Huawei seeks assistance in the flight of global banks
* Loans: The competitive telecommunications company relies on local lenders to comply with US trade restrictions
HONG KONG, May 31 (LPC) – Ailing Chinese telecommunications giant Huawei Technologies is relying on Chinese banks for an offshore syndicated loan of up to $ 1.5 billion.
Huawei, the world’s largest manufacturer of telecommunications networking equipment and the third largest provider of smartphones, is aiming two weeks after being blacklisted by the US Department of Commerce banning components and technology from US companies for funding over five and seven years of government approval.
The sanctions are already affecting Huawei’s business and 1,200 suppliers, and the company’s access to offshore finance is tightening as many international banks can no longer grant loans to the former top borrower.
“The recent developments in the US-China trade war have taken an uncomfortable turn for Huawei, which will be cut off from international banks,” said a senior credit banker at an international bank in Hong Kong. “The only lenders who would support Huawei right now would be Chinese banks, similar to state-directed lending in China, where the future of a national champion is at stake.”
The May 15 move against Huawei complements a series of measures taken against the Chinese state-owned company, which the US has accused of espionage, violating trade sanctions against Iran and theft of intellectual property. Huawei rejects all allegations against it.
Some existing international lenders are already taking steps to reduce their exposure to Huawei and some parts of a $ 1.5 billion loan due in December 2022, which was closed in December 2017.
The tense stalemate between the US and Chinese governments has clouded international banks’ assessment of Huawei’s business outlook.
Last September, Huawei took out a $ 1.5 billion five-year club offshore loan from ten lenders, including seven international banks. In December 2017, the company took out another $ 1.5 billion syndicated loan involving 25 non-Chinese lenders from a 27-strong consortium.
Some of Huawei’s existing lenders have raised concerns about profitability after the recent move in the US and the precise use of the proceeds from the proposed fundraising.
The majority of the facility’s December 2017 27-bank consortium (by value) requested a conference call with Huawei management to answer these questions.
“At this point in time, we’d prefer not to be exposed to Huawei. No non-Chinese bank will risk disregarding US sanctions by lending the company, ”said another credit banker at an international bank in Hong Kong. “We are closely monitoring developments and hope that the situation does not worsen any further.”
Google suspended Huawei’s access to some of its services last week, raising concerns about its smartphones running the Android operating system. Japanese conglomerate Panasonic announced on May 23 that it had stopped shipping some Huawei components after a similar announcement by British chip designer ARM the previous day that could potentially cripple Huawei’s ability to manufacture new chips for smartphones.
Huawei, which never received a global credit rating, has been banned from the international bond markets since news of a US investigation into alleged violations of Iranian sanctions shattered plans for its first euro bond in April 2018, which made its five-year debut of 500 million euros Euros ($ 609 million) after the final terms were released after US authorities reportedly investigated its dealings with Iran.
The company was also forced to take out a planned debut samurai loan of $ 300 million.
This deal, the first samurai loan for a Chinese company, was effectively pulled as mandated lead arrangers and bookrunners Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp did not resume general syndication.
In the US dollar bond market, Huawei hit 3.25% February 2022 and 4% 2027 issued by Proven Glory Capital on the 29th, however, bonds regained ground over the week, hitting 210bps by Friday. and 284 bp. sighted.
However, Chinese banks are expected to support Huawei’s new loan and actively participate in discussions, sources said.
“If you look at the tens of billions (renminbi) of credit lines, bilateral agreements and other deals Huawei already has with Chinese banks, you will understand that it is not that much of a challenge for the company, just another billion dollars from its lender, “said a banker at a Chinese state-owned lender.
Huawei is also offering higher indicative all-in prices for the new loan of 124bps and 159bps for the five- and seven-year tranches, respectively. The five-year club loan in September 2018 offered an all-in of 120bps, and the December 2017 loan facility paid 112bps at the highest level.
In June last year, ZTE, the fourth largest manufacturer of telecommunications equipment by market share, turned to Chinese state banks for credit lines totaling $ 10.7 billion after a US trade ban. The company was forced to cease most of its business between April and July 2018, which contributed to a loss of Rmb 7 billion (USD 1 billion) in 2018.