China telecoms giant ZTE dives 16% over US sanctions probe

Shares in Chinese telecoms giant ZTE plunged 16 per cent today as it resumed trading after the US announced a probe over alleged violations of trade sanctions against Iran, which the firm admitted could lead to civil and criminal liabilities.

Washington slapped restrictions on ZTE and three linked companies last month after an investigation alleged the firm illicitly re-exported controlled items from the United States to sanctioned countries including Iran.

The curbs require ZTE, China’s second-biggest telecoms equipment maker, to have specific licences before shipping US- made items to the parent company or the other three named firms.

The move threatens the company’s ability to buy technology hardware and software in the US.

“The investigations are still in progress, and may result in criminal and civil liabilities under US laws,” the company’s recently appointed chairman Zhao Xianming said in a statement to the Hong Kong Stock Exchange late yesterday. “The final outcome of the above matters are highly uncertain,” he said.

Trading in the firm’s stock was suspended on March 7 after the probe was announced. Soon after resuming today it plunged 15.96 per cent to 11.90 Hong Kong dollars before recovering slightly to sit at 12.86 dollar, down 9.18 per cent, by the break.

ZTE on Tuesday appointing Zhao to replace as chairman Shi Lirong, who was in place since 2010 but was named in US documents supposedly showing how ZTE circumvented its restrictions.

It also removed two other executives. According to documents published by the US Department of Commerce, Tian Wenguo and Qiu Weizhao were in charge of an alleged scheme to avoid US export rules starting from 2011, by setting up shell companies to circumvent the sanctions, the Wall Street Journal has reported.

The newspaper added that as part of a deal between the US Department of Commerce and ZTE to temporarily remove the sanctions, the company executives involved in the alleged violations should be removed from senior roles.

Founded in 1985, ZTE offers telecom equipment and services and has customers in more than 160 countries, according to the company.