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Last updated: April 7, 2016 9:45 am
ZTE shares fall 10% on fears of US charges
Jennifer Thompson in Hong Kong and Charles Clover in Beijing
Shares in ZTE plunged on Thursday as they resumed trading in Hong Kong, after the Chinese telecom equipment maker said the outcome of US investigations into the violation of export controls were “highly uncertain” and that it may face charges in the US.
ZTE shares, which had been suspended for a month pending the results of the US probe, fell as much as 16 per cent before closing down 10.3 per cent at HK$12.70.
Analysts, however, were cautiously optimistic despite the share price slide. “The market reaction is much better than we expected,” said Leping Huang of Nomura, who said investors were taking into account the events of the past month and had feared much worse.
Trading in ZTE stock was halted on March 7 when the US Department of Commerce accused the group of acting as a conduit for the re-export of sensitive US technology to Iran, resulting in a temporary ban on US suppliers selling to ZTE.
The company has not commented publicly on its guilt or innocence, although Zhao Xianming, new chairman and chief executive, said in a letter to employees published in the Chinese media this week that in the wake of the scandal, ZTE needed “introspection” and “to attach high importance to complying with the law and with regulations”.
Last week, the Department of Commerce agreed to suspend the sanctions until the end of June in return for commitments from ZTE to disclose the full extent of its sales to Iran and North Korea and to reform internal procedures to bring it in line with US trade law.
Mr Huang said that based on ZTE’s earnings announcement on Wednesday, supply chains were not badly affected by the temporary ban, but that ZTE may face a one-off fine.
There are a number of precedents. In 2010 Alcatel-Lucent, the telecom equipment maker, paid a $137m fine to settle a foreign bribery investigation in the US, while in 2012 Ericsson’s subsidiary in Panama paid a $1.75m penalty to the US Department of Commerce for violating export restrictions on Cuba after it sent broken equipment from Cuba to the US for repair after masking its origin.
Earlier this week, ZTE named a new management team in an apparent effort to turn the page on the affair. US companies are now permitted to do business with ZTE under a temporary licence.
Late on Wednesday, ZTE said it was co-operating with the Commerce Department, the Department of Justice, the US Treasury and “other relevant US government departments” who were looking at their compliance with export regulations.
In a statement the company said: “The investigations are still in progress, and may result in criminal and civil liabilities under US laws. Further, the potential impact of the investigations and the potential legal liabilities on the results and financial position of the company and its subsidiaries cannot be fully assessed by the company at present.”
ZTE added that the final outcome was “highly uncertain”.
On Wednesday, ZTE reported that net profit grew 22 per cent year-on-year in 2015 to Rmb3.2bn, with revenue increasing 23 per cent to Rmb100bn.
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