ABB Falls as US Congress Reviews its Operations in China
(Bloomberg) — Swiss industrial supplier ABB Ltd. fell the most in three months on the news that US Congress is reviewing its relations with China.
The main investigation focuses on Shanghai Zhenhua Heavy Industries Co. Ltd., according to a letter from Congress, with ABB becoming involved because it’s a sub-supplier to the Chinese state-owned manufacturer of container cranes.
The Swiss company said Friday it’s taking the matter seriously and wants to provide an appropriate response to the letter from the House Committee on Homeland Security and a select committee examining economic competition between the US and China. The Asian country is ABB’s second-largest market.
ABB fell as much as 3.9%, the steepest intraday decline since Oct. 18. The stock is down around 5% this year.
Some initial negative reaction is to be expected given the history of large fines for European companies from US investigations, said Redburn Atlantic analyst James Moore.
“If more details suggest that this isn’t a very specific issue to ABB, investors could then become concerned about other industrials with large China exposures,” Moore said.
ABB’s crane software is supplier-independent and used by major crane manufacturers including those in China, the company said in a statement, adding that US ports then buy the cranes from those companies and not from ABB. ZPMC is one of the world’s largest port crane suppliers.
RBC Capital Markets’ analyst Sebastian Kuenne said over-compliance from ABB could mean breaking its business ties with ZPMC, “which would likely trigger penalty payments for breach of contract.”
Congress requested documents and information from ABB concerning “cybersecurity risks, foreign intelligence threats, and supply chain vulnerabilities at seaports” in the US, according to the letter. The committees said they want to know more about ABB’s relationships with Chinese state-owned companies.
Swedish broadcaster Sverige Radio initially reported the investigation, saying it was connected to potential espionage and other security threats concerning ABB’s business activities in China and the US. ABB cooperated and handed over a large amount of documents.
–With assistance from Rafaela Lindeberg.
(Updates with analyst comment in 8th paragraph.)
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