Chinese Telecom Giant ZTE Resumes Trading, Drops 39% After Deal With US

Clay Curtis
June 13, 2018

The Chinese smartphone and network equipment maker had been caught selling goods and services to North Korea and Iran, violating USA sanctions.

The sanctions banned ZTE from trading with U.S. companies - blocking them from buying the microchips they needed, and effectively shuttering the company.

It would also ban USA government agencies from purchasing any devices or services from ZTE or Huawei, another major Chinese telecom firm, or using government loans to subsidize any subsidiaries or affiliates of the two companies.

But the ban on buying USA parts, imposed by the department in April, will not be lifted until the company pays the fine and places $400 million more in escrow in a US -approved bank, the agency said.

The deal implemented a $1 billion penalty against ZTE and required the addition of a US -chosen compliance team to monitor the company.

Shares in ZTE fell 42 percent in Hong Kong on Tuesday, their first trading day after it agreed to the deal, in which it pays a $1 billion penalty to the United States government and replaces its top managers. The idea of ZTE being used as a bargaining chip in trade negotiations with China angered lawmakers, who view the company as a national security issue. Under the agreement, the Chinese company will have to pay a fine of $1 billion, set aside another $400 million, completely overhaul its senior management and bring on board an American monitoring team. The coordinator will have a staff of at least six employees funded by ZTE.

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The Hong Kong-listed shares of ZTE slid as much as 41 per cent to HK$14.98, their lowest in a year, following a two-month trading suspension.

ZTE also said in filings on Tuesday that it would work to resume operations as soon as possible after the ban gets lifted, and would republish its first-quarter financial results after assessing the impact of the ban and the settlement agreement.

On Tuesday, senators on both sides of the aisle spoke out against Trump's deal, which is believed to have been made to soften a potential trade war in China, following the announcement of steel and aluminium tariffs on the country's exports.

Democratic and Republican lawmakers have said they believe ZTE's sales to Iran represent particularly "dangerous" breaches of USA national security.

However, this year the Commerce Department reimposed the sanctions when it emerged that the telecoms company - China's second-largest - had not, in fact, disciplined the management.

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