Huawei to Raise $844 Million in First On-Shore Bond Sales
China’s telecom equipment giant Huawei Technologies plans to raise 6 billion yuan ($844 million) by issuing two tranches of bonds in its first domestic bond sales, a move the company said is to maintain its financial stability.
Huawei, under mounting pressure from U.S. sanctions, said Wednesday in a filing that it is applying for two medium-term bond issues of as much as 30 billion yuan on the interbank market. The Industrial and Commercial Bank of China and China Construction Bank will be the main underwriters.
The first two tranches will be 3 billion yuan of three-year bonds each. No issuance dates have been set for the notes, according to the prospectus.
China Lianhe Credit Rating Co. Ltd gave the top AAA rating to the bonds and to Huawei as an issuer.
This is the first time for Huawei to tap the on-shore bond market and its first issuance since March 2017. Previously, the company issued four dollar-based bonds and two yuan-dominated bonds in Hong Kong through subsidiaries. The outstanding bonds stand at$4.5 billion.
Although a U.S. business ban has cast shadow over Huawei’s business, analysts said they are surprised at the borrowing plan as the company seems to have abundant cash on hand. According to the prospectus, Huawei had 249.7 billion yuan of cash at the end of June.
“I don’t understand why Huawei wants to issue bonds now as it has plenty of money,” said Xie Chiming, a bond manager at LC Securities. Xie said it is likely that Huawei is preparing for a business winter or to fund its ambitious plan to develop 5G technologies.
Huawei said late Wednesday that the bond issues are aimed at diversifying its financing channels, improve capital structure and ensure financial stability. The funds will be used to replenish working capital and invest in core businesses, Huawei said.
Several analysts predicted that the coupon rate of Huawei’s bonds would be slightly higher than 3%, equivalent to rates for large state-owned issuers and reflecting strong demand from investors including banks and mutual funds. Shen Bin, assistant general manager of the asset management department of Pacific Securities said the rate would be set between 3.4% and 3.5%.
Huawei was blacklisted by Washington on a so-called Entity List, which restricts American companies including Google Inc. from doing business with it. The Chinese company is also facing multiple criminal charges by the U.S. Department of Justice including espionage and fraud, allegations that Huawei has denied.
Huawei warned of potential external risks facing the company in its bond prospectus, saying its business could suffer from protectionism policies in overseas markets.
In the first half this year, China contributed more than 58% of Huawei’s total sales, while 6.8% came from the Americas.
By the end of June, Huawei had total assets worth 705.7 billion yuan. Its cash holdings surged 35.7% from the end of 2018 to 249.7 billion yuan. Huawei said the increase reflected the company’s liquidity management to support business expansion needs.
Huawei’s total inventories stood at 138.3 billion yuan at the end of June, a 43.5% rise from the end of last year. Analysts said the surging inventories indicated that the company has hoarded parts and materials to deal with the U.S. business ban.
By the end of June, Huawei’s total debt-to-asset ratio was 65.2%, with outstanding interest-bearing debt of 96.4 billion yuan, according to the prospectus.
Contact Reporter Han Wei (firstname.lastname@example.org)
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