Huawei aims to raise RMB 6 billion from the Chinese onshore bond market by issuing two tranches worth RMB 3 billion each, according to a prospectus (in Chinese) the company filed to Chinese regulators on Wednesday.

Why it matters: This is the first time Huawei has turned to the onshore Chinese capital markets as the Shenzhen-based technology giant fights a United States export ban that has blocked its access to critical American-made components and technology.

  • Bond investors are optimistic that Huawei will weather the US sanctions as prices of US dollar bonds issued by the company have risen, driving their yields down.
  • Since its placement on a Trump administration “entity list” on May 16, the bid price of bonds from a unit of Huawei that pay a 4.1% coupon and mature in 2025 has risen 2.8% to $1.06 as yield on the bonds went down more than 9% to 3.84%, according to market data from iFAST Singapore.

Details: Huawei seeks to raise a total of RMB 20 billion from Chinese bond investors, according to the prospectus, which doesn’t include issuance dates.

  • Lianhe Ratings, a Beijing-based credit rating agency, has given the three-year medium-term notes its highest rating of AAA, meaning the issuer has an “extremely strong capacity to meet financial commitments,” according to the agency.
  • Huawei has four outstanding US dollar bonds worth $4.5 billion in total, according to the prospectus.
  • “The company’s purchases, manufacture, logistics, as well as its global technology services are inevitably relying on third-party firms and professional agencies, and the severance of business with them may directly or indirectly pose some adverse effects on the company’s businesses and operations,” (our translation) Huawei said in the prospectus, adding that its business could suffer from protectionism in some overseas markets.
  • A Huawei spokesman told TechNode on Thursday that the company has “abundant cash flow” and the funds raised from this bond issuance will be used to invest in its “core business” such as information and communications technology.

“The bond market in China is developing rapidly, and has become the second largest in the world… With this bond issuance, Huawei plans to tap into the Chinese bond market, diversify its financing channels, and improve its overall financing plan.”

—Huawei spokesman, to TechNode on Thursday

Context: The privately held company reported revenue of RMB 401.3 billion in the first half this year, up 23.2% compared with the same period last year.

  • Revenue in 2018 grew 19.5% year on year to RMB 721.2 billion (around $101.7 billion).
  • Huawei founder and CEO Ren Zhengfei said in June that the US trade blacklist would reduce the company’s production output by $30 billion over the next two years, and forecasted its revenues in 2019 and 2020 to remain around $100 billion.

Writing about semiconductors and telecommunications.

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