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BUSINESS & TECH

Quick Take: ZTE Stock Stops Falling in Hong Kong

A security guard walks past a building of ZTE Beijing research and development center in Beijing. Photo: VCG
A security guard walks past a building of ZTE Beijing research and development center in Beijing. Photo: VCG

Shares of telecom-equipment maker ZTE Corp. bounced back slightly in Hong Kong on Thursday following a massive sell-off the previous day, as the stock resumed trading after the company settled a dispute with the U.S. that had threatened the company’s existence.

ZTE’s Hong Kong-listed shares were up 1.1% at the midday break, retreating from earlier gains of up to 2.7%. But the company’s Shenzhen-listed shares were down by the 10% daily limit for a second consecutive day, reflecting lingering concerns over the new uncertainties created by ZTE’s crisis.

ZTE shares plummeted by 41.6% Wednesday in Hong Kong on their first day of trading after a nearly two-month suspension as investors fretted about the impact of a $1.4 billion penalty and major management changes imposed by the U.S. government.

The large fine was part of a broader settlement between Washington and the company over ZTE’s past sales of American-made components to Iran in violation of U.S. sanctions at that time aimed at curbing Iran’s nuclear program. Washington had originally ordered a seven-year ban on sale of U.S. components to ZTE, a move the company said threatened its corporate life. But the U.S. later relented and reached a new settlement with ZTE, including the large fine.

The company halted most of its operations shortly after the crisis began, but is likely to resume manufacturing its core smartphones and networking equipment after paying the fine, analysts said. In association with the fine, the company is also going to record an asset impairment charge of 2.5 billion yuan ($390 million) in its 2017 financial report, the company said.

One day after the trading resumption, ZTE said separately that it plans to apply for a 30 billion yuan line of credit from Bank of China and another $6 billion from China Development Bank, according a statement filed to Shenzhen Stock Exchange on Thursday. Jefferies analyst Edison Lee said the plan was typical for ZTE, giving the company a tool to provide financing for customers who bought its networking equipment.

Contact reporter Leng Cheng (chengleng@caixin.com)

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