Huawei’s third attempt to raise money by capital operation, which had seemed likely to succeed, has been disrupted by the worsening financial crisis.

Bids for half of of Huawei’s mobile phone business equity, valued at $2 billion, were launched in the first half of this year, but now many earlier bidders are unlikely to be able to put up the cash. So far, private equity funds including AEA Investors, General Atlantic, Providence Equity Partners and Goldman Sachs PE department have dropped out of the bidding, leaving Bain Capital and Silver Lake Partners the only two who have submitted their official bids for Huawei’s mobile business.

But on October 6, Chen Chongjun, head of Huawei’s mobile business sales department, revealed that the further worsened global financial situation had brought on the possibility of a suspension of the deal, and negotiations were at a deadlock. He explained that the current financial situation would affect the bidders’ ability to attract capital. Due to struggling economies and the unavailability of credit, many investors are re-considering M&A transactions across Asia, and Huawei’s mobile business seems to be an early victim. 

Huawei entered the mobile phone business in 2003. During 2006 and 2007, Huawei’s annual sales growth increased by 72%. Huawei’s mobile orders and actual sales totaled $2.6 billion and $2.2 billion, respectively, in 2007, and are expected to reach $4 billion and $3.7 billion in 2008. 

Chen Chongjun earlier explained that Huawei’s attempt to sell mobile business equity didn’t mean it would quit the area, but it needs a strategic partner to expand its business in this area.

Huawei president Ren Zhengfei’s said the equity trade was aimed to prepare a warm coat for the company in winter, as it will relieve increasingly tight cash flow. For Huawei, which has not listed, the deal seemed a good way to raise funds.

In 2001, Huawei sold its power supply and machine room supervision business to Emerson for $780 million. In 2005, it sold its H3C network and data communication business to 3com for $800 million. Now Huawei plans to sell about 50% equity of its mobile business. In this way Huawei can introduce in strategic investment and expand its business, and finally sell it at a high price.

Some reporters estimate Huawei gained about $1.632 from the two deals in 2001 and 2005, much higher than the funds ZTE raised with its IPO and since.

Unlike Huawei’s previous deals, this time the bidders are not industry majors, but speculators, and analysts in the telecom industry believe Huawei is unlikely to sell all the shares to Bain or Silver Lake, for they are only interested in investment returns. Huawei may also choose to go public to raise money, which Chen Chongjun did not deny in an interview.

Source:chinastakes