Bank of China provides a loan to Hytera Communications Corporation to acquire the entire issued share capital of Sepura PLC

Project narrative

On December 16, 2016, Hytera Communications Corporation Limited ("Hytera") — Chinese publicly traded and partly state-owned manufacturer of radio transceivers and radio systems listed on the Shenzhen Stock Exchange — entered into an agreement to acquire the entire issued share capital of Sepura PLC ("Sepura") via scheme of arrangement for £0.20 GBP per share, or £74.3 million GBP ($92 million USD; RMB 649 million). By December 16, 2016, Bank of China (BOC) entered into a guarantee agreement with Hytera Communications to finance its funding obligations for this acquisition. Hytera also planned to use its existing cash resources to acquire Sepura. Sepura PLC was an England and Wales-incorporated critical communications designer, developer, and supplier of digital radio solutions, accessories, support tools, and devices used by public safety and commercial organizations, with an expertise in Terrestrial Trunked Radio (TETRA