Embattled ZTE seeks $10.7 billion credit limit, nominates 8 board members

HONG KONG (Reuters) - Chinese telecoms huge ZTE Corp ( 0763. HK)( 000063. SZ) has proposed a $10.7 billion financing strategy and chosen 8 board members in an extreme management overhaul, as it seeks to rebuild a business paralyzed by a U.S. supplier restriction.

The logo design of China's ZTE Corp is seen on the building of ZTE Beijing research study and advancement center in Beijing, China June 13, 2018. REUTERS/Jason Lee

The news, announced late on Wednesday, shows China's No. 2 telecom devices maker is working to meeting conditions laid out by the United States so it might resume service with American providers, who provide about 25-30 percent of the components utilized in ZTE's equipment.

Financiers cheered the development, driving up ZTE's Hong Kong-listed shares as much as 3.7 percent on Thursday morning.

A day earlier, embattled ZTE's shares plunged a record 41 percent in Hong Kong and 10 percent in Shenzhen, cleaning nearly $3 billion off its market worth, as it resumed trading after being suspended for nearly two months due to the United States restriction.

The United States enforced the seven-year supplier ban on ZTE in April after it broke a contract to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

ZTE recently accepted pay a $1 billion fine to the United States government. The ban will, however, not be raised till ZTE pays the fine and places another $400 million in an escrow account in a U.S.-approved bank for Ten Years.

ZTE was likewise purchased to significantly overhaul its management and hire a U.S.-appointed unique compliance coordinator.


As part of its offer with the United States, ZTE needs to replace its 14-person board and fire all leadership members at or above the senior vice president level, in addition to any executives or officers tied to the misbehavior. The U.S. commerce department can work out discretion in granting exceptions.

In filings late on Wednesday, ZTE said its controlling shareholder, Zhongxingxin, had nominated 8 brand-new board members.

That consisted of 5 non-independent directors - Li Zixue, Li Buqing, Gu Junying, Zhu Weimin, and Fang Rong - all from state-linked firms that are investors of or have financial investment relationships with Zhongxingxin.

Zhongxingxin has a 30.34 percent stake in ZTE.

Cai Manli, Yuming Bao and Gordon Ng have actually been nominated as independent non-executive directors.

Ballot on this will occur at an AGM on June 29.

According to a Reuters price quote based upon business filings and a source with knowledge of the matter, ZTE's management overhaul might result in about 40 senior executives being replaced.

The business can find most prospects internally, Jefferies analyst Edison Lee stated. "That is possible, though it will naturally cause confusion and slow down decision-making."


ZTE likewise proposed to change a company statute at the AGM to remove a clause that needed the chairman to be elected from directors or members of the senior officers of the business who had served for three years or more.

In addition, ZTE proposed to allow the board to look for a $10.7 billion line of credit, including a 30 billion yuan ($4.69 billion) from Bank of China ( 601988. SS )and $6 billion from China Advancement Bank.

ZTE's Shenzhen-listed shares dropped by the optimal day-to-day allowed limit of 10 percent on mainland exchanges for a second day on Thursday, tracking current losses in Hong Kong.

Jefferies set a target cost of HK$ 14.41 for the Hong Kong-listed ZTE stock, pointing out significant near-term selling pressure.

The Hong Kong-listed ZTE stock gave up early gains to trade nearly flat at around HK$ 14.90 ($1.90) by 0757 GMT, in a wider market . HSI that was down more than a percent.

Reporting by Sijia Jiang; Editing by Himani Sarkar