ZTE Shares Nosedive In Hong Kong

Shares in Chinese telecoms equipment maker ZTE collapsed as trading in the company resumed after it reached a settlement with the United States over its handling of a sanctions violation.

Despite the firm's future being ensured, it dived 42 percent to end at HK$14.96 in Hong Kong, while it also plunged by its 10 percent daily limit to 28.18 yuan in Shenzhen.

"While the nightmare is now over, ZTE will likely have to deal with many changes," analysts Edison Lee and Timothy Chau at Jefferies wrote in a note. "We expect significant near-term selling pressure and a volatile stock price."

Trading in the firm was suspended in April after Washington said it had banned American companies from selling crucial hardware and software components to it for seven years.

But last week the two sides reached a deal to replace the sanctions with a US$1 billion penalty, plus another US$400 million in escrow to cover possible future violations.

Shenzhen-based ZTE will also be required to change its entire board of directors and hire outside legal compliance specialists who will report to the US Commerce Department for 10 years.

"The US agreement with ZTE with fine and change of management, in other words, is a political deal," said analyst Dickie Wong at Kingston Securities.

"If the US didn't 'free' ZTE in this way, US companies would find it very difficult in any moves in China, including decisions on mergers and acquisitions," Wong added. (AFP)

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