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China technology

ZTE shares bounce back ahead of Trump meeting with Republican senators

The Chinese telecoms gear maker, which was on the brink of collapse after the US ban on buying American components, has paid US$1 billion in civil penalties as part of a settlement for violating export controls

PUBLISHED : Wednesday, 20 June, 2018, 7:56pm
UPDATED : Thursday, 21 June, 2018, 1:27pm

Shares of ZTE Corp rose 20 per cent on Wednesday to close at HK$11.82 in Hong Kong, clawing back most of Tuesday’s 25 per cent loss in trading, as US President Donald Trump prepares to pressure lawmakers to stick with a White House-brokered deal to save the Chinese telecommunications equipment maker.

Despite chalking up its first gain since resuming trade, Shenzhen-based ZTE has lost about half its market cap and remains not far off a two-year low.

US President Donald Trump was expected to pressure Republican senators at a White House meeting later on Wednesday to save ZTE, urging lawmakers to soften a defence policy bill provision that would restore economic sanctions on the Chinese company.

The Senate’s 85-10 vote to pass the defence measure on Monday prompted a 25 per cent slide in ZTE’s share on the Hong Kong stock exchange.

ZTE pays US$1 billion fine as US lawmakers pass amendment to reinstate ban

That version of the National Defense Authorization Act passed by the US Senate will need to be reconciled with the version of that bill already passed by the US House of Representatives, a point re-emphasised by ZTE in a regulatory filing on Wednesday.

The reconciled version from the two chambers of the US Congress also needs to be signed off by Trump before it becomes law.

“We do not believe the settlement will be reversed,” Jefferies equity analyst Edison Lee said in a report on Wednesday.

On ZTE’s share price movement, Lee said that when a stock’s outlook is heavily influenced by politics, the market loses direction.

“The heavy sell-off in ZTE and sharp recovery [on Wednesday] was due to rampant speculation, and serious misunderstanding, of what will happen to the process of ZTE meeting the settlement terms, and the implications of the US Senate passing the defence budget bill with the condition that the US export ban on ZTE be restored,” Lee said.

“Because there is no update on the timing of ZTE making the penalty payment, the market suspects that this is linked to the political development in the US, and that the deal may not happen.”

ZTE has paid the fine for violating US trade laws and is in the final stages of arranging an account for future penalties, the South China Morning Post reported on Tuesday, citing people with knowledge of the matter.

US Senate passes bill that could kill Donald Trump’s ZTE deal – but the president isn’t done yet

The Chinese telecoms gear maker has agreed to pay an additional US$1 billion in civil penalties to the US Department of Commerce and put US$400 million in escrow to settle its violation of export controls that threatened to put it out of business.

The settlements are crucial for ZTE to resume buying the US components essential to its products. The destiny of ZTE is also pivotal in the tense US-Chinese negotiations over trade.

The US government announced in April that it had banned US -hi-tech companies from selling crucial hardware and software components to ZTE for seven years, as it failed to take action against staff who were responsible for violating trade sanctions against Iran and North Korea.

ZTE to replace board, fire senior management under US settlement

ZTE, which had to shut down major operations after the US banned it from buying American parts, has also agreed to employ a special compliance coordinator and a team of assistants at its expense for a period of 10 years, according to a detailed settlement agreement on the US Commerce Department’s website.

The entire boards of directors of ZTE and subsidiary ZTE Kangxun will be replaced within 30 days of the agreement dated June 7, and all members of senior leadership at or above the senior vice-president level and employees responsible for the export violations will be terminated.

Trump’s Wednesday meeting was confirmed on Monday by Senate Majority Whip John Cornyn of Texas and may include other Republican lawmakers, such as Senator Lindsey Graham of South Carolina.