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* Huawei will announce a cash sale on Sunday -source
* Digital China among the top two shareholders with nearly 15% of resources
* Divestment will save Honor from US sanctions – analysts
* Honor aims to go public within three years – sources
HONG KONG, Nov. 10 (Reuters) – Huawei plans to sell the economy-branded Honor smartphone unit in a 100 billion yuan ($ 15.2 billion) deal to a consortium led by the distributor of combined Digital China and the government of its hometown of Shenzhen, aware of the matter told Reuters.
The plan comes as US restrictions on the supply of Huawei Technologies Co Ltd force the world’s second-largest smartphone maker – after South Korea’s Samsung Electronics Co Ltd – to focus on high-end handsets and businesses, people said.
It also indicates little expectation for a rapid change in the US perception of Huawei as a security risk following a change in the US administration, one of the people said.
The cash sale will include almost all assets, including brand, research and development capabilities, and supply chain management, the people said. Huawei could announce it as early as Sunday, one of the people said.
Honor’s main distributor, Digital China Group Co Ltd, will become one of the two main shareholders of the divested entity Honor Terminal Co Ltd with an almost 15% stake, two of the people said. Honor Terminal was incorporated in April and is 100% owned by Huawei, according to the company’s registry.
Digital China, which is also Huawei’s partner in ventures such as cloud computing, plans to fund most of the deal with bank loans, the two said. He will be joined by at least three government-backed investment firms from the Shenzhen Financial and Technology Center, each holding 10 to 15 percent, they said.
After the sale, Honor plans to keep most of its management team and more than 7,000 employees and go public within three years, the people said, declining to be identified due to confidentiality constraints.
Honor declined to comment. Huawei, Digital China and the Shenzhen government did not immediately respond to requests for comment.
PUNISHMENTS
Last year, the US government decided to bar most US companies from doing business with Huawei – also the world’s largest supplier of telecommunications equipment – citing national security concerns. Huawei has repeatedly denied being a security risk.
In May, Washington announced rules to restrict Huawei’s ability to source chips featuring U.S. technology for use in fifth-generation (5G) telecommunications network equipment and smartphones such as its premium P series and Mate.
Huawei established Honor in 2013, but the company mainly operates independently. The divestment will mean Honor is no longer subject to Huawei’s U.S. sanctions, analysts said.
Honor sells smartphones through its own websites and third-party retailers in China, where it competes with Xiaomi, Oppo, and Vivo in the low-cost phone market. It also sells its phones in Southeast Asia and Europe.
Honor-branded smartphones accounted for 26% of the 51.7 million handsets delivered by Huawei in July-September, according to estimates by researcher Canalys. Honor’s products also include laptops, tablet computers, smart TVs, and electronic accessories.
With slim margins for low-end phones, Honor reserved around 6 billion yuan in net profit on sales of around 90 billion yuan last year, one of the people said, citing audited figures. ($ 1 = 6.5775 yuan Chinese renminbi) (Reporting by Julie Zhu; Additional reporting by David Kirton; Editing by Christopher Cushing)
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