ZTE plunges as continuing U.S. investigation sparks uncertainties

(THE WALL STREET JOURNAL) ZTEshares plunged on Thursday upon resuming trading after a monthlong suspension, as the Chinese telecommunications giant contends with allegations that it violated U.S. trade laws.

Last month, the U.S. Commerce Department imposed trade sanctions on ZTE for allegedly violating rules that restrict exports of American technological goods to Iran and other nations.

While the sanctions have since been suspended, ZTE said Wednesday that U.S. investigations “may result incriminal and civil liabilities under U.S. laws,” and it cannot fully assess the potential legal liabilities or their impact on the company’s finances.

The sanctions, which took effect March 8, created a threat to ZTE’s business as it hindered the company’s ability to procure U.S. components and software. Two weeks after the sanctions took effect, the U.S. government agreed to suspend them until June 30 as long as ZTE cooperates with Washington.

ZTE shares were suspended from trading in Hong Kong as of March 7 because of the U.S. sanctions. On Thursday, the stock fell 10% to 12.70 Hong Kong dollars (US$1.64).

Earlier this week, Shenzhen-based ZTE, which sells smartphones as well as networking equipment for carriers,overhauled its top management, replacing three of its most senior executives including its chief executive. On Tuesday, Chief Technology OfficerZhao Xianmingtook over as the new chief executive, replacingShi Lirong,while two executive vice presidents,Tian Wenguoand Qiu Weizhao, stepped down.

On Wednesday, ZTE also reported its 2015 financial results, which had been delayed last month due to the U.S. trade sanctions. Its revenue and profit were lower than forecasts the company issued in January.

“We think ZTE’s management reshuffle suggests progress in its negotiations with the U.S. government toward final resolution of this case,” Nomura Securities analysts said in a note to clients Thursday.

While the company may still face a U.S. fine, “we don’t think this case will seriously affect ZTE’s business relationships with existing telecom operators,” said Nomura, which maintained its “buy” rating for ZTE.