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.