Chinese smartphone maker Honor is receiving significant support from local government backers as it prepares for an initial public offering (IPO). The former Huawei unit is benefiting from research-and-development funding, tax breaks, and support for overseas expansion, according to Shenzhen government documents and a source close to the matter.
Honor’s backing includes a dedicated team at the Shenzhen city hall with a “no matter left overnight” policy. This level of assistance is expected to boost Honor’s appeal to investors as it approaches its financial market debut. If successful, the IPO could provide Shenzhen city an exit strategy for its investment. In 2020, a consortium under Shenzhen-owned entities acquired Honor from Huawei, valuing the company at about 100 billion yuan ($13.8 billion) at the time.
The company is planning to list on China’s A-share market, anticipating a higher valuation. The IPO could take place either this year or early next, according to sources. However, no final plans have been disclosed. Honor has stated that it has not received extraordinary support from the Shenzhen government since January 2021. The company also announced plans to begin shareholding reform in the fourth quarter and initiate the IPO process at a suitable time.
Shenzhen’s commerce department, tax bureau, and the Futian district government did not respond to requests for comment. According to Canalys data, Honor surpassed Apple as the third-largest handset vendor in China from April to June, while Apple’s sales dropped, leaving it in sixth place. Honor aims to ship 100 million handsets annually by 2026, a 75% increase from 2023, and aspires to become a top three global vendor by 2028.
Despite these ambitious targets, analysts like Toby Zhu from Canalys highlight the challenges posed by soft demand in the world’s largest smartphone market and competition from numerous local manufacturers, including Huawei. The significant support from Shenzhen underscores Honor’s growing importance to the local economy, especially amid a slowdown in the property sector, which has impacted local government finances.
Honor is among Shenzhen’s top six enterprises, with industrial output exceeding 200 billion yuan ($27.6 billion). Shenzhen city has pledged special policy support in meetings held in October and March. Authorities emphasized the importance of supporting Honor for stabilizing industrial growth, exports, and maintaining the smart device industrial chain ecosystem.
The city is providing retroactive funding for Honor’s research projects, a recent innovation that allows market mechanisms to influence research priorities. The local commerce department has been tasked with establishing a special trade project to help Honor expand into smaller cities and international markets. Additionally, Honor received assistance with tax and customs assessments, saving 600 million yuan annually in raw material costs and foreign exchange payments, increasing profits by approximately 300 million yuan.
In the central Futian district, where Honor is headquartered, authorities have set up an Honor work team to provide certification support, 500 housing units, and 150 million yuan in financial assistance.
Featured Image courtesy of Xuan
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