Technology

ZTE shares tank after U.S. Senate puts Trump reprieve in doubt

ZTE shares tank after U.S. Senate puts Trump reprieve in doubt 46

HONG KONG (Reuters) – Shares of ZTE Corp plummeted on Tuesday after the U.S. Senate’s passage of a defense bill set up a potential battle with the White House over whether the Chinese telecoms firm can resume business with its U.S. suppliers.

ZTE shares tank after U.S. Senate puts Trump reprieve in doubt 56
FILE PHOTO: The inside of a ZTE smart phone is pictured in this illustration taken April 17, 2018. REUTERS/Carlo Allegri/Illustration/File Photo

The 85-10 bipartisan vote – one of the few times the Republican-led Senate has veered from White House policy – came on the same day that U.S. President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods, escalating tensions between the world’s two biggest economies.

Trump is, however, expected to lobby hard against the amendment to the National Defense Authorization Act (NDAA), and before it can become law, the bill must be reconciled with one passed by the House of Representatives that does not include the amendment.

Any compromise measure must then be passed by both chambers and signed into law by Trump – a series of hurdles that has Asia-based analysts punting that ZTE will get eventually get its reprieve.

ZTE shares tank after U.S. Senate puts Trump reprieve in doubt 57
FILE PHOTO: The logo of China’s ZTE Corp is seen in a building of ZTE Beijing research and development center in Beijing, China June 13, 2018. REUTERS/Jason Lee/File Photo

“The NDAA is not really a reversal of the ZTE deal, but will in all probability prolong the ban-lifting process for ZTE,” said Nikhil Batra, a senior research manager with industry consultancy IDC.

ZTE’s Hong Kong-listed shares tumbled as much as 27 percent to HK$9.56, their lowest level in nearly two years, before ending the day down 25 percent. Its Shenzhen shares fell by their daily limit of 10 percent.

ZTE shares tank after U.S. Senate puts Trump reprieve in doubt 58
FILE PHOTO: The logo of China’s ZTE Corp is seen on the building of ZTE Beijing research and development center in Beijing, China June 13, 2018. REUTERS/Jason Lee

The stock has lost around 38 percent, or more than $7.4 billion in market value, since trading resumed last week after a suspension in mid-April when the sanctions were announced.

“The longer it goes by without the ban being lifted, the more uncertain and damaging it is,” said Jefferies analyst Edison Lee.

ZTE was hit in April with a seven-year ban barring U.S. suppliers selling to it after it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

At Trump’s urging, ZTE and the U.S. Commerce Department reached an agreement on June 7 to have the supplier ban, which has prevented ZTE from buying the U.S. components it relies on to make smartphones and other devices, lifted.

According to the agreement, the ban would only be lifted after ZTE pays a $1 billion fine and puts another $400 million in escrow in a U.S. approved bank for 10 years. It was also ordered to radically overhaul its management.

Last Wednesday, ZTE proposed a $10.7 billion financing plan and nominated eight board members as it seeks to rebuild its business.

Reporting by Sijia Jiang; Additional reporting by Donny Kwok; Writing by Anne Marie Roantree; Editing by Edwina Gibbs

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