China Merchants Bank contributes to a £800 million GBP syndicated loan to finance Jiangsu Shagang Group's acquisition of a 24.01% stake in British data center operator Global Switch Holdings (Linked to Record ID#107240)

Project narrative

On May 20, 2019, a syndicate of at least three lenders — arranged by the Hong Kong Branch of China Merchants Bank Co., Ltd. (as mandated lead arranger and bookrunner), CMB International Finance Limited, and DBS Bank Ltd — entered into an up to £800 million GBP syndicated term loan facility agreement with Tough Expert Limited — a British Virgin Islands-incorporated special purpose vehicle (SPV) wholly-owned by First Bloom Developments Limited, a British Virgin Islands-incorporated and SPV wholly-owned by Shagang International (Hong Kong) Co., Limited, the wholly-owned Hong Kong investment arm of Chinese private steelmaker Jiangsu Shagang Group Co., Ltd. — to finance its acquisition of a 24.01% stake in British data center operator Global Switch Holdings Limited. This loan was secured by (i.e. collateralized) a pledge of the 24.01% acquired stake pledged by Tough Expert to the security agent, the Hong Kong Branch of DBS Bank. Record ID#107239 captures China Merchants Bank's contribution. Record ID#107240 captures CMB International Finance Limited's contribution. The proceeds were to be used by the borrower, together with a share capital contribution from Jiangsu Shagang, to finance the acquisition of 2,401 ordinary shares of $0.01 USD each (24.01% of issued shares) in Global Switch Holdings Limited for a consideration of £1,777,663,392 GBP ($2.21 billion USD) plus accrued interest to completion from Aldersgate Investments Limited (a Reuben Brothers company for British billionaire brothers David and Simon Reuben) under a deed of novation and variation dated March 28, 2019 between Jiangsu Shagang, Tough Expert, Aldergates, Strategic IDC Limited, and Creekside Lotus Investment Limited (varying an earlier share purchase agreement dated December 24, 2018). Global Switch Holdings Limited is a limited liability company incorporated in the British Virgin Islands that develops, owns, and operates large scale carrier and cloud neutral data centers in Europe and Asia-Pacific. Global Switch is headquartered and based in London, the United Kingdom. At the time of the acquisition, Global Switch operated 13 data centers, 32 MWA Amsterdam West in Amsterdam, the Netherlands; 14 MWA Frankfurt South (operational) and 14 MWA Frankfurt North (under construction) in Frankfurt, Germany; 46 MVA London East and 13 MVA London North in the Docklands, London, the United Kingdom; 18 MVA Madrid in the Canillejas region of Spain; 50 MVA Paris East and Paris West in Paris, France; 100 MVA Hong Kong (under development, but partly operational); 30 MVA Singapore Tai Sheng and 30 MVA Singapore Woodlands in Singapore; and 80 MVA Sydney East and Sydney West in Ultimo, Sydney, New South Wales, Australia. The acquisition was completed on August 23, 2019, leaving the shareholding of Global Switch Holdings Limited as follows: Elegant Jubilee Limited — a consortium of institutional and private investors from Asia — (51.00% equity stake), Strategic IDC (24.99% equity stake), and Tough Expert (24.01% equity stake). Because of Jiangsu Shagang's stakes in the Elegant Jubilee Limited and Strategic IDC Limited consortia, the acquisition gave it an indirect shareholding of 49.83% in Global Switch, making it the largest shareholder. The acquisition was to bring no change to the strategic direction, management, or financial and operational policies of Global Switch and would retain the existing management team, including the chief executive officer and chief financial officer, and all contracts. With the divesture of its stake, the two Aldergate directors resigned from the board of directors of Global Switch, while Jiangsu Shagang appointed two non-executive directors to Global Switch. The shareholders of Global Switch planned to launch an initial public offering (IPO) on an international stock exchange in the future. The shareholders entered into a new Shareholders’ Agreement on August 28, 2019 with Global Switch for its effective management and operation of the Company. On August 28, 2019, the shareholders and Global Switch entered into an amended and restated security control agreement which restricts physical access to the data center sites and maintains security level. Jiangsu Shagang pointed to their investment as complying with the Belt and Road Initiative (BRI). The Chinese ownership of Global Switch caused national security concerns as governments worldwide began to increase scrutiny of data centers and cross-border data flows. In 2016, upon the first acquisition by Suzhou Qingfeng Investment Management Co., Ltd. of a stake in Global Switch, British Foreign Secretary Malcolm Rifkind publicly discussed the need for British intelligence agencies to review and ensure there were no risks. Plans by Jiangsu Shagang Group to integrate Global Switch into an A-share listed company, which would put more scrutiny of the company in the view of the Chinese Government, contributed to this. In June 2017, the Australian Department of Defence announced it would terminate its cooperation with the company by 2020; the Global Switch Sydney East / West Data Center held top secret information for the Australian Government, including national defense and intelligence arrangements. Global Switch's data centers in Germany and France were subject to disclosure laws in each of those countries, which meant that Jiangsu Shagang's plans would have to be in compliance with them. For its part, Global Switch and Jiangsu Shagang stated their security systems was strong, allowing protection of clients' data. In 2020, Jiangsu Shagang sought to make Elegant Jubilee Limited, a wholly owned indirect subsidiary of Jiangsu Shagang Co., Ltd, a Shenzhen Stock Exchange quoted subsidiary of Jiangsu Shagang, allowing for the company to be listed. Jiangsu Shagang Group in 2020 did increase its indirect equity stake in Global Switch to 51.7%, but ultimately Elegant Jubilee was not fully acquired by it.