Business / Corporate

Huawei to sell off undersea cable business to Chinese firm after U.S. reportedly cited security risk

Reuters

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

Hengtong Optic-Electric Co. Ltd, 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 Co. Ltd on May 31 to buy its 51 percent stake in Huawei Marine Systems Co. Ltd. via cash and share issuance.

The filing did not disclose a price.

Huawei Technologies declined to provide immediate comment when contacted. 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 will not cooperate with any Chinese state request to access its systems for intelligence purposes. Even so, the U.S. Commerce Department imposed a trade ban last month that threatens to significantly disrupt its supply chain.

In March, the Wall Street Journal cited U.S. security officials as saying the suspected security risk extends to undersea cables built by Huawei Marine.

Undersea cables are the backbone of global internet traffic. Huawei has been gaining a share in the market dominated by U.S. firm SubCom, Japan’s NEC Corp. 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 laid 50,361 kilometers (31,293 miles) of cables, its website shows, including a 6,000-km-long cable connecting Africa and South America for the first time was completed in September last year.

It booked 2018 net profit of 115 million yuan ($16.66 million) on revenue of 394 million yuan, 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 percent 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 percent stake. With 14.95 percent, Hengtong Group’s founder and owner, Cui Genliang, is the second-largest shareholder.

Hengtong Group on its website said it is China’s biggest solutions provider in fiber-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 2.5 billion yuan on revenue of 33.9 billion yuan, according to its annual report. It has delivered over 10,000 km (6,000 miles ) 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 Monday pending deal discussions.