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China’s ZTE plans $1.7 billion share issue to fund 5G research and development

By Ramla Soni

The vendor said it planned to issue 381.098 million A shares, or 8.27 per cent of the total issued share capital on completion of the deal

Chinese telecom equipment maker ZTE has said it is planning to raise 11.51bn yuan ($1.7bn, €1.5bn, £1.3bn) in a private placement of A shares, to fund for research and development (R&D) of 5G networks as well as working capital.

The vendor said it planned to issue 381.098 million A shares, or 8.27 per cent of the total issued share capital on completion of the deal, to independent third party investors at 30.21 yuan a share.

That is a discount of 18.2 per cent to ZTE’s A-share closing price of 36.92 yuan in Shenzhen on Wednesday.

Shares sold are subject to a lock-in period of 12 months from the date of listing.

None of the subscribers will become a substantial shareholder upon completion of the share sale, the company said, and no identity of the investors have been disclosed yet.

ZTE’s Shenzhen-listed shares rose as much as 4 per cent to 38.10 yuan in early trade.

ZTE said the deal will enable it to maintain its “high level of investment in R&D, ensure its technological competitive edge, develop its main products and businesses, and help increase its market share in the mainstream markets”.

For the first nine months of 2019, ZTE’s R&D spending totalled 9.36bn yuan, or 14.6 per cent of operating revenue. It expects the investment in 2020 o remain at roughly the same level.

At the same time, Taiwan Semiconductor Manufacturing forecast an up to 45 per cent increase in January-March revenue stating the demand for 5G smartphones would raise its profits.

“Moving into first quarter 2020, despite mobile product seasonality, we anticipate our business to be supported by the continued ramp up of 5G smartphones,” the company said in a statement.

It expects revenue over January-March to reach $10.2bn-$10.3bn, compared to $7.1bn a year ago.

FURTHER READING: China launches one of the world's largest 5G networks

FURTHER READING: Qualcomm sets up $200m fund to expand 5G

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