ZTE stock plummets more than 40% after crippling US ban

ZTE stock plummets more than 40% after crippling US ban


ZTE stock plummets more than 40% after crippling US ban

What did ZTE actually do wrong?

Shares in ZTE plunged more than 40% on Wednesday as the Chinese tech company reels from a crippling US ban on the supply of crucial parts.

The sharp drop wiped billions of dollars off the company’s market value.

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The Hong Kong-listed stock of ZTE (ZTCOF), which makes smartphones and other telecommunications equipment, had been suspended for the past eight weeks after the US Commerce Department blocked American firms from selling parts or providing services to the company.

Commerce Secretary Wilbur Ross announced a deal last week to lift the ban, which had brought ZTE’s factories to a standstill. 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.

ZTE said in a statement late Tuesday that it had asked for its shares to resume trading. On Wednesday in Hong Kong, they nosedived 42% to their lowest level in more than a year.

Related: ZTE gets a lifeline in US deal. What happens now?

Analysts had predicted ZTE shares would fall sharply when they resumed trading. They said the lengthy ban has cost the company billions in lost revenue, strained its relationships with customers and hurt its reputation.

There is also a risk that the Trump administration’s move to lift the ban on ZTE could be undercut by Congress.

A group of senators has moved to attach an amendment to reimpose any penalty removed by the Trump administration on the firm to an annual defense policy bill that is expected to pass in the coming days.

The US government said it imposed the ban in April because ZTE violated a 2017 agreement in which the Chinese company admitted to evading sanctions on Iran and North Korea.

Related: Senate may deal Trump trade defeat on ZTE

But Trump then announced in mid-May that he was working with Chinese President Xi Jinping to find a way to get ZTE back into business. 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.

In its statement late Tuesday, ZTE said it will “assess the full impact” of the ban and the new deal with the US government and disclose it in an update earnings release. It didn’t specify when it would do so.

Experts say the company faces challenges in getting its factories up and running again while also overhauling its management to meet the terms of the US deal.

ZTE said Tuesday it will resume operating activities affected by the ban “as soon as practicable.”

CNNMoney (Hong Kong) First published June 12, 2018: 8:53 PM ET



    


    









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