May 31, 2019 / 9:29 AM / 4 months ago

Huawei seeks support as global banks flee

* Loans: Embattled telco counts on local lenders after US trade restrictions

By Apple Li and Prakash Chakravarti

HONG KONG, May 31 (LPC) - Embattled Chinese telecom giant Huawei Technologies is relying on Chinese banks to support an offshore syndicated loan of up to US$1.5bn, as it fights damaging US sanctions that are curbing its ability to borrow from international banks.

Huawei, the world's largest maker of telecommunications network equipment and the number three smartphone supplier, is seeking five and seven-year funding, two weeks after it was added to a US Commerce Department blacklist that bans it from buying components and technology from US firms without government approval.

The sanctions are already hitting Huawei's business and 1,200 suppliers and the company's access to offshore financing is narrowing as many international banks are no longer able to lend to the former top-tier borrower.

“The recent developments in the US-China trade war have taken a nasty turn for Huawei, which will find itself cut off from international banks,” a senior loan banker at an international bank in Hong Kong said. "The only lenders that would support Huawei at this moment would be Chinese banks, akin to state-driven lending in China with the future of a national champion at stake."

The May 15 move against Huawei adds to a series of measures against the state-owned Chinese firm, which the US has accused of espionage, breaching trade sanctions against Iran and intellectual property theft. Huawei disputes all allegations against it.

Some existing international lenders are already taking steps to cut their exposure to Huawei and some portions of a US$1.5bn loan due in December 2022 were offered in Asia's secondary loan market last week at around 99 cents to the dollar, a loan trader said. That deal was completed in December 2017.

The tense stand-off between the US and Chinese governments has darkened the international banks' assessment of Huawei's business prospects.

Last September, Huawei raised a US$1.5bn five-year offshore club loan from 10 lenders including seven international banks. In December 2017, the company raised another US$1.5bn syndicated loan which had 25 non-Chinese lenders out of a 27-strong syndicate.

Some of Huawei’s existing lenders have raised concerns about its viability after the latest US move, and the precise use of proceeds from its planned fundraising.

A majority of the 27-bank syndicate (by value) on the December 2017 facility have asked for a conference call with Huawei’s management to answer these questions.

“At this point in time, we would rather not be exposed to Huawei. No non-Chinese bank will risk flouting US sanctions by lending to the company,” another loan banker at an international bank in Hong Kong said. "We are closely monitoring the developments and hope the situation does not deteriorate further."

Google last week suspended Huawei's access to some of its services, raising concerns over its smartphones that use the Android operating system. Japanese conglomerate Panasonic said on May 23 it had stopped shipments of some Huawei components, following a similar announcement by British chip designer ARM the previous day, which could potentially cripple Huawei's ability to make new chips for smartphones.

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Huawei, which has never obtained a global credit rating, has been shut out of the international bond markets since news of a US investigation into alleged Iranian sanctions violations scuppered plans for its first euro bond in April 2018. The company took the extreme measure of postponing the €500m (US$609m) five-year debut after releasing final terms, following reports that US authorities were investigating its business dealings with Iran.

The company was also forced to put a planned US$300m-equivalent debut Samurai loan on hold last December after the arrest in Canada of its chief financial officer Meng Wanzhou in connection with the Iranian sanctions case.

That deal, the first Samurai loan for a Chinese company, has effectively been pulled as mandated lead arrangers and bookrunners Mizuho Bank, MUFG and Sumitomo Mitsui Banking Corp have not relaunched general syndication.

In the US dollar bond market, Huawei's 3.25% February 2022s and 4% 2027s, which were issued by Proven Glory Capital, hit 224bp and 310bp over Treasuries on May 29, respectively, the widest levels reached since late January, according to Tradeweb. The bonds regained ground later in the week, however, and were spotted at 210bp and 284bp, respectively, by Friday.

Chinese banks, however, are expected to be supportive of Huawei’s new loan and are actively involved in discussions, sources said.

"If you look at the tens of billions (of renminbi) of credit lines, bilaterals, and other businesses Huawei already has with Chinese banks, you will understand it’s not so much a challenge for the firm to secure just another US$1bn from its lenders,” a banker at a Chinese state-owned lender said.

Huawei is also offering higher indicative all-in pricing for the new loan of 124bp and 159bp respectively for the five and seven-year tranches. The five-year club loan in September 2018 offered an all-in of 120bp, and the December 2017 facility paid 112bp at the top level.

Last June ZTE, the world's fourth-largest telecommunications equipment maker by market share, turned to Chinese state banks for credit lines totalling US$10.7bn after a US trade ban. The company was forced to stop most businesses between April and July 2018 which contributed to a Rmb7bn (US$1bn) loss in 2018.

Reporting By Apple Li and Prakash Chakravarti; Editing by Tessa Walsh and Vincent Baby

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