Huawei to Sell Undersea Cable Business, Buyer's Exchange Filing Shows

Huawei Technologies plans to sell its undersea telecom cable business, showed a buyer's filing on Monday, in its first major asset sale since the United States ratcheted up accusations of the Chinese firm being a vehicle for espionage.

Hengtong Optic-Electric, an optical telecommunication network products company based in Jiangsu province, said in the filing to the Shanghai Stock Exchange that it signed a letter of intent with Huawei Technologies subsidiary Huawei Tech Investment on May 31 to buy its 51% stake in Huawei Marine Systems via cash and share issuance.

The filing did not disclose a price.

Huawei Technologies declined to provide immediate comment when contacted by Reuters. The potential sale comes as Huawei's main business of making and selling telecom network equipment and smartphones is under intense global scrutiny as the United States works to persuade allies that Huawei's products pose a security risk.

Huawei has said it would not cooperate with any Chinese state request to access its systems for intelligence purposes. Even so, the US Commerce Department imposed a trade ban last month that threatens to significantly disrupt its supply chain.

In March, The Wall Street Journal cited US security officials as saying the suspected security risk extended to undersea cables built by Huawei Marine.

Undersea cables are the backbone of global Internet traffic. Huawei has been gaining share in the market dominated by US firm SubCom, Japan's NEC and Europe's Alcatel-Lucent, since Huawei Marine was established in 2008 as a joint venture with Britain's Global Marine.

Huawei Marine has participated in 90 projects worldwide and built 50,361 kilometres (31,293 miles) of cables, its website showed, including a 6,000 km cable connecting Africa and South America for the first time completed in September last year.

It booked 2018 net profit of CNY 115 million ($16.66 million) on revenue of CNY 394 million, according to Huawei Technologies' annual report.

The annual report also showed Huawei Technologies gained majority voting rights on Huawei Marine's board in August 2018, with Global Marine retaining a 49% non-controlling interest.

Global Marine did not immediately respond to an emailed request for comment on Monday, and calls to its Asia-Pacific office in Singapore were not answered.

According to exchange filings, Hengtong Optic-Electric's largest shareholder is privately owned Hengtong Group with a 15.66% stake. Hengtong Group's founder and owner Cui Genliang is the second-largest shareholder with 14.95%.

Hengtong Group on its website said it is China's biggest solutions provider in fibre-optic networks and smart electricity grids, with over 70 subsidiaries at home and abroad, including Indonesia-listed cable maker PT Voksel Electric Tbk.

Hengtong Optic-Electric booked 2018 net profit of CNY 2.5 billion on revenue of CNY 33.9 billion, according to its annual report. It has delivered over 10,000 kilometres of undersea cables, including for projects in Papua New Guinea, Chile, Bolivia and Mexico, the annual report showed.

Trading of Hengtong Optic-Electric shares was suspended on Monday pending deal discussions.

© Thomson Reuters 2019