ZTE to raise $338m from share sale for working capital

Analyst says share sale is response to demand, not because vendor is in need of cash.

The telecom equipment maker said in a statement it will sell 58.3 million new H shares at HK$45 each, representing a 13% discount to the stock's closing price Wednesday of HK$51.70. H shares are shares of companies incorporated in mainland China but listed in Hong Kong.
The reference price is close to ZTE's 52-week high of HK$53.50.The firm said it had considered different types of fund-raising methods and decided on a share sale because it is the most effective way to raise additional capital. A company representative declined to further elaborate.Goldman Sachs (Asia) LLC and Deutsche Bank AG are handling the deal.At 0706 GMT, shares in ZTE were down 2.2% at HK$50.55 each on concerns about dilution, but analysts said the weakness will likely be short-lived as ZTE's fundamentals remain strong.

"I think ZTE is selling the shares mainly due to requests from some investors wanting to buy into the company," said Frank He, an analyst at BOC International. "The company isn't in dire need of cash."ZTE said last Friday that China's government will grant it cash subsidies of up to CNY301.2 million for unspecified projects. Last year, China Development Bank Corp. agreed to provide a US$15 billion loan facility to the company for its overseas projects. Despite ZTE's strong run in 2009, analysts expect growth momentum to continue this year, driven by network expansion contracts in emerging markets and robust demand for handsets in China.

Citigroup analyst Michael Meng said China's recent approval to converge its telecom, broadcast television and Internet networks will benefit ZTE as the project will increase demand for network construction in China.ZTE said earlier its third-quarter net profit rose 58% from a year earlier to CNY408.6 million due to strong demand in its domestic market. Its third-quarter revenue rose 43% to CNY15.14 billion from CNY10.60 billion

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