By David Kirton
SHENZHEN, China (Reuters) -Chinese smartphone maker Honor is receiving an “unusually” high level of support from local governments as its former Huawei unit prepares an initial public offering (IPO), according to policy documents and a person close to the matter.
Honor receives research and development funding, tax breaks and support to expand abroad, three Shenzhen government documents showed. It also benefits from a dedicated team at the local town hall with a ‘it doesn’t matter what stays overnight’ policy.
The extra hand is likely to boost Honor’s attractiveness to investors as the company prepares for a financial market debut that, if successful, could offer the city of Shenzhen a way to exit its investment.
Honor was thought to be worth about 100 billion yuan ($13.8 billion) when a consortium among Shenzhen entities bought it from Huawei in 2020, Reuters reported at the time. The device’s manufacturer has declined to reveal IPO details, such as how much it now believes it is worth.
The company is considering a listing on China’s A-share market, where it expects a higher valuation, two people said. It could happen this year or early next year, one of them said. The people declined to be identified because no plans have been finalized.
Honor said that since January 1, 2021, it has not received any government support from Shenzhen other than what is normally provided to companies. It also said it would begin shareholding reform in the fourth quarter and begin the IPO process at an appropriate time.
The Shenzhen Commerce Department, Tax Office and District Government did not respond to requests for comment.
Honor replaced Apple (NASDAQ:) as the third-largest mobile phone seller in China in April-June, while a decline in sales dropped the US smartphone pioneer to sixth place, Canalys data showed.
The Chinese manufacturer aims to supply 100 million handsets annually by 2026, a 75% increase from 2023, and to become one of the world’s top three suppliers by 2028, one of the policy documents showed.
These targets appear ambitious given weak demand in the world’s largest smartphone market and competition from a staggering number of local handset makers, including former parent Huawei, said analysts including Toby Zhu of Canalys.
BEYOND THE ORDINARY
The official support illustrates Honor’s growing importance to Shenzhen’s economy at a time when a slowdown in the real estate sector – a major source of tax revenue – has hit the finances of local governments across the country.
The smartphone maker is among Shenzhen’s six largest companies with industrial output worth more than 200 billion yuan ($27.6 billion), local government documents show, without specifying a time frame.
The city of Shenzhen pledged to provide special policy support during meetings between its leaders and local government departments in October and March, the documents showed.
“Supporting the development of Honor is of great importance for our city for stabilizing industrial growth, exports and for gathering the entire ecosystem of the smart device industrial chain,” authorities wrote after a meeting in March .
“The city always wants to take care of its major businesses, but the way it has decided to defend Honor goes beyond the usual level of support,” said a person with knowledge of city policy, who asked not to be identified due to the sensitivity of the matter. .
The city will retroactively provide Honor with funding for research projects — a relatively recent innovation that better allows market mechanisms to determine research priorities — the person said, citing government documents.
The local trade department has also been called upon to set up a special trade project for Honor to help it expand in smaller cities and overseas, the documents show.
One of the documents showed that Honor received support in tax and customs assessments, which allowed it to save 600 million yuan annually in raw material costs and foreign currency payments, leading to an increase in profits of about 300 million yuan.
Authorities in the central Futian district, where Honor is headquartered, have established an Honor work team. The agency has provided certification support, 500 housing units and 150 million yuan in financial support, one of the documents showed.
($1 = 7.2484 renminbi)
