Fixed Income   |   August 20, 2019

Tech and Telecom: Huawei Focus

Huawei, the Chinese telecom equipment and smartphone manufacturer, has been in the headlines for some time. From charges of illegal business activities to claims that the company poses a national security risk to the US given its ability to use its technology for spying, the company finds itself at the center of three key issues facing China and the US: the competition to establish 5G, the US-China trade war, and national security.

Caroline Grandoit
Global Head of Total Portfolio Solutions
Robert Petty
Executive Director and Chief Executive Officer, Fiera Asia
Caroline Grandoit
Global Head of Total Portfolio Solutions
Robert Petty
Executive Director and Chief Executive Officer, Fiera Asia
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions
Dominic Bokor-Ingram
Senior Portfolio Manager
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions
Dominic Bokor-Ingram
Senior Portfolio Manager
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Dominic Bokor-Ingram
Senior Portfolio Manager
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Kenneth M. Potts
Senior Vice President, Portfolio Manager
Dexter J. Torres
Senior Vice President, Portfolio Manager, Head of Trading
Brian P. Meaney
Senior Vice President, Taxable Bond Strategist
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions
Brian P. Meaney
Senior Vice President, Taxable Bond Strategist
Judy Wesalo Temel
Senior Vice President, Director of Credit Research
Brian P. Meaney
Senior Vice President, Taxable Bond Strategist
Candice Bangsund
Vice President and Portfolio Manager, Global Asset Allocation and Private Markets Solutions

In 2018, the US announced that it would impose a supply ban from US companies on Huawei equipment. By May 2019, the US Department of Commerce (DOC) announced an additional step by placing Huawei on a restricted “Entity List” by the Bureau of Industry and Security (BIS). The Entity List requires that US companies acquire a US government license to sell equipment and software to Huawei unless the Commerce Department finds such selling does not create a national security risk. On August 19, the DOC extended the deadline for an additional 90 days to allow Huawei to buy products from American suppliers. This is a continuation of the DOC’s May decision to ease restrictions on Huawei by granting temporary licenses to allow certain US supplier to continue to do business with the company, as long as it did not pose a national security risk. However, the easing does not remove Huawei from the Entity List but does make it easier for companies to retain a temporary license to sell to the company. The discussions remain fluid with no full deal between the two parties.

Who is Huawei?

Huawei Investment & Holding Co., Ltd. is a private company founded in 1987. It currently has 188,000 employees and is 100% employee-owned through the Huawei Holding Trade Union. It operates in three segments: Carrier Business, Enterprise Business, and the Consumer Business. Over half of its revenues comes from China. It is the largest technology company in China representing 0.8% of Chinese GDP.

Although it is privately held, Huawei has over $10bln in public debt1 . Most of its debt is issued through two wholly owned subsidiaries: Proven Glory Capital Limited and Proven Honour Capital Limited which are fully guaranteed by the company. There are no credit ratings available for these public debt issues by any of the major rating agencies.

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Disclosures

SOURCES
1. Huawei Company Website, 2018 Annual Report
2. Office of the United States Trade Representative, June 2018, Section 301 Product List Fact Sheet
3. Barclays, June 5, 2019, 5G Leadership: Huawei in Context
4. Department of Justice, January 28, 2019, Chinese Telecommunications Conglomerate Huawei and Huawei CFO Wangzhou Meng Charged with Financial Fraud

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