China’s ZTE Plans to Raise $1.7 Billion for 5G Research & Development

ZTE Corp., the Chinese telecom equipment and information technology company, is planning to raise A-share funding around 11.51 billion yuan ($1.7 billion) for its 5G research and development (R&D). For the fundraising, the company will sell its shares to several investors and the funds would be used for the 5G R&D and as working capital.

Heavy Discounted Shares Sales

The Chinese telecom equipment maker, ZTE said on Thursday, January 16, 2020, “it will issue 381.098 million A-shares, or 8.27% of the total issued share capital on completion of the deal, to independent third party investors at 30.21 Yuan apiece.” As observed by Reuters, as compared to Wednesday’s A-share closing at the price of 36.92 Yuan in Shenzhen, the share price offered for the company’s fundraising was a discounted price of around 18.2%.

Despite the company refused to share the details and names of the investors, it said that none of the investors would become a major shareholder of the company upon the completion of the share sale. As Reuters revealed the company’s statement saying, “the A shares, which are subject to a lock-up period of 12 months from the date of listing, will be issued to 10 independent professional or institutional investors in China.”

ZTE, the tech company, said through this fundraising the company could maintain a high-level investment in R&D and improve its technologies. The company also asserted that it could ensure the stability of its technology as well as boosting its overall businesses and products globally.

Jefferies, a market brokerage, said, “We believe the successful fundraising will remove a key overhang for the stock and would give investors more confidence in ZTE’s R&D efforts and thus potential share gain in 5G,” However, Jefferies added, “Our fundamental view remains negative, but near-term stock price could have support,” referring to the existing margin pressure and market share pressure on 5G industry.

5G Industry in Chinese Market

China started launching its commercial 5G network in November 2019 after several countries including South Korea, the US, Australia, and the UK had rolled out the initial 5G mobile services. However, the Chinese government has started investing huge funds for developing technologies that facilitate fast wireless connections, reduced latency, and massive capacity which would ensure certain advantages in 5G business.

Moreover, China has over a billion customers for the 5G mobile service. ZTE, the world’s fourth-largest telecommunications equipment vendor after Huawei, Nokia, and Ericsson, has been expanding its 5G operations overseas. In October 2019, the company had pocketed 35 commercial 5G supply contracts for the major markets across the globe.

ZTE’s Shenzhen-listed shares surged as much as 4% to 38.10 Yuan in early trade on Thursday following the news of share sale. According to Reuters, “Hong Kong-listed stock briefly rose 3.7% to HK$28.05, the highest since March 2018.”

Citing the rise of the share value of ZTE, Steven Leung, a sales director at UOB Kay Hian in Hong Kong, explained, “It is because of the lock-up period which gives investors’ confidence of a stable stock price during the period, and that support the shares from advancing despite the discount.” Leung further added that the move for a discounted share sale of the company was a call for the confidence of the investors towards ZTE’s projects of 5G development.

I’m Roshan, a journalist, blogger and music lover. I like covering global news related to finance, business, and technology. Focusing on the collection of true and reliable information, I rely on working by conducting interviews with business leaders and talking to the inside sources of companies.

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