The statement pointed out that according to the new settlement agreement, ZTE Corporation pays a fine of US$1 billion and prepares another US$400 million for safekeeping by a third party. Then the US Department of Commerce will remove ZTE Corporation from the ban list. This means that the Zhongxing crisis that lasted for nearly two months has come to an end.
The time was reversed. On April 16, 2018, the United States announced that it would implement a 7-year export ban on ZTE, and in May China-US trade negotiations, ZTE's business was forced to suspend for more than 50 days, for a thousand Billion-sized companies, losses can not be described as heavy.
According to the new settlement agreement, ZTE will pay a fine of US$1 billion this time while depositing a 400 million U.S. dollar deposit in a third-party account. Based on this calculation, this is roughly equivalent to twice the net profit of ZTE in 2017.
In the period of ZTE’s crisis and suspension, listed companies also “teamed up”. Many funds had also slashed ZTE’s valuation. Financing customers chose cash repayments in order to avoid bearing more financing interest. Closing financing liabilities.
What are the adverse effects of the new reconciliation agreement now reached today? Will it be reversed today?
Impact 1: ZTE "resurrection", the heart of 80,000 employees and 300,000 shareholders was let go
For this agreement reached, it is undoubtedly a great turn for the ZTE Corporation whose business has already fallen into a state of “shock”.
According to media reports, ZTE insiders told the media that as long as the ban is lifted, it will take only a few hours for ZTE to resume its operations.
At a press conference held by ZTE at its headquarters in Shenzhen, Yin Yimin, chairman of the board of directors, said that the US sanctions will immediately allow the company to enter a state of shock, which will directly affect the company’s 80,000-employee work rights and directly harm the interests of 80,000 families. It will directly impact the company’s long-term service responsibilities for hundreds of operator customers worldwide, and hundreds of millions of end-user consumers, including tens of millions of US consumers; it will affect the company’s 300,000 shareholders worldwide. The interests cause major damage; it will directly harm the company's performance of its responsibilities and obligations to thousands of partners and suppliers, including US companies.
Because of the US sanctions, ZTE's shares listed on the A-shares and Hong Kong shares were suspended in an emergency and the quarterly report was postponed.
Since then, ZTE has mentioned in a number of announcements the impact of the US ban on sales.
On the evening of April 27, a quarterly report disclosed by ZTE showed that the company's net profit in the first quarter increased by 39% year-on-year. However, the company also stated that the report was based on the premise that the refusal order did not affect the company's first quarterly report in 2018.
At the same time, due to failure to consider the impact of the refusal order on this report, the company's board of directors, board of supervisors and directors, supervisors, senior management personnel, and heads of accounting agencies cannot guarantee the truthfulness, accuracy, and completeness of the information contained in the above report. ZTE at that time said that after a full and accurate estimate of the impact of the refusal order, the company will re-prepare the quarterly report for 2018 and disclose it.
On May 9, ZTE renewed its announcement and said that the US Department of Commerce’s Bureau of Industry and Security activated the effect of the refusal of the spirit, so the 2017 annual shareholders’ meeting was postponed.
Since then, the company has issued a suspension progress announcement from time to time, but from these announcements, it is not possible to see more recent information about the incident.
On the whole, before the ban was lifted, the market worried that ZTE A shares and Hong Kong stocks would face tremendous downward pressure, and the relevant pressure will be greatly reduced.
Impact II: Domestic 5G expects rapid recovery
For the domestic communications industry, if the ZTE event can be satisfactorily resolved, it is generally considered that it will also be a good thing.
Some analysts had previously said that the US "ZTE ban" caused the market to worry about the prospects for 5G, and the communications sector was under greater pressure. The Trump Tweet indicates that the ZTE event may soon be properly resolved. 5G expects It is expected to recover quickly.
The China-Thailand communications internet team recently believed that it is necessary to focus on the anticipated restoration of 5G and the targets affected by China and the United States. However, they also stressed that this does not change the long-term logic of autonomous control and domestic substitution.
China Merchants Communications analysts Wang Lin and Yu Jun believe that the 5G and communications sector is expected to usher in a rebound opportunity. In the medium term, 5G progress has been affected by facts and some changes have taken place in the form of industrial policies. Investment opportunities in the industry still need to be carefully observed, waiting for the relevant issues to fall. In the long run, 5G is still the most definite investment direction in the coming years. The ZTE event may have a slight impact on the short-term 5G progress, but it will be more determined in the long-term.
On May 22, the "Wall Street Journal" reported that China and the United States reached an agreement on the path of resolving the problems of ZTE Corporation. Many domestic media have also relayed the news. Affected by this news, the A-share telecom sector began to pull up sharply on that day, and multiple stocks closed at a daily limit.
