ZTE plans to raise 11.5 billion yuan to develop 5G from private share sale

Celia Chen

ZTE Corp plans to raise 11.5 billion yuan (US$1.7 billion) from a private placement of A shares for working capital as well as 5G network research and development (R&D), as Chinese carriers pin high hopes on mass adoption of the next-generation wireless technology.

The Shenzhen-based company is set to issue 381,098,968 A shares to 10 independent third-party investors, it said in a statement released on the Shenzhen Stock Exchange without disclosing the identities of the investors. Upon completion of the deal, the shares would account for 8.27 per cent of ZTE’s total issued share capital, according to the company.

The issue price of the A shares, which are subject to a lock-up period of 12 months from the date of listing, is 30.21 yuan. This is a discount of 18.2 per cent from ZTE’s A-share closing price of 36.9 yuan in Shenzhen on Wednesday. The share sale will not change the controlling shareholders of the company, it said.

ZTE is the world’s fourth largest telecommunications equipment vendor after Huawei, Nokia and Ericsson. Fellow Chinese tech titan Huawei Technologies, the world’s biggest network equipment maker, has invested billions of dollars in 5G networks and is considered to be the industry leader. Huawei has however come under pressure from the US, which has banned it from buying US origin technology on national security grounds.

How fast are China’s 5G networks?

China launched its commercial 5G network in November last year after initial commercial 5G mobile services had already been rolled out in other countries such as South Korea, the US, Australia and the UK. Yet the scale of China’s market, with over a billion people, is likely to dwarf the combined size of those economies amid a Chinese government push behind the new technology which promises lightning fast wireless connections, reduced latency and massive capacity.

Nonetheless, ZTE has also been accelerating deployment of its 5G gear overseas: last October, the company said it had secured 35 commercial 5G network supply contracts across major markets around the world, as it pushed to turn around its business from a record 7 billion yuan (US$991 million) loss in 2018 when it ceased major operating activities for nearly four months under a US trade ban that was later lifted.

Brokerage Jefferies said in a report that it believed the successful raising of funds would give investors confidence in the firm’s R&D efforts and help it gain 5G market share.

However, the brokerage said it continued to have concerns about ZTE’s outlook, for reasons including it having difficulty gaining market share “since Huawei's products are ahead of the curve and the fact that it is under pressure from the US export ban gives more reason for China to support Huawei more”.

ZTE’s projected overall net profit for 2019 ranges from 4.3 billion yuan to 5.3 billion yuan, according to a statement last October.

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