ZTE to Secure $10.7 Bn in Credit After Stock Collapse

Crippled Chinese telecom giant ZTE is planning to secure US$10.7 billion in credit and revamp its management structure as it rebuilds the brand. On Wednesday, shares in the group plunged 41% in Hong Kong and 10% in Shenzhen.

In a market frenzy, $2.7 billion was wiped off the market value of ZTE, one of China’s major telecommunications groups, the Wall Street Journal reported, before recovering slightly on Thursday.

“The biggest challenge is that internally, they have to reorganize,” Edison Lee, an analyst at Jefferies Financial Group, told Bloomberg news agency. “It’s going to be a tough period of adjustment.”

Restructuring its board was part of the deal hammered out with the White House in return for lifting a seven-year ban on using components made by United States companies.

Last month, ZTE was forced to close down its operations in Shenzhen after it was consigned to the technological wasteland for breaking a settlement agreement with the US for illegal telecom shipments to Iran and North Korea.

With more than 75,000 staff, the company operates in over 160 countries, while its telecom equipment runs through the “digital backbone of a great swath of the developing world.”

The group provides services for 100 million users in India, 300 million users in Indonesia and 29 million users in Italy, an official told Reuters.

But the US ban has threatened to kill off ZTE since up to 30% of its components, such as semiconductors, come from US suppliers.

As part of the deal, which could still be blocked by the US Congress, the telecom firm needs to replace its 14-strong board and executives at senior vice-president level.

“This is the market responding to events in the past two months that almost crippled the company,” Fu Liang, a veteran telecom industry expert, told the state-run Global Times. “Trading was suspended so the market didn’t get to respond.”

Already Beijing has ramped up the country’s domestic program to generate more home-grown semiconductor production as part of the “Made in China 2025” program.

“After the ZTE incident, it has become very clear that China [needs to] put more efforts into developing its own chips,” Liu Kun, the vice-general manager of the IC Industry Research Center at CCID Consulting, said. “China is aiming for breakthroughs in areas such as technology and applications.”

Maybe so, but that could be at least a decade away. – Asia Times