However, since May 22nd, due to the ups and downs in the Sino-U.S. negotiation process, many of the above-mentioned stocks began to fall. The Wind Communication Equipment Index fell slightly by 6% from May 22 to June 7.
Impact III: again arbitrage opportunities? Fund valuations have to be adjusted back?
As a company with a market value of 100 billion yuan, ZTE has always touched the nerves of investors. How the share price will be reflected after its resumption will directly affect the interests of investors.
The data shows that as of the end of the first quarter of this year, the number of shareholders of ZTE reached 312,300.
Among the top ten shareholders, in addition to controlling shareholder Shenzhen Zhongxingxin Communication Equipment Co., Ltd., Huijin Asset Management and Social Security Fund also appeared.
In addition, there are still a large number of public funds in its shareholders.
According to the 2017 annual fund report, as of the end of 2017, there were at least 646 fund positions held by ZTE, holding a total of 327 million shares of ZTE Corporation. According to the price of 31.31 yuan/share before ZTE’s suspension of trading, the fund was held before the suspension of trading. The stock market value exceeds 10 billion yuan. The data shows that at the end of 2017, at least 81 funds had more than 1 million shares held by ZTE.
In addition, in the heavily-earned stocks disclosed in the fund's quarterly report in 2018, ZTE appeared in the list of 189 funds in the list of heaviest stocks, of which the South China Select Select Fund held more than 10 million shares, representing an increase of 869,700 shares since the end of 2017.
After the United States activated the ban on ZTE's ban, dozens of fund companies have lowered the valuation of ZTE.
Among the most severely funded fund companies, the valuation given is roughly equivalent to the four stop-limits before the suspension.
For example, both Changxin Fund and CITIC Prudential Fund have lowered their valuations twice, and given valuations of 20.54 yuan/share and 20.04 yuan/share, respectively, which is equivalent to four consecutive lows before the suspension of the stock price. ZTE’s pre-suspend price was 31.31 yuan.
In addition, on June 1st, Hui'an Fund announced that its funds adjusted ZTE’s stock valuation method. According to an announcement, since May 31, 2018, Hui'an Fund has conducted ZTE’s shares held by its funds. The valuation adjustment, the adjusted valuation price is 22.82 yuan, which is equivalent to the price after the three stop-downs before the suspension of ZTE. Shanghai Oriental Securities Asset Management Co., Ltd. announced that its Dongfanghong Strategy Select Fund has been valuing ZTE's shares at a price of 20.54 yuan/share since May 29, which is equivalent to the expected four stop-downs. On June 7, Wells Fargo Fund announced that since the date of the valuation of ZTE A shares at 20.04 yuan, Hong Kong stocks was 16.38 Hong Kong dollars, which is equivalent to about 4% off the stock price before the suspension.
Now that a new settlement agreement has been reached, if some of the aforementioned funds are overvalued, there may be some arbitrage opportunities.
However, arbitrage involves a certain transaction cost. If the price after the resumption of trading is lower than the valuation of the fund, it will also create risks. In general, for ordinary investors, it is not an easy task to perform arbitrage through the difference between the price after the resumption of the pre-arrested suspension shares and the price difference between the funds' downward adjustments.
The above-mentioned multiple funds also stated that after ZTE’s stocks resume trading and resume active trading characteristics, they will resume their valuation on the same day’s closing price.
Impact 4: Will other A-share companies be affected?
Huachuang Securities has produced a form that sorts out the listed companies that are related to ZTE in terms of operator products, mobile terminal products, political enterprise affairs, and equity ownership. There are more than 10 listed companies. In addition, some Hong Kong-listed companies, as well as US-listed companies such as Broadcom, have a relationship with ZTE.
Source: Huachuang Securities
In fact, after ZTE was activated by the United States to prohibit sales, many A-share listed companies responded to the relationship with ZTE through an interactive platform. Most of them expressed little influence on the company.
He Litai stated that ZTE’s share of the company’s revenue share is very small, which has little effect on the company.
Tongyi shares said that the company and ZTE's projects are sales through the mold factory, accounting for relatively small.
Changxin Technology stated that the company had a small amount of shipments of ZTE Nubia brand in the past, but there is no cooperation at present.
Zhongtian Technology stated that the company has a few business contacts with ZTE. The important customers of the company's communications products are communication operators such as China Mobile and China Telecom. The ZTE Incident has not currently had a material impact on the company.
Some companies admit that they are important partners with ZTE, maintain business contacts, or be affected by the ZTE event.
