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Huawei rewards investors in inaugural USD bond issue
Chito Santiago 1 Jun 2015

China’s leading global information and communications technology solutions provider Huawei rewarded investors when it priced on May 12 its inaugural US dollar bond offering amounting to US$1 billion.

The Reg S 10-year deal was priced at 99.006% with a coupon of 4.125% to offer a yield of 4.248%. This was equivalent to spread of 195bp over the US treasuries, or 25bp inside of the initial price guidance of 220bp area. The unrated bonds performed in the secondary market as they tightened further to 177bp in the morning of May 13.

A banker familiar with the deal says the arrangers had suggested to Huawei to price the bonds even tighter at 190bp, but the company was happy at 195bp as it wanted the bonds to trade well and reward the investors.

Huawei’s initial foray in the US dollar bond market was well-thought out, the banker points out, as it has been studying the market for some time. “The company has been following the market, looking at the other issues and studying the documentations,” the banker says. “The banks have been talking to them for years to tap the market, but unless and until it was ready, it was not going to do a trade. And as you can see, when it decided to do so, it went out with a bang.”

Indeed, Huawei knew what it wanted when it went out for a 10-year tenor, instead of the usual five years for an inaugural issue. It also said it would not get a rating and it would not go for a listing anytime soon.

While Huawei may lack transparency for being unrated and unlisted, the deal generated a huge investor demand exceeding US$8.5 billion from more than 300 accounts as the market learned more about its credit story when it conducted a roadshow in Hong Kong, Singapore and London. “Orders came in fast and furious, and chunky,” the banker adds. “Huawei would have been happy to price a US$500 million to US$600 million benchmark issue, but when it saw the response, it decided to go for US$1 billion.”

The banker says the arrangers had wanted Huawei to go for an even bigger deal size, but US$1 billion is already more than what it needs. In terms of comparables, investors referenced the outstanding bonds from Lenovo, Tencent and Alibaba.

The bonds, the proceeds of which will be used for general corporate purposes, were issued through Proven Honour Capital and guaranteed by Huawei Investment and Holding Company. The deal features a change of control put at 101%, which will trigger if the Union of Huawei Investment and Holding Company ceases to have control of the guarantor.

In terms of geographic distribution, 77% of the bonds were allocated in Asia and 23% in European Union and offshore US. By type of investors, fund managers accounted for 58%, sovereign wealth funds and insurance companies 35%, banks 4%, and corporates and private banks 3%.

ANZ, Bank of China (Hong Kong), DBS, ING and Standard chartered acted as the joint bookrunners and lead managers for the transaction.

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