Wednesday 21 August 2019

ZTE's $2.7bn loss shows tough challenges post US penalties

ZTE’s headquarters in China
ZTE’s headquarters in China

Gao Yuan

ZTE unveiled a settlement with the US government to rescue the Chinese telecom-equipment maker, but investors put a steep initial estimate on the cost of the deal: at least $2.7bn (€2.3bn).

ZTE agreed to pay at least $1bn in penalties and overhaul its leadership to escape, essentially, a death sentence.

That still leaves it with the challenge of replacing its entire senior management and board just as it tries to rebuild trust with phone companies and corporate customers.

Its shares plunged 42pc in Hong Kong and the 10pc daily limit in Shenzhen, wiping out $2.7bn of market value as trading resumed after a two-month hiatus.

If the fall in Shenzhen eventually matches Hong Kong's slide yesterday, the value lost could reach $7.7bn, though mainland investors typically follow their own logic.

The Shenzhen-based company didn't explain how it would recruit new managers or who would lead the business following the departures of executives like president Zhao Xianming.

Typically, those decisions would be handled by the board - but that group is also in flux. (Bloomberg)

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