Huawei Pulls Eurobond Offering in Response to U.S. Investigation Over Possible Iran Sanctions Violations

On April 26, Huawei Tech­nolo­gies abrupt­ly shelved overnight a euro-denom­i­nat­ed bond issuance by its BVI-incor­po­rat­ed debt-issu­ing vehi­cle Proven Glo­ry Cap­i­tal Lim­it­ed, guar­an­teed by its par­ent com­pa­ny Huawei Invest­ment & Hold­ing Co.  The announce­ment came fol­low­ing news of a crim­i­nal inves­ti­ga­tion launched by the U.S. Depart­ment of Jus­tice into the company’s alleged vio­la­tion of Iran sanc­tions.  The sale, which attract­ed sub­stan­tial investor demand for a $608 mil­lion offer­ing of debt matur­ing in 2023, would have been the company’s first ever euro-denom­i­nat­ed bond sale.  Approx­i­mate­ly 2 bil­lion euros of orders had already been placed by eager investors before the com­pa­ny with­drew the offer­ing with­out pri­or notice.  The joint bookrun­ners on the deal were BNP Paribas, Citibank, DBS, ING, JP Mor­gan Chase, and Stan­dard Char­tered Bank.

Huawei at present has out­stand­ing U.S. dol­lar-denom­i­nat­ed bonds matur­ing in 2022, 2025, 2026, and 2027 issued through Proven Glo­ry Cap­i­tal Lim­it­ed and anoth­er debt-issu­ing vehi­cle, Proven Hon­our Cap­i­tal Lim­it­ed. Huawei’s exist­ing 4 per­cent US dol­lar-denom­i­nat­ed bonds due in 2027 slid to a yield of 4.94 per­cent this week — the high­est since its issuance in Feb­ru­ary 2017.

Huawei has been wide­ly sus­pect­ed by the U.S. gov­ern­ment to be act­ing as an instru­ment of the Chi­nese gov­ern­ment and intel­li­gence com­mu­ni­ties. Indeed, the U.S. Con­gress is also look­ing to cur­tail fur­ther the company’s influ­ence in U.S. mar­kets.  For exam­ple, in Jan­u­ary 2018, law­mak­ers intro­duced leg­is­la­tion ban­ning U.S. agen­cies from procur­ing Huawei mate­ri­als.  The leg­is­la­tion will like­ly be includ­ed in the next annu­al defense spend­ing bill.  

The scope and time­line of the cur­rent Jus­tice depart­ment probe remain unclear, and it is not expect­ed that Huawei will return to the Eurobond mar­ket until there is greater clar­i­ty con­cern­ing the U.S. gov­ern­ment inquiry. There is spec­u­la­tion that if found guilty by U.S. author­i­ties, Huawei could suf­fer the same fate as its com­peti­tor ZTE, which was recent­ly banned from the U.S. com­po­nents mar­ket for a sev­en-year peri­od after sim­i­lar charges were levied against the telecom­mu­ni­ca­tions firm. Ongo­ing inves­ti­ga­tions have already caused a mar­ket slump for some of Huawei’s U.S.-based sup­pli­ers, includ­ing Lumen­tum Hold­ings and Qual­comm Inc.