Exclusive - China Merchants, Ping An units among bidders for AirAsia plane leasing unit - sources

By Anshuman Daga

SINGAPORE (Reuters) - AirAsia Bhd has received about a dozen bids for its aircraft leasing unit, mostly from Chinese firms, including the leasing arms of China Merchants Bank and Ping An Insurance Group, said sources with knowledge of the process.

AirAsia is seeking buyers for a majority stake in Asia Aviation Capital, which it has valued at about $1 billion.

This is the first time the level of interest in the leasing unit and the identities of some of the participants are coming to light. The first-round bidding closed earlier this week, the sources told Reuters.

The strong interest from Chinese firms comes despite China recently announcing measures to tighten controls on money moving out of the country, adding to speculation that potentially destabilising capital flows were on the rise.

One source said AirAsia had received strong interest from North Asian firms and Asian funds keen to gain long term exposure to the leasing industry, which has dollar-based revenue. He said potential buyers would start due diligence in a few weeks.

AirAsia declined to comment on the bidding. AirAsia Group CEO Tony Fernandes told Reuters on the sidelines of an event in Kuala Lumpur on Thursday that the sale process "was getting too close" but declined further comment.

Reuters previously reported that AirAsia aims to conclude the sale of its leasing unit by the first half of next year.

Ping An Insurance declined to comment while there was no response from China Merchants Bank. The sources declined to be identified as the discussions are confidential.

A successful deal will enable Fernandes, who has grown AirAsia into the region's biggest budget airline from a two-plane operation over a decade ago, to cut the company's debt and pay a special dividend from the proceeds, the sources said.

CASHING IN

The airline is cashing in on a booming leasing sector in which well funded Chinese financial firms are looking to grab a bigger share of the $228 billion global aircraft leasing sector - once seen as the exclusive preserve of Western players.

Aircraft leasing subsidiaries of China Construction Bank and Bank of Communications are rapidly expanding, while leasing units of Bank of China, Industrial and Commercial Bank of China and China Development Bank already figure among the top 15 global lessors.

One leasing industry executive said though there were some concerns about Chinese outbound investments, the sector was seen as strategic to China and as long as interest in Asia Aviation Capital was from lessors, this was unlikely to affect the sale process.

AirAsia recently hired a small team of industry veterans to spearhead growth at Asia Aviation Capital, which aims to expand its portfolio of planes to about 200 from 55 at the end of June.

Sources said the unit plans to add other airlines as part of a strategy to diversify its customer base beyond AirAsia's affiliates.

AirAsia has pending orders for about 400 Airbus aircraft secured at substantial discounts, helping it emerge as one of Airbus' biggest customers. AirAsia said in July that 30 percent of its recent order of 100 Airbus A321neo jets would be allocated to its leasing subsidiary.

(Reporting by Anshuman Daga in SINGAPORE; Additional reporting by Sumeet Chatterjee, Julie Zhu in HONG KONG and Liz Lee in KUALA LUMPUR; Editing by Denny Thomas and Muralikumar Anantharaman)