China’s ZTE proposes $10.7 billion credit proposal, new board

Chinese telecommunications giant ZTE last week agreed to pay a $1 billion fine to the US government. (Reuters)
Updated 14 June 2018
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China’s ZTE proposes $10.7 billion credit proposal, new board

HONG KONG: Chinese telecommunications giant ZTE Corp. has proposed a $10.7 billion financing plan and nominated eight board members in a drastic management overhaul, as it seeks to rebuild a business crippled by a US supplier ban.
The news, announced late on Wednesday, indicates China’s No.2 telecom equipment maker is working toward meeting the conditions laid out by the US so it could resume business with American suppliers, who provide about 25-30 percent of the components used in ZTE’s equipment.
Investors cheered the development, driving up ZTE’s Hong Kong-listed shares as much as 3.7 percent on Thursday morning, outperforming the Hang Seng Index that dipped slightly.
A day earlier, its shares plunged a record 41 percent in Hong Kong and 10 percent in Shenzhen, wiping out almost $3 billion off embattled ZTE’s market value, as it resumed trading after being suspended for almost two-months due to the US ban.
The US imposed the seven-year supplier ban on ZTE in April after it broke an agreement to discipline executives who conspired to evade US sanctions on Iran and North Korea.
ZTE last week agreed to pay a $1 billion fine to the US government. The ban will, however, not be lifted until ZTE places another $400 million in an escrow account in a US-approved bank for 10 years.
ZTE was also ordered to radically overhaul its management and hire a US-appointed special compliance coordinator.
As part of the agreement, ZTE needs to replace its 14-person board and fire all members of its leadership at or above the senior vice president level, along with any executives or officers tied to the wrongdoing. The US commerce department can exercise discretion in granting exceptions.
In filings late on Wednesday, ZTE said its controlling shareholder, ZTE Holdings, had nominated 8 new board members.
This includes 5 non-independent directors — Li Zixue, Li Buqing, Gu Junying, Zhu Weimin, and Fang Rong — all from state-linked firms that are shareholders or investors of ZTE Holdings, which has a 30.34 percent stake in ZTE.
Cai Manli, Yuming Bao and Gordon Ng have been nominated as independent non-executive directors.
Voting on this will take place at an AGM on June 29.
ZTE also proposed to amend a company statute at the AGM to remove a clause that required the chairman to be elected from directors or members of the senior officers of the company who have served for three years or more.
In addition, ZTE proposed to allow the board to apply for a $10.7 billion credit line, including a 30 billion yuan ($4.69 billion) from Bank of China and $6 billion from China Development Bank.
ZTE’s Shenzhen-listed shares dropped by the maximum daily permitted limit of 10 percent on mainland exchanges for a second day on Thursday.


Oil prices gain on lower US crude inventories, Libyan output disruption

Updated 53 min 37 sec ago
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Oil prices gain on lower US crude inventories, Libyan output disruption

SINGAPORE: Oil prices recovered some day-earlier losses in Asia on Wednesday, supported by a drop in US commercial crude inventories and the loss of storage capacity in oil producer Libya.
US crude inventories fell by 3 million barrels to 430.6 million barrels in the week to June 15, according to American Petroleum Institute (API) in a weekly report on Tuesday.
Brent crude futures rose 18 cents, or 0.2 percent, to $75.26 per barrel at 0351 GMT, compared with their last close on Tuesday.
US West Texas Intermediate (WTI) crude futures gained 20 cents, or 0.3 percent, to $65.27.
Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.
Looming larger over markets, however, is a June 22 meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC) with some other producers, including Russia, to discuss supply.
De-facto OPEC leader and top crude exporter Saudi Arabia, as well as Russia, which is not a member of the cartel but is the world’s biggest oil producer, are pushing to loosen supply controls introduced in 2017 to prop up prices.
Other OPEC-members, including Iran, are against such a move, fearing a sharp slump in prices.
“Saudi Arabia and Russia continued to push for a relaxation in production constraints, going against many other members’ wishes,” ANZ bank said on Wednesday.
“Iran rejected a potential compromise, saying it won’t support even a small increase in oil production. This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached,” it added.
Jack Allardyce, oil-and-gas research analyst at Cantor Fitzgerald Europe, said he had the “expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300,000-600,000 barrels per day) given the lack of consensus among OPEC members.”
Allardyce said “we could see this knocking $5 per barrel off Brent and perhaps squeezing the WTI discount a little.”
Markets are also anxiously watching trade tensions between the United States and China, in which both sides have threatened to impose stiff duties on each other’s exports, including US crude oil.
A 25 percent tariff on US crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make American crude uncompetitive in China versus other supplies.
This would almost certainly lead to a sharp drop-off in Chinese purchases of US crude, which have boomed in the last two years to a business now worth around $1 billion per month.