ZTE team presses ahead under high secrecy to replace management as US senators question settlement

No one at ZTE is allowed to interfere with the work of three-person team, tasked to implement terms of US settlement at Chinese telecom maker

PUBLISHED : Friday, 22 June, 2018, 6:03am
UPDATED : Friday, 22 June, 2018, 6:02am

The three-person team tasked with overseeing implementation of ZTE’s settlement with the US government is working under conditions of high confidentiality and secrecy, after the company instructed all staff – even senior executives – to keep away from work that could decide the company’s fate, according to people familiar with the matter.

No one within the embattled company is able to interfere with the work of three-person team, which needs to replace the current board and fire a number of senior executives within 30 days of the June 7 settlement with the White House, according to the people familiar who asked not to be named because the information is private.

ZTE’s chief intellectual property officer and acting chief compliance officer Shen Nan is in charge of the overall team, while one assistant is overseeing “the replacement of the board of directors” and another looks at “termination of contracts for certain senior executives”, all within 30 days, according to an internal memo seen by the South China Morning Post and reported on earlier.

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China’s second-largest telecom equipment maker will hold its annual general meeting on June 29, when shareholders will review a revised company charter and board rules as well as vote on director candidates. All current board members will resign after the new directors are elected.

ZTE agreed to pay an additional US$1 billion in fines to the US Department of Commerce and put US$400 million as surety as part of its settlement for violating US prohibitions against selling equipment to Iran. The White House-brokered agreement also required the company to replace its board and terminate all executives ranked above senior vice-president as well as anyone else involved in the Iran violations.

ZTE paid the US$1 billion fine last week and is finalising the details of an escrow account for the US$400 million surety payment. However, the fate of the Chinese company is now largely out of its hands, after both Republican and Democrat senators voted by 85 to 10 to add language to a defence bill that would repeal President Donald Trump’s agreement to end a ban on US exports to ZTE.

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The version of the National Defense Authorization Act passed by the US Senate needs to be reconciled with the version of that bill already passed by the US House of Representatives though, and the reconciled version from the two chambers of the US Congress also needs to be signed off by President Trump before it becomes law.

“We don’t know whether the US Commerce Department will give us the green light to resume operations after the escrow account is settled, but it remains the top priority for the company at present,” said one of the people familiar at ZTE.

Commerce Secretary Wilbur Ross has been urged by a US senator to address whether his department believes that Chinese telecoms giant ZTE poses an espionage threat to the US. Senator Ron Wyden, Democrat of Oregon, posed the question at a Senate Finance Committee hearing on Wednesday and requested a written answer within a week from the commerce department to clarify its position on national security concerns.

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ZTE has faced huge losses from a shutdown of operations in the wake of the US ban. The company, which had revenue of 108.8 billion yuan (US$16.7 billion) last year, has suffered losses of several million yuan per day, exclusive of other miscellaneous penalties due to breach of contracts with some clients, said one of the people familiar.

Shares of Hong Kong-listed ZTE stabilised on Wednesday after a roller-coaster ride this week. The stock declined HK$0.12 or one per cent to HK$11.7 at the close in Hong Kong on Thursday, compared with a 20 per cent gain on Wednesday following a 25 per cent loss on Tuesday.