ZTE halted from trade after report of US export curbs

[HONG KONG] ZTE Corp shares were halted from trade on the Hong Kong stock exchange Monday after Reuters reported that the US was close to slapping export restrictions on China's second-largest vendor of networking and telecommunications gear.

The Department of Commerce intends to impose curbs on ZTE starting Tuesday for allegedly violating sanctions on Iran, Reuters said, citing documents it obtained as well as an unidentified senior official. Suppliers to the company will then have to apply for licenses that will generally be denied, Reuters reported, making it difficult for the Chinese company to buy American-made equipment and parts.

"ZTE has been working with relevant US government departments on investigations, maintaining constant communication with relevant departments and is committed to fully address and resolve any concerns," Lunitta Lu, a spokeswoman for the company, said in an e-mailed statement.

"ZTE strives to ensure all operational activities adhere to international trade practices and the laws and regulations of host countries."

The stock closed 3.5 per cent higher at HK$14.16 on Friday, and are down almost 20 per cent since the start of 2016 in a weak Hong Kong market. No reason was given in the trading halt Monday morning.

US Accusations

ZTE, one of the world's largest networking gear vendors and a maker of smartphones, has encountered issues with the US government in the past, including blacklisting over accusations of aiding espionage. The company denied the allegations. It now buys components from American companies including Qualcomm Inc and Broadcom Corp, according to data compiled by Bloomberg.

"The restrictions, if implemented, will cause significant supply problems to ZTE given its major trading relationships," Jefferies Hong Kong Ltd analysts led by Cynthia Meng wrote Monday, saying the stock will come under pressure as the market awaits clarification. Other suppliers included Microsoft Corp and International Business Machines Corp, the analysts wrote.

"ZTE can purchase chipsets outside of the US for some low-end handset products, but that remains a small portion of total revenue."

BLOOMBERG