Published: Thu, June 14, 2018
Global Media | By Abel Hampton

ZTE stock plummets 40% after crippling USA ban

ZTE stock plummets 40% after crippling USA ban

Commerce Secretary Wilbur Ross last week announced the US reached a deal with ZTE that includes a record fine, changes to the company's board and management and USA compliance officers.

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 share falls in Shenzhen and Hong Kong were widely expected.

Bipartisan critics of the deal wonder whether striking a deal with ZTE - which national security officials warned posed an intelligence risk - sends a signal that Trump is too lax on companies that won't comply with US -mandated sanctions.

As part of the order, ZTE must identify in detail to the Commerce Department all Chinese government ownership and control of ZTE, including public and private shares.

As Senator Tom Cotton (R-Arkansas) puts it, "I would expect that there wouldn't be a ZTE".

The Hong Kong-listed shares of ZTE slid as much as 41% to HK$14.98, their lowest in a year, following a two-month trading suspension, while its Shenzhen shares fell by their 10% limit after it confirmed details of the agreement publicized by the USA government on Monday. However, the corporation would have to pay $1 billion in penalties, adding another $400 million in escrow in order to cover possible future fines.

Hong Kong's benchmark Hang Seng index.HSI was down 0.5% in early trade.

It 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.

ZTE, with a market value of around $20 billion before its shares were suspended in April, is the world's fourth-largest telecom equipment maker after Huawei Technologies, Ericsson and Nokia. This issue has become one of the key problems in a trade war between the two countries. North Korea is largely dependent on economic ties with China, where leaders had claimed that absent a ZTE deal, the telecom giant would collapse.

The National Defense Authorization Act bill includes language that reinstates prior penalties on the company that bar it from buying US products - essentially a death sentence.

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