A humbled and diminished ZTE has resumed trading after making extensive concessions to the US, but investors almost halved its market value.

Scott Bicheno

June 13, 2018

4 Min Read
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A humbled and diminished ZTE has resumed trading after making extensive concessions to the US, but investors almost halved its market value.

ZTE stock resumed trading on the Hong Kong exchange following US President Trump’s intervention to overturn the US export ban imposed on it earlier this year, prompting ZTE to throw in the towel a month ago. But a combination of taking a month off, some pretty severe further sanctions from the US and enduring concerns that it’s not out of the woods yet prompted a massive sell-off.

‘The Company…reached a superseding settlement agreement with BIS to supersede the settlement agreement signed between ZTE and BIS in March 2017,’ said a ZTE filing. ‘According to the Agreement, ZTE will pay civil monetary penalties totalling USD1.4 billion, including a lump sum payment of USD1 billion to be paid within 60 days of the issuance of the 8 June 2018 Order, and an additional suspended penalty of USD0.4 billion to be placed within 90 days of the issuance of the 8 June 2018 Order in an escrow account with a U.S. bank selected by ZTE and approved by BIS for the Probationary Period.’

So, basically, BIS has said ‘we can make the problem go away for $1.4 bil,’ but that’s not the end of the matter. ZTE needs to commit several further acts of self-abasement before BIS will consider its atonement complete, which we have copied from the filing below. There’s also the matter of the US Senators who aren’t happy with Trump’s unilateral intervention and may yet scupper this compromise. On top of all that it remains highly debatable that ZTE will ever recover its reputation in the telecoms industry even if it fully escapes from its current predicament.


The Agreement also includes the following key terms:

  1. A new denial order (the “New Denial Order”) for a period of ten years from the issuance of the 8 June 2018 Order (the “Probationary Period”) that would, among other things, restrict and prohibit ZTE from applying for, obtaining, or using any license, license exception, or export control document, and participating in any way in any transaction involving any commodity, software, or technology that is subject to the U.S. Export Administration Regulations (the “Regulations”) shall be imposed, but the New Denial Order shall be suspended during the Probationary Period, and thereafter be waived subject to ZTE’s compliance with the Agreement and the 8 June 2018 Order.

  2. ZTE shall replace the entire boards of directors (the “Boards of Directors”) of both the Company and ZTE Kangxun within 30 days of the issuance of the 8 June 2018 Order. Within 30 days of replacing the Boards of Directors, ZTE shall create special audit/compliance committees under the Boards of Directors composed of three or more independent members of the new Boards of Directors. The chair of the Boards of Directors can be a member of the committee but cannot chair the committee.

  3. ZTE shall terminate all current members of the senior leadership of both the Company and ZTE Kangxun at or above the senior vice president level as well any executive or officer who participated in, oversaw, or was otherwise responsible for the conduct described in the proposed charging letter issued by BIS in March 2017 or the 15 April 2018 Denial Order, within 30 days of the issuance of the 8 June 2018 Order, and prohibit the re-hire of those employees by ZTE and any of its subsidiaries or affiliates. ZTE will promptly report to BIS on its implementation of this term. BIS, at its sole discretion, may consider exemptions to this term.

  4. ZTE shall retain at its expense an independent special compliance coordinator (“SCC”) within 30 days of the issuance of the 8 June 2018 Order to coordinate, monitor, assess, and report on compliance by ZTE and its subsidiaries or affiliates worldwide with the U.S. Export Administration Act of 1979, the Regulations, the Agreement and the 8 June 2018 Order during 3 the Probationary Period. The SCC will report to the chief executive officer and the Board of Directors of ZTE and to BIS, equally.

  5. ZTE shall complete and submit nine audit reports of its compliance with U.S. export control laws. At the conclusion of the term of the independent compliance monitor created according to the agreement signed between the Company and the United States Department of Justice (as disclosed in the announcement of the Company dated 8 March 2017) and any related court orders, the SCC will be responsible for conducting the six remaining audit reports.

  6. ZTE shall provide extensive training on applicable export control requirements to its leadership, management and employees, and the leadership, management and employees of its subsidiaries, affiliates, and other entities worldwide over which it has ownership or control.

About the Author(s)

Scott Bicheno

As the Editorial Director of Telecoms.com, Scott oversees all editorial activity on the site and also manages the Telecoms.com Intelligence arm, which focuses on analysis and bespoke content.
Scott has been covering the mobile phone and broader technology industries for over ten years. Prior to Telecoms.com Scott was the primary smartphone specialist at industry analyst Strategy Analytics’. Before that Scott was a technology journalist, covering the PC and telecoms sectors from a business perspective.
Follow him @scottbicheno

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