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Vendor Credit Lines Reel in Deals

Some equipment vendors are finding that money, like manure, is best spread around before it'll do any good.

Only days after ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) announced a monster vendor financing deal in India, rival Chinese vendor Huawei Technologies Co. Ltd. has announced a $200 million contract in Nigeria funded entirely by a loan from the China Development Bank (CDB) (see Huawei Wins Nigeria Deal).

Nigeria's Ministry of Communications is using the CDB loan to build a national wireless network based on Huawei's CDMA450 technology. In addition, Huawei has pledged to invest $20 million in an R&D center in the African country.

Huawei secured a $10 billion line of credit over five years from the CDB last December to help with its international expansion (see Give Them Credit: Huawei's Growing ).

ZTE is also active in Nigeria, having won a deal last year with the Ministry for GSM mobile network infrastructure, and has now followed up its original agreement with a $95 million contract extension.

It's unknown whether that deal is financed by a credit line from ZTE, which was granted a $500 million loan facility by the Export-Import Bank of China in February 2004 (see ZTE Gets $500M Export Credit ). But given the nature of Huawei's engagement and ZTE willingness to offer credit, it wouldn't be surprising.

Responding to questions following the news of its $1 billion credit line to Indian operator Atlas Interactive, a ZTE spokeswoman said that although the recent national network deal in Bangladesh was not a vendor finance deal, the vendor has engaged in a number of vendor financing arrangements, but couldn't reveal the names of the carriers involved (see ZTE Gives Indian Carrier Some Credit and ZTE Networks Bangladesh).

Most major telecom vendors, including Alcatel (NYSE: ALA; Paris: CGEP:PA), Cisco Systems Inc. (Nasdaq: CSCO), and Nortel Networks Ltd. (NYSE/Toronto: NT), got their fingers (and bottom lines) burned as a result of vendor financing deals during the bubble years of the late 1990s and are now steering clear of such arrangements.

The irony now is that those same vendors are likely to lose deals to the Chinese vendors as the latter pursue their international ambitions armed with cut-price technology and attractive financial arrangements (see ZTE Doubles Overseas Sales and Huawei's Global Sales Hit $5.58B).

— Ray Le Maistre, International News Editor, Light Reading

gtchavan 12/5/2012 | 3:18:52 AM
re: Vendor Credit Lines Reel in Deals Huawei and their bank are part of the Chinese Communist government-business-military complex. The only problem is, with $60/b oil, why would Nigerians ask for a loan to begin with. They export 3 million barrels a day so one day's take would pay for the whole deal. Very strange. Could this deal be all about oil futures and the Nigerians are masquerading the pruchase of oil futures by the Chiense communists as a loan with an option to convert if the oil price goes above a certain level?

Very strange, I think Light Reading needs to do some investigative reporting here. Simply getting the news from the company press releases is not good enough anymore.
DZED 12/5/2012 | 3:18:51 AM
re: Vendor Credit Lines Reel in Deals China is doing two things here.

Stitching up the future supply of oil, probably at a price fixed now.

Avoiding taking in any more dollars, which it does not need. The more dollars it takes the sooner the dollar collapses and the Yuan needs to be revalued, neither of which are in its interests.

In a few years things will change and the West will be screwed, when China-India-Iraq-Iran-Brazil etc have their deals worked out and the US can't buy energy on the world market at a price it can afford.

mr zippy 12/5/2012 | 3:18:51 AM
re: Vendor Credit Lines Reel in Deals only problem is, with $60/b oil, why would Nigerians ask for a loan to begin with.

419 scam ?
DZED 12/5/2012 | 3:18:46 AM
re: Vendor Credit Lines Reel in Deals Whatever is going on, you can bet the Chinese are playing a very long game, getting things set up for the next 10-20 years, while the West only worries about the next 2-3.

China will mainly be concerned with cornering world resources, oil and minerals, and shutting the US out.

Whether the US uses Taiwan as a pretext for another oil war remains to be seen.
gtchavan 12/5/2012 | 3:18:46 AM
re: Vendor Credit Lines Reel in Deals U.S. has been asking China for some time to float their currency. LA times on friday, April 15th, reported: "WASHINGTON GÇö A top Treasury Department official said Thursday that China now had the ability to let its currency's value be set on the open market, a step that would presumably force its value upward and moderate the U.S. trade deficit with the world's most populous country"

Your comments about not wanting to take any more dollars makes alot of sense. Kudos!

The Nigerians are also no dummies may be they are outsmarting the chinese by buying Yuan or Yuan futures so they can win twice on this deal, selling oil futures and buying currency futures. May be they think they will get their whole wireless network for free.

I hate to give all of the credit to the Nigerians, because the Indians also could be given the credit with doing the same thing with their deal with the other chinese company.

I wonder if Buffet is buying Yuan and borrowing dollars from the Chinese banks.

The interesting point is if too many people do this, that could have the opposite effect on the Chinese curency, when the mad exist from Yuan starts. If their currency takes a nose dive and stays down for a while, that would mean disaster for the financial wizards who thought of this scheme, including the chinese communists officials who were promoting this. This could also mean a major recession in China because the individual chinese's buying power goes down the toilet.

If someone digs into this two deals, it is probably something that would make an interesting book or at least a lead story in WSJ. May be everyone is waiting to see what happens after the Chinese float their currencies.
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