Natixis featured in a panel discussion at the Airline Economics “Growth Frontier Korea 2019” conference on March 19th. Hyung Jin (Ryan) Ahn, director at Aviation, Asia Pacific, Natixis, discussed Korean capital market/institutional investor participation in aviation.
A very active market
Korean investors started investing in aviation in the first place to diversify their real asset portfolio and move slightly away from shipping, which has shown historically higher volatility as compared to aviation assets. They initially invested in fully amortizing tranches, with a strong emphasis on the credit quality of the underlying lessee. They then expanded their investment timeframe by taking metal risk as they became more knowledgeable on the aviation industry as well as aircraft assets. Ultimately, Korean capital markets further developed by investing in landmark aviation projects which were highly appraised and recognized by the industry. The market is very active, as demonstrated by reverse inquiries on non-ABS portfolio financing projects in which Korean investors are looking to own a portfolio of aircraft assets.
A setback with senior tranches
There has been a bit of a setback when it comes to Korean investors investing in senior tranches, due to the negative conversion carry of KRW into USD, while Korean banks have remained as active senior lenders as before. Unless senior tranches can be structured in euro-denominated loans where premiums are generated from their forex hedging, this trend will continue.
We think that the market will continue to grow and develop, and that Korean investors will remain some of the most active aviation players.