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China's ZTE dives 39pc at resumption of trading in Hong Kong

June 14, 2018 00:00:00

HONG KONG : A man walks past a board displaying ZTE on a list of top movers on the Hang Seng Index in Hong Kong on Wednesday — AFP

HONG KONG, June 13 (AFP): Shares in Chinese telecoms equipment maker ZTE collapsed 39 per cent Wednesday as trading in the company resumed after it reached a settlement with the United States over its handling of a sanctions violation.

Dealing 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.

The decision came after US officials said ZTE had failed to take action against staff who were responsible for violating trade sanctions against Iran and North Korea. The company was fined $1.2 billion last year for those violations.

The move in April put the company's future in doubt and it became a key issue in a wider trade spat between Washington and Beijing.

But last week the two sides reached a deal to replace the sanctions with a $1 billion penalty, plus another $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.

While the firm's future was ensured, it dived 39.22 per cent to HK$15.56 during Hong Kong morning trade, while it also plunged by its 10 per cent 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."

The ZTE settlement came days after Beijing reportedly offered to ramp up purchases of American goods by $70 billion to help cut the yawning trade imbalance with the United States -- moving part-way towards meeting a major demand of US President Donald Trump.

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