Wednesday, June 13, 2018

ZTE resumes trading, seeks loan from Chinese banks

For the first time since April 16th, shares of ZTE resumed trading on the Hong Kong Stock Exchange. The shares were valued significantly lower than the previously listed price.

ZTE also announced its intention to seek a 30 billion yuan ($4.9 billion) line of credit from Bank of China and a separate $6 billion credit line from China Development Bank.

ZTE also informed the market that it has agreed to the settlement with the U.S. Department of Commerce and will pay civil monetary penalties totalling US$1.4 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 US$0.4 billion to be placed within 90 days of the issuance of the 8 June 2018 Order.

ZTE also listed the following conditions imposed by the order.

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 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.