China fund managers slash ZTE valuation after US sanction

SHANGHAI: Chinese funds have slashed valuations of ZTE Corp after the United States banned American companies from selling components to the telecoms equipment maker for seven years, a move ZTE said threatened its very survival.

The US action last week was sparked by ZTE’s violation of an agreement reached after it was caught illegally shipping US goods to Iran. American companies are estimated to provide 25-30 per cent of the components used in ZTE’s equipment.

Chinese mutual fund managers cut the value of the stock in their portfolios by 20-30 per cent in a spate of announcements over the weekend, a blow to ZTE that suspended trading in its mainland and Hong Kong shares on April 17.

Around 40 Chinese mutual funds have adjusted the valuation of ZTE in their portfolios since it suspended trading. In the latest batch, five fund managers revalued the stock on Saturday.

Huatai-PineBridege and GTJA Allianz cut their valuation of ZTE’s mainland shares to 25.05 yuan, 20 per cent lower than its last trading price. JT Asset Management – the most pessimistic – slashed the valuation to around 30 per cent below ZTE’s last close of 31.31 yuan (US$4.98).

Several funds with exposure to ZTE’s Hong Kong shares, including HuaAn Fund and Harvest Fund, cut valuations to about 20 per cent below the last trading price of HK$25.60 (US$3.26).

ZTE, which had a market capitalisation of about US$20 billion before trading in its shares was suspended, did not respond to a request for comment on Monday.

The valuation adjustment by mutual funds could be just preliminary, as the real impact of the US sanctions needs to be assessed continuously as the incident unfolds, said Reagan Li, investment manager at private fund house Shanghai V-Invest. — Reuters