Hughes deal in danger
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March 11, 1999: 6:47 a.m. ET
Concerns over China's role could cost Hughes $100 million
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NEW YORK (CNNfn) Hughes Electronics Corp. warned Wednesday it could be forced to take a $100 million charge this year if the Clinton administration refuses to grant the company licenses to export satellite technology to China.
In a filing with the Securities and Exchange Commission, Hughes said the pretax charge would include a $45 million refund to Asia-Pacific Mobile Telecommunications Satellite Pte. Ltd. (APMT), which signed a contract with Hughes last year to supply a satellite-based communications system, as well as other costs related to the project.
Under terms of the contract, Hughes (GMH) was supposed to obtain export licenses by February 15. However, two weeks ago, the Commerce Department, which had already approved the $450 million deal, told the El Segundo, Calif,-based company that it intends to reject the export licenses due to concerns from the State Department and the Pentagon. While the letter did not contain specific concerns, a spokesman for the company said China's decision to provide financial support to APMT, and concerns the communications system could be used by the Chinese military, prompted the Clinton administration to voice opposition to the deal.
The Hughes spokesman, Richard Dore, said the company has held ongoing discussions with both APMT and the U.S. government to try to resolve the issue, but he acknowledged that the latest controversy involving the alleged theft of American nuclear secrets by China makes it harder for the company to convince Washington to reverse its decision. Hughes has until March 16 to file its request for reconsideration. As of Wednesday, Dore said Hughes had not decided if it will file the request.
If the Clinton administration refuses to reverse its decision it would mark the first time Washington has rejected a satellite deal with Beijing. It would also likely spark further tensions between China and the United States over human rights, trade and security issues.
Those tensions increased substantially this week on news American nuclear secrets may have been stolen by a scientist at the Los Alamos National Laboratory and delivered to the Chinese. The scientist, Wen Ho Lee, was dismissed Monday from his job after a three-year espionage investigation determined he may have helped the Chinese steal technology allowing them to develop much smaller nuclear warheads.
China says the allegations are unfounded and are designed to undermine improved relations between Washington and Beijing. Nevertheless, the Senate Intelligence Committee is expected to hold hearings next week to discuss the issue.
Earlier Wednesday, Commerce Secretary William Daley said the decision to oppose the satellite deal had nothing to do with the Los Alamos spying incident.
"It's a totally separate situation... the interagency process made a decision that it was not an appropriate sale, that's all," Daley said. "It's unfortunate to see a U.S. company lose an opportunity that would mean jobs here. But the interagency process worked and I believe Hughes will have other opportunities to sell their satellites."
The satellites are HS-GEM communications satellites, each of which carry L-band transponders for transmissions to user handsets and ku-band transponders for links back to earth stations. Each satellite, only one of which will be used at one time, is capable of supporting 16,000 voice circuits simultaneously. The satellite portion of the deal was valued at $450 million. Dore said Hughes also had a separate agreement, valued at $150 million, to provide handsets for the system, providing all went well with the satellites.
Hughes is a separately traded unit of General Motors Corp. (GM) GM closed Wednesday down 9/16 at 87-7/8.
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