China’s ZTE facing loan default threat

Chinese telecommunications-gear maker ZTE Corp is facing further fallout from a recent US ban on its purchases of American technology, this time in the loan market.At issue is the recent suspension of trading in the company’s shares, and a clause in a $450mn loan it took in 2014.The clause says that China’s second-biggest network equipment maker would face an event of default if trading in its shares on the Hong Kong and or the Shenzhen Stock Exchange is suspended for more than 14 straight trading days, or if the listing is terminated.The company is now asking lenders to waive the clause, as the 14-day mark approaches next week, people familiar with the matter said.Trading of ZTE shares has been suspended in Hong Kong and Shenzhen since April 17, after the US Commerce Department imposed a seven-year ban on buying American-made chips and components, as punishment for allegedly violating a sanctions settlement over the sale of products to Iran and North Korea. ZTE’s dependence on US technology raises questions about how the company will generate cash flow to service and repay debt, after it runs down product inventories, according to S&P Global Ratings.“If the Chinese government gets involved, if there is any sign of a state bailout, I think the Americans will use this as proof that the Chinese are providing state subsidies, grooming industry champions, and it isn’t a level playing field,” said Christopher Lee, managing director of corporate ratings at S&P in Hong Kong.“It’s a very difficult situation for ZTE.” ZTE didn’t immediately comment when contacted by Bloomberg. Majority consent of the lenders is required and the deadline for responses on the waiver is June 4, according to the people, who aren’t authorised to speak publicly and asked not to be identified.The prospect of a default comes just a week after the technology company reported a surge in its first quarter earnings, without addressing the impact of US sanctions.The loan due in July was borrowed via ZTE HK Ltd and guaranteed by ZTE Corp. The deal was led by Bank of China Hong Kong, BNP Paribas, Crédit Agricole CIB and Societe Generale. Eight more lenders joined the facility in general syndication stage, Bloomberg data show.On Wednesday, the Pentagon banned Chinese-made smartphones from military exchanges. “Huawei and ZTE devices may pose an unacceptable risk to department’s personnel, information and mission,” Pentagon spokesman Major Dave Eastburn said in a statement. Huawei Technologies Co last month scrapped a dollar-denominated bond sale and delayed a euro bond offering amid possible violations of sanctions banning sales to Iran.