ZTE plummets after US Senate bill puts Trump reprieve at risk

Shares of ZTE Corp plunged on Tuesday after the US Senate’s passage of a defense bill set up a potential battle with the White House over whether the Chinese telecoms company can resume business with its US suppliers.

The Senate included an amendment that could kill the Trump administration’s agreement to allow ZTE to resume business with US suppliers, one of the few times the Republicanled Senate has veered from White House policy.

ZTE’s Hong Kong-listed shares tumbled as much as 24.81 percent to HK$9.85 ($1.25), the lowest in nearly two years, while its Shenzhen shares fell by their daily limit of 10 percent to 20.54 yuan ($3.17).

Since trading resumed last week, the stock has lost 38 percent or more than $7 billion in market capitalization.

The Senate voted 85-10 for the annual National Defense Authorization Act, throwing the Statebacked firm back into the center of a bilateral trade dispute and reigniting uncertainty over the outlook for its crucial supply chain.

But before it can become law, the bill must be reconciled with one already passed by the House of Representatives that does not include the amendment. Any compromise measure must then be passed by both chambers and signed into law by Trump.

ZTE was hit in April with a seven-year ban barring US suppliers selling to it after it broke an agreement to discipline executives who conspired to evade US sanctions on Iran and North Korea.

At Trump’s urging, ZTE and the US Commerce Department reached an agreement on June 7 to have the ban lifted. According to the agreement, the ban would only be lifted after ZTE paid a $1 billion fine and put another $400 million in escrow in a USapproved bank for 10 years.

Last Wednesday, ZTE proposed a $10.7 billion financing plan and nominated eight board members as it seeks to rebuild its business.

On Friday, Nomura cut ZTE’s target price to HK$16 from HK$27, saying it expects it will take a long time for the firm to recover, and that its consumer business in particular could see loss of market share.