One month later, in 2021, Huawei once again raised funds from the domestic bond market.
On March 2, the reporter found from the China Money Network that Huawei Investment Holdings Co., Ltd. (hereinafter referred to as “Huawei Company”) issued the “2021 Second Phase of Medium-term Notes Prospectus”, intending to issue RMB 4 billion bonds with a maturity of 4 billion yuan 3 years, the rating is AAA, and the rating agency is Lianhe Credit Rating Co., Ltd. (hereinafter referred to as “Lianhe Credit”). The release date is March 3rd to 4th.
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A month ago, on January 26, Huawei disclosed in the national inter-bank market that it planned to issue a 3-year medium-term note with a scale of 4 billion yuan at an interest rate of 3.3%-3.9%. This is the first medium-term note issued by Huawei in 2021. This bond issuance is Huawei’s second financing in the bond market in 2021.
Regarding the use of funds raised from bond issuance, Huawei disclosed through the bond issuance prospectus that it is expected that the company’s various businesses will maintain a steady growth in the future, and capital expenditures will also increase further. The company plans to issue 4 billion medium-term notes this time, which will be used to supplement the working capital of the company’s headquarters and its subsidiaries.
According to the reporter’s understanding, Huawei first issued 3 billion medium-term notes in China in October 2019. It issued two medium-term notes with a total scale of 6 billion yuan. In 2020, it issued four medium-term notes with a total scale of 9 billion yuan. ; In addition, in January this year and the proposed issuance of a total of 8 billion yuan of medium-term notes, it is expected that domestic financing will reach 23 billion yuan.
According to the prospectus for the bond issuance, Huawei’s cumulative operating income for 2017-2019 and January-March 2020 was 598.48 billion yuan, 715.192 billion yuan, 849.646 billion yuan, and 180.614 billion yuan, and operating profits were 56.986 billion yuan. 74.87 billion yuan, 78.077 billion yuan and 15.172 billion yuan, all showing a steady growth trend.
In terms of operating income and net profit, in general, Huawei does “not bad money.” So why do “lighthouse companies” like Huawei frequently issue bonds?
With regard to financing through the bond market, Huawei previously responded that China’s domestic bond market is developing rapidly, and the current market capacity is second in the world. Bond financing has become one of the important financing channels in China. The company opens the domestic bond market through domestic bond issuance, which will further enrich financing channels and optimize the overall financing layout.
Regarding the issue of Huawei’s bond issuance, China Post Securities has interpreted and stated that the financial leverage and tax shielding effects of bond financing are extremely attractive to companies. Since the bond yield is less than the company’s asset yield, the existence of bonds will be amplified. Shareholders’ income, and interest expenses generated by bonds are included in corporate expenses. It is a pre-tax expense. If the pre-interest and tax profit rate is higher than interest, operating in debt can increase after-tax profits and increase shareholder’s income.
“Choosing low-cost debt to replace existing high-cost debt, and increasing shareholder’s income while not giving up controlling rights is the preferred solution for corporate financing. Therefore, corporate debt issuance cannot only be regarded as a pure financing behavior of the company, it is more important. It is the adjustment of the enterprise’s own capital structure, which is a capital structure optimization decision to maximize the value of the enterprise.” China Post Securities added.
Although Huawei’s revenue and profits are showing steady growth, Huawei’s total liabilities are gradually increasing. According to Lianhe Credit, as of the end of June 2020, the company’s total liabilities were 559.910 billion yuan, an increase of 1.07% from the end of 2019. Among them, long-term loans increased by 36.96% from the end of 2019 to 92.143 billion yuan, mainly due to the withdrawal of syndicated loans.
Lianhe Credit also stated that it is concerned that the complex and volatile international political and economic environment, prominent trade barriers, foreign exchange market fluctuations and foreign exchange controls have brought certain uncertainties and management difficulties to the company’s assets and business globalization layout, and it has also increased accordingly. The company’s supply continuity management is difficult; the company faces a number of criminal charges filed by the US Department of Justice, and there are negative expectations of long litigation cycles and unfavorable litigation results; the company’s R&D expenses, depreciation and amortization and other rigid costs are relatively large. The performance growth is not as expected, and profit growth may be under pressure; due to the consideration of optimizing the overall financing layout, the debt scale has grown rapidly in recent years; the above factors have adversely affected the company’s credit level.
However, for debt repayment expectations, Lianhe Credit said that Huawei’s EBITDA and net cash flow from operating activities have strong protection capabilities for all debts, and a high degree of protection for the current medium-term notes. In the future, although the uncertainty of the external environment will bring pressure to the company’s continued growth, the company has years of technology accumulation and its leading position in the industry. Lianhe Credit believes that the company is expected to continue to share the accumulation of technology and applications. The market dividend, continued to maintain good operating and financial performance, and the overall anti-risk ability is extremely strong.
Public information shows that Huawei is a private enterprise that is 100% owned by employees. The shareholders are the Labor Union Committee of Huawei Investment Holding Co., Ltd. and Ren Zhengfei. The company implements an employee stock ownership plan through the labor union. As of the end of 2019, the number of participants in the employee stock ownership plan was 104,572, all of whom were employees of the company. The main business includes three segments: operator business, enterprise business and consumer business.
