Chinese telecommunications giant ZTE Corp. was poised to resume business with its USA suppliers as the last major hurdle of the deal President Donald Trump made to save the firm had been cleared.
Lifting the ban on ZTE doing business with us companies is expected to help the Chinese telecom giant restart its operations, which it was forced to shut down after the original punishment for violating sanctions. A person familiar with the matter said the escrow payment should be completed within a day.
The resistance adds yet another wrinkle to a deal that Commerce struck last month to save ZTE, after US President Donald Trump directed the department to come up with an alternative to the seven-year ban, framing it as a favour to his Chinese counterpart Xi Jinping and part of a larger strategy to win trade concessions. But the company is said to be facing at least $3 billion in total losses from a months-long moratorium that choked off the chips and other components needed to make its networking gear and smartphones.
In June, the United States reached a deal with ZTE that would allow it resume full activities in the U.S. if it met a range of requirements including: paying a $1bn penalty, hiring a compliance team chosen by the USA, replacing much of its management board and paying $400m into a holding account to insure against future violations. Its Shenzhen-listed stock rose by its 10-percent daily limit.
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"As ZTE is finally near the end of the tunnel, we believe its current stock price incorporates an overly pessimistic view on the settlement", Edison Lee and Timothy Chau, analysts for Jefferies, wrote in a note Thursday.
"The ZTE settlement represents the toughest penalty and strictest compliance regime the department has ever imposed in such a case", the Commerce Department said. The deal will see ZTE deposit $400 million into an escrow account and receive a notice for lifting the denial order.
The Commerce Department in April announced severe penalties against ZTE, punishment for violating sanctions by selling products to Iran and North Korea and then lying about its practices to federal investigators. The ban forced ZTE to announce it was shutting down. The US$1 billion penalty is in addition to almost US$900 million ZTE paid a year ago. However, the company was in talks with the US government to lift that ban. While ZTE has worked behind-the-scenes to get the ban lifted, a recent reprieve for the company was only meant to be temporary.