Chinese telecoms equipment maker ZTE is taking 5G research and development seriously, by raising $1.66 billion through a private placement of A-shares, which it hopes will enable the company to invest into the new technology.
ZTE is a smaller rival to Huawei, and plans to provide more competition through its extensive 5G development. And it said that the funds will come from 10 subscribers, all of which are “independent professional or institutional investors in China”.
Increasing investor confidence
ZTE explained that the money would be used for “technology research and product development relating to 5G network evolution”.
“We believe the successful fund-raising will remove a key overhang for the stock, and would give investors more confidence in ZTE’s R&D efforts and thus potential share gain in 5G,” explained a spokesperson from the brokerage company, Jefferies.
This may sound upbeat, but the spokesperson went on to say that the “fundamental view remains negative”, but that the near-term stock price could have support.
Whilst ZTE might be able to gain significant traction in the 5G market due to this significant cash investment, investors still appear to be hesitant about the company. This is likely because of the US ban in 2016, when the company was caught smuggling equipment to Iran via shell companies. Much like Huawei, the company is banned from supplying equipment to the U.S., but it’s still managing to sign contracts with mobile operators.
ZTE could offer some competition to Huawei if mobile operators are open to using its equipment. However, if investors are still hesitant to buy shares, we might not see a long-term gain for the company in the 5G market.