Chinese technology company ZTE has agreed a US$20 billion investment with the China Development Bank (CDB) which will support ZTE’s overseas projects, likely to include those in Africa.
Speaking to HumanIPO, Matt Walker, Principal Analyst Network Infrastructure Telecoms, at business and technology research and analysis company Ovum, explained Africa is likely to benefit from the agreement.
He said: “In the past, ZTE has used big chunks of its credit line for vendor financed projects in Africa and MEA. Some of that will likely continue. However I believe ZTE has discretion over how the funds are disbursed – i.e. anywhere in the world, as long as the project meets established investment criteria.”
He added: “This US$20 billion agreement 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.”
ZTE signed a similar deal with the CDB in 2009 for US$15 billion. In the same year Huawei signed a US$30 billion deal with the CDB as well.
“However, 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.” added Walker.
This US$20 billion agreement 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.
Walker concluded: “But there is a risk for the company. Accepting this support will make it harder for ZTE to further 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.”
