China’s ZTE Corp loses $3 billion market capitalization after it agrees to pay U.S. fine

ZTE’s strategic move will, at least in the short run, allow it to resume operations and start sourcing components from the U.S. It is to be seen how the Trump Administration navigates ZTE’s stigma of posing as a national security threat to the U.S. in the Congress.

On Wednesday, Chinese telecommunications giant ZTE Corp saw $3 billion of its market capitalization vanish after it agreed to pay $1.4 billion in penalties to the U.S. government. Nevertheless, paying the penalty could now potentially allow it to ba back in business in the U.S.

The operations of ZTE, China’s second biggest telecommunications equipment maker, was critically hit when the United States imposed a 7-year ban in April 2018 for breaking a 2017 agreement; ZTE was caught trading illegally with North Korea and Iran.

The ban prevented the Chinese company from sourcing U.S. components that it depends on to make smartphones and other devices.

Apart from the fine, ZTE has to place $400 million in an escrow account in a U.S.-approved bank.

With ZTE agreeing to pay the fine, its Hong Kong-listed shares fell by 41% to HK$14.98, their lowest levels in a year. ZTE’s Shenzhen listed shares fell by their 10% limit .

Confirming the deal with the United States, ZTE said it would replace its board of directors as well as that of its import-export subsidiary, ZTE Kangxun within 30 days of the June 8 order being signed by Washington.

In a filing on Tuesday, ZTE said it would work to resume operations ASAP once the ban gets lifted; it will also republish its first-quarter financial results after assessing the impact of the ban as well as the impact of the settlement agreement.

U.S. lawmakers have come down strongly on the Trump Administration for the agreement and plans to roll out a legislation that will roll it back since an earlier investigation by the U.S. administration found that ZTE poses a national security threat.


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