ZTE shares slide again as firm moves to ensure compliance with US penalty plan

Source:Reuters Published: 2018/6/14 21:33:40

Chinese telecommunications giant ZTE Corp has proposed a $10.7 billion financing plan and nominated eight board members in a drastic management overhaul, as it seeks to rebuild a business crippled by a US supplier ban.

The proposal, announced late on Wednesday, indicates the Chinese equipment maker is working toward meeting conditions laid out by the US so it could resume business with US suppliers, which provide about 25 percent to 30 percent of the components used in ZTE's equipment.

The Hong Kong-listed shares closed down 1.07 percent at H$14.8 ($1.9).

A day earlier, the shares plunged a record 41 percent in Hong Kong and 10 percent in Shenzhen, wiping almost $3 billion off its market capitalization, as it resumed trading after being suspended for almost two months due to the US ban.

ZTE last week agreed to pay a $1 billion fine to the US government.

The ban will, however, not be lifted until ZTE pays the fine and puts another $400 million in an escrow account in a US-approved bank for 10 years.

ZTE was also ordered to conduct a radical overhaul of its management and hire a US-appointed special compliance coordinator.

In filings late on Wednesday, ZTE said its controlling shareholder, Zhongxingxin, had nominated eight new board members.

That included five non-independent directors (Li Zixue, Li Buqing, Gu Junying, Zhu Weimin and Fang Rong) all from State-linked companies that are shareholders of or have investment relationships with Zhongxingxin.

Zhongxingxin has a 30.34 percent stake in ZTE.

Cai Manli, Yuming Bao and Gordon Ng have been nominated as independent non-executive directors.

Voting on this move is scheduled to take place at an annual general meeting on June 29.

According to a Reuters estimate based on company filings and a source with knowledge of the matter, ZTE's management overhaul could result in about 40 senior executives being replaced.

The company can find most candidates internally, Jefferies analyst Edison Lee said.

"That is feasible, though it will of course cause confusion and slow down decision-making," Lee said.

ZTE also proposed to amend a company statute at the meeting to remove a clause that required the chairman to be elected from directors or members of the senior officers of the company who had served for three years or more.

In addition, ZTE proposed to allow the board to apply for a $10.7 billion credit line, including 30 billion yuan ($4.69 billion) from Bank of China and $6 billion from China Development Bank.

ZTE's Shenzhen-listed shares dropped by the maximum daily limit of 10 percent on the Shenzhen exchange for a second day on Thursday, tracking recent losses in Hong Kong.

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