared the amount back to the current $1.1 billion after meeting with lukewarm demand due to recent market volatility.

While broader investor demand looks tepid, BOC Aviation has attracted a relatively solid field of cornerstone investors who will buy about half of the shares in its upcoming IPO, according to the latest reports. (English article; Chinese article) The list of cornerstone investors includes some names one might expect among big state-owned entities, but it also includes some major private companies and global firms.

Among the former category are China Investment Corp (CIC), China’s sovereign wealth fund, and the state-backed Silk Road Fund, which are the 2 largest cornerstone investors with contributions of $100 million each. The latter group of investors looks a bit more impressive, and includes domestic private equity giants Fosun (HKEx: 565) and Hony Capital, and global aircraft giant Boeing (NYSE: BA).

Some might argue that Boeing is probably investing as a favor to BOC Aviation, which is probably one of its larger customers with its fleet of 270 airplanes and another 241 on order. But Fosun and Hony are relatively market-oriented, even though their investments are in the relatively modest $35-$50 million range.

The cornerstone investors will purchase a total of 52 percent of the IPO shares, which is a relatively large amount for an offering of this size and hints at weak demand among smaller investors. Still, the presence of this diverse group of cornerstone investors looks like a positive sign, and I expect the shares will post a modest rise of 5-10 percent from their HK$42 IPO price when they start trading early next month.

No Rush for Didi

Next there’s Didi, which has become a hot ticket since word emerged late last week that global tech titan Apple (Nasdaq: AAPL) would invest $1 billion in the leading Chinese hired car services firm. (previous post) Despite its strong growth prospects, including a tie-up earlier this year with US peer Lyft, Didi is actually in big need of the new funds as it fights a costly battle for market share in China with global giant Uber.

But the company doesn’t appear eager to tap the IPO market anytime soon, as evidenced by this latest report that cites a knowledgeable person saying Didi is eyeing a US listing that’s unlikely to come before 2018. (English article; Chinese article) Didi has raised some $6.3 billion in earlier funding rounds, and is aiming to raise another $3 billion in the newest round that would include the $1 billion from Apple. The latest round would value the firm at about $25 billion

Apart from the 2018 timeline, the most significant thing about this latest news is the fact that Didi is planning to make the offering in New York. That contrasts with many other US-listed Chinese firms, which are currently trying to privatize and re-list in China due to disappointing valuations in New York. But as I’ve previously said, New York is still probably a good option for industry leaders like Didi, which have the scale and growth stories to still attract strong interest and higher valuations from US investors.

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