Xinyisheng stated that ZTE is one of the company’s important partners.
According to special information, SDG Dongzhi and ZTE still maintain business contacts, and SDG Dongzhi is currently operating normally.
The special information indicated that after the occurrence of the ZTE incident, SDG Dongzhi had close communication with its partners, understood each other, supported each other, and faced the situations encountered. The company believes that there is no change in the market demand and direction of development in the communications industry. The company will use the risk management and control capabilities of the customer management system to achieve stable development of the company in response to changes in customer order status.
Xing Wang Yuda said that the company has cooperated with ZTE and China Mobile to provide terminal equipment for the company, ZTE has system integration, and China Mobile has provided communication services for offshore fishing vessels.
*ST Datang said that the ZTE Incident has a great impact on the entire industry, and it will also have an impact on the future development of the company. The company will adjust its business development strategy according to market changes.
Impact 5: Financing customers "free"
It is worth noting that prior to ZTE being “off-the-grain,” the overall performance of stock prices in the past two years has been very good, which has also attracted many financial customers.
After the suspension of the A shares of ZTE, the stocks cannot be traded, and the financing customers cannot repay the financing liabilities by means of repayment of bonds, but they can repay the liabilities through cash repayment.
According to statistics, as of the close of trading on April 16, 2018 (the last trading day before the suspension of trading), ZTE’s financing balance was still RMB 4.042 billion, and it continued to decrease until June 5, dropping to RMB 3.231 billion. During this period, financing customers settled over $800 million in debt through cash repayments.
For many financing customers who themselves carry debt, this type of repayment often means that they need to raise additional funds. The pressure is not small.
According to another estimate, even if calculated according to the stock financing balance of 3.231 billion yuan, the financing interest paid by the above-mentioned locked financing customers in the recent two months has reached several tens of millions of yuan.
Now that the new settlement agreement has been reached, it is believed that the stock will soon resume trading and it will be considered a relief for the financing customers who have been locked out due to the suspension of trading.
ZTE event playback
April 16, 2018
The U.S. Department of Commerce, in response to ZTE’s failure to award timely bonuses and disciplinary letters to certain employees involved in historical export control violations, submitted two copies to the U.S. government on November 30, 2016 and July 20, 2017. The letter made a false statement on the grounds that it activated US companies’ ban on sales of components to ZTE, which lasted for 7 years. ZTE A shares and Hong Kong stocks began an emergency suspension of trading on April 17.
ZTE said that due to the need to assess the impact of the US activation refusal order on the company, a quarterly report was postponed.
ZTE Corporation held a press conference at its headquarters in Shenzhen. Chairman Yin Yimin stated that the US ban may cause ZTE to enter a state of shock, which will directly affect the company’s 80,000-employee work rights and directly harm the interests of 80,000 families.
ZTE disclosed a quarterly report, but this report is based on the assumption that the refusal order will not affect the company's first quarterly report in 2018.
ZTE announced that it has formally submitted an application for suspension of execution of the refusal order to the BIS, and submitted a response to the refusal order supplementary material according to the BIS guidelines.
U.S. President Trump sent a Twitter message saying that it provided ZTE with a way to quickly resume business and has instructed the Ministry of Commerce to complete the matter as soon as possible.
A White House spokesperson stated that Trump hopes that the US Department of Commerce will resolve the regulatory actions involving ZTE based on applicable laws and regulations.
When Trump met with reporters at the White House, he stated that the U.S. government has not reached any agreement with the Chinese government on the ZTE event and expects to impose heavy fines on ZTE. It also includes replacing the management team, appointing a new board of directors, adopting stricter safety regulations, and demanding a large number of ZTEs. Purchase US parts and equipment.
According to sources, the Trump administration may soon issue a large fine to ZTE. The US hopes to punish ZTE and strengthen its control before lifting the ban. The Ministry of Commerce is also seeking an unfettered field trip to ZTE. Confirm whether the use of spare parts in the United States is consistent with the ZTE statement and hope thatwebsitePublished data on the use of US parts for its products.
According to Xinhua News Agency, U.S. Secretary of Commerce Ross announced on the 7th that it had reached a new settlement agreement with China’s ZTE Corporation. The US Department of Commerce issued a statement on the same day that Ross announced on the same day that ZTE and its affiliates have agreed to pay fines and take compliance measures to replace the US Commerce Department’s previous ban on the company’s purchase of spare parts from US suppliers. The statement pointed out that according to the new settlement agreement, ZTE Corporation pays a fine of US$1 billion and prepares another US$400 million for safekeeping by a third party. Then the US Department of Commerce will remove ZTE Corporation from the ban list.