ZTE of China plans to sell A shares for $ 1.7 billion to finance R&D 5G

HONG KONG (Reuters) – ZTE Corp said it was looking to raise 11.51 billion yuan ($ 1.7 billion) from a private placement of A shares, and plans to use the revenue for research and development (R&D) of 5G networks , as well as working capital.

FILE PHOTO: People pass by a ZTE logo outside their stand at the Mobile World Congress in Barcelona, ​​Spain, February 25, 2019. REUTERS / Sergio Perez

The Chinese telecommunications equipment manufacturer said Thursday it planned to issue 381.098 million A shares, or 8.27% of the total issued share capital at the end of the agreement, to independent investors at 30.21 yuan each.

That represents a discount of 18.2% to the closing price of ZTE share A of 36.92 yuan in Shenzhen on Wednesday.

Shares A, which are subject to a blocking period of 12 months from the quotation date, will be issued to 10 independent professional or institutional investors in China.

None of the subscribers will become a substantial shareholder at the end of the sale of shares, the company said, without providing further details.

The company had not responded to an email request for comments on details and identity of investors.

“We believe that successful fundraising will eliminate a key over-indebtedness for the action and give investors more confidence in ZTE’s R&D efforts and, therefore, in the potential gain of 5G shares,” said the Broker Jefferies on a research note.

“Our fundamental vision remains negative, but the price of short-term shares could be supported,” said Jefferies, adding that he is concerned about margin pressure and market share pressure at 5G.

ZTE shares listed in Shenzhen rose up to 4% to 38.10 yuan in the first operations. Hong Kong-listed shares briefly increased 3.7% to HK $ 28.05, the highest since March 2018.

“It is due to the blocking period that gives investors the confidence of a stable stock price during the period, and that they support the progress of the shares despite the discount,” said Steven Leung, UOB sales director Kay Hian in Hong Kong

“It’s a vote of confidence in the perspective of 5G and related companies,” Leung added.

ZTE said the agreement will allow it to maintain its high level of investment in R&D, guarantee its competitive technological advantage, develop its main products and businesses, and help increase its market share in the main markets.

Donny Kwok’s report; Himani Sarkar and Shailesh Kuber edition

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