Telecom Lead Asia: The $20 billion agreement with China Development Bank (CDB) gives ZTE a much-needed financial boost as it copes with weak sales, declining profits, and layoffs.
At a time when several key rivals are struggling, and selling assets to raise cash, fresh support from the CDB may give ZTE a buffer to ride out the current turmoil, Ovum said.
Earlier, TelecomLead.com reported that ZTE, as part of focusing on profitability, is planning to shut down nonviable offices in different telecom markets.
ZTE will eliminate offices that record loss for a long time with limited prospect of a turnaround. It will also consolidate products that offer little development potential. Exercise headcount control and conduct organizational change is also in the pipeline.
In 2009, ZTE had signed a similar deal for $15 billion with the CDB. In the same year, Huawei also signed a $30 billion deal with the Chinese bank. For both vendors, these were extensions of earlier agreements. So, today’s news is consistent with past practices.
According to Ovum, this deal comes at a crucial time for the company, and the industry. In 2009, ZTE pursued new financing with clear hopes of growing global share during the financial downturn; it succeeded in this. But three years later, telecom infrastructure markets remain weak, and no vendors are immune from the current pressures.
But there is a risk for the company. Accepting this support will make it harder for ZTE to penetrate western European and North American markets, where policymakers are concerned about unfair competition from Chinese suppliers.
This news will not go unnoticed by ZTE’s opponents, both those in the marketplace and the political sphere. It is worth noting, though, that ZTE has released this news publicly, as part of its financial disclosure requirements tied to listing on the Stock Exchange of Hong Kong. Not all of its competitors have such obligations.”
“The principal terms of the agreement include the provision by CDB of a $20 billion facility for cooperation, comprising financing facilities for the company’s overseas projects and credit facilities for the company,” ZTE said in filings to the Hong Kong and Shenzhen stock exchanges. “The agreement forms the framework of business cooperation for an effective period of five years.”