Forefront | Huawei first issued bonds in China, plans to raise 3 billion yuan to supplement working capital


Huawei will issue bonds for the first time in China for the first time and issue RMB 3 billion medium-term notes.36氪 Obtained the “Procedure for the First Interim Notes of 2019 of Huawei Investment Holdings Co., Ltd.” from the Peasant Open Market System of the Interbank Market Dealers Association (Non-Financial Corporate Debt Financing Instrument Registration Information System).The prospectus was disclosed on September 11th, which showed that Huawei Investment Holdings Co., Ltd. (hereinafter referred to as “Huawei”) issued a single medium-term note to institutional investors in the national inter-bank bond market. The current issue is RMB 3 billion.The term is 3 years and the lead underwriter is Industrial and Commercial Bank of China.For the purpose of funds, Huawei said it will be used to supplement the working capital of the company’s headquarters and its subsidiaries.As Huawei’s various business scales continue to expand, operating costs and R&D expenditures have also increased accordingly. Huawei expects the company’s various businesses to maintain steady growth in the future, and financial support will further increase.Huawei said in an official statement: “Huawei’s operations require funds mainly from the company’s own business accumulation and external financing. The company’s own business accumulation is mainly based on the company’s own business accumulation (about 90% in the past five years), supplemented by external financing.(In the past 5 years, it accounted for about 10%.) The company operates steadily and has ample cash flow. This is the first time Huawei has issued bonds in China.In response, Huawei officially responded: “The domestic bond market is developing rapidly, and the current market capacity is the second largest in the world. Bond financing has become one of the important financing channels in China. The company will further enrich the financing by opening domestic bond market through domestic bond issuance.Channels to optimize the overall financing layout.” As of the signing date of the prospectus (September 10, 2019), Huawei had six overseas bond issues, including four US dollar bonds and two RMB dim sum bonds.At present, two dim sum bonds have been paid, and four US dollar bonds have not yet expired, totaling $4.5 billion.The credit rating of the joint letter to Huawei’s main letter and the current medium-term note is AAA. It believes that Huawei’s ability to repay debt is extremely strong, and it is basically not affected by the adverse economic environment, and the default risk is extremely low.It is worth noting that in the prospectus, Huawei first disclosed the gross profit margin of its various businesses.As shown in the figure, in 2016-2018 and the first half of 2019, the gross profit margins of the three major business segments of operators, enterprises and consumers remained basically stable.As revenues continue to increase, the gross profit of consumer business contributes rapidly, and the operator’s business revenue and gross profit remain basically stable.In the first half of 2019, the gross profit margin of consumer business was 30.24%, and the contribution gross profit ratio was 42.84%. Since 2016, its proportion has been rising, and it has gradually approached the operator business.The gross profit margin of the operator’s business is 54.71%, and the gross profit contribution to the company is 51.65%. Although the revenue from the consumer business has been overtaken since 2018, it is still Huawei’s most profitable business, contributing more than half of the gross profit.Huawei’s regional revenues were also announced in the prospectus for the first half of this year.In the first half of 2019, Huawei’s revenue in the Chinese market was 230.46 billion yuan, accounting for 58.12% of the total revenue. In the previous two years, the proportion was 52%.After the Huawei incident, Huawei overweighted the domestic market, and the proportion of domestic revenue increased significantly. The proportion of Europe, the Middle East and the Asia-Pacific market declined significantly.In the same period, Europe and the Middle East accounted for 24.29%, compared with 28% in the previous two years.The Asia-Pacific region accounted for 8.98%, compared with 11.5% or higher in the previous two years.Header image from Huawei