China’s ZTE granted extended reprieve in US export violation case

PUBLISHED : Tuesday, 28 June, 2016, 11:36am
UPDATED : Tuesday, 28 June, 2016, 7:08pm

ZTE, China’s largest-listed telecommunications equipment manufacturer, has been given another reprieve from United States export restrictions over its alleged violation of longstanding trade sanctions on Iran.

In a filing with the Hong Kong stock exchange on Tuesday, ZTE chairman Zhao Xianming said the company was notified that the Bureau of Industry and Security of the US Department of Commerce granted an extension to its temporary general license through August 30.

The bureau on March 7 slapped Shenzhen-based ZTE with export restrictions, which required its American suppliers of components and other products to apply for a license to ship those items to the company.

“A license review policy of presumption of denial shall apply” in that situation, ZTE said. This decision also applied to subsidiaries ZTE Kangxun Telecommunications, ZTE Parsian and Beijing 8-Star International.

On March 24, the bureau amended that decision by granting ZTE a temporary general license from those restrictions until June 30.

“The extension of relief reflects ZTE’s continuing efforts to fulfill its commitments to create a best-in-class compliance programme,” the company said in a statement. “It also recognises ZTE’s determination to cooperate with authorities, resolve the ongoing investigation and share information as requested.”

We think ZTE’s management reshuffle suggests progress in its negotiations with the US government toward a final resolution to this case
Huang Leping, Nomura

ZTE’s share price rose to HK$9.83 in early trading on Tuesday, following its announcement of the license extension on the stock exchange. It closed down 1.12 per cent to HK$9.69.

Nomura research analyst Huang Leping said ZTE had completed the purchase of US components for its 2016 production schedule at the end of last year, which provided the company and the Chinese government with some lead time to negotiate a resolution to the US export restrictions.

The US action stemmed from the commerce department’s probe of a 98.8 million (HK$844.87 million) contract between ZTE and the state-controlled Telecommunications Company of Iran for the supply of a powerful surveillance system.

That system, which was delivered to Iran in 2011, included hardware and software components from US technology companies such as Microsoft, Oracle, Cisco Systems, Dell and Symantec, according to a 2012 report on the product’s 907-page packing list.

The US imposed restrictions on trade with Iran from 1979, following the seizure of the American embassy in Tehran. Those are separate from international sanctions on Iran over its nuclear programme, which were lifted in January.

“We think ZTE’s management reshuffle suggests progress in its negotiations with the US government toward a final resolution to this case,” Nomura’s Huang said in a report.

ZTE had named veteran executive Zhao as its new chairman and president in a sweeping senior management revamp in April.

The reshuffle saw Shi Lirong, who had been ZTE’s president since March 2010, accept a non-executive director role in the company, while founder Hou Weigui retired from the chairman’s post that he has held since February 2004.

Following his appointment, Zhao vowed to strengthen ZTE’s efforts in core industries and major markets, despite lingering concerns over the US government probe.

He also reiterated ZTE’s goals to record a 44 per cent increase in net profit this year and to double revenue in 2020 from last year’s total of 100.19 billion yuan (HK$116.98 billion).