Published: Wed, June 13, 2018
Finance | By Claude Patterson

ZTE stock plummets 40% after crippling United States ban

ZTE stock plummets 40% after crippling United States ban

Acacia Communications Inc's supply agreement with ZTE Corp will remain suspended until the U.S. Department of Commerce implements its recent settlement with the Chinese firm, the U.S. company said on Tuesday.

A bipartisan group of United States senators has put a renewed ban on both ZTE and Huawei into an amendment to the 2019 National Defense Authorization Act.

But the ban on buying US parts, imposed by the department in April, will not be lifted until ZTE pays fines and places $400 million more in an escrow account in a USA -approved bank.

President Donald Trump, however, swooped in to save ZTE after negotiating with the Chinese government.

Confirming details of the agreement publicized by the USA government on Monday, ZTE said it would replace its board of directors and that of its import-export subsidiary ZTE Kangxun within 30 days of the June 8 order being signed by the United States.

ZTE is back in business: What now?

"The most important point is that the U.S. will not lift the export ban until it receives the payment of US$1bn in fines and US$400m in escrow", Edison Lee, an equity analyst with Jefferies wrote in a research note sent by email late Tuesday. It's a stunning turnaround, though it had been signalled for some weeks. Among other things, it would restore penalties on ZTE for violating USA export controls and bar US government agencies from purchasing or leasing equipment or services from the Chinese company. Since the bill has bi-partisan support, rules tucked into the bill's language are much harder to prevent, even for the President.

Commerce Secretary Wilbur Ross told CNBC at the time that ZTE would replace its management team and board and embed a new department for compliance with the U.S.

"The Senate is saying loudly and in a bipartisan fashion that the president is dead wrong to back off on ZTE", said Minority Leader Charles E. Schumer, New York Democrat. Although $1.4 billion is not a small amount of money, it sets the stage for other companies to also violate trade laws under the assumption that, at worst, they'll have to pay a hefty fine.

ZTE has also rolled out plans for all of its 80,000-plus employees to undergo compliance education, all in the hopes of resuming operations as early as possible, the people said.

While the settlement announced Monday by the U.S. Commerce Department would allow ZTE to resume buying parts and selling products in the U.S., there was a catch. "For me, it was more than that".

The NDAA is considered a must-pass defense package; Senate Majority Leader Mitch McConnell announced on Monday that it is "the top item on our to-do list".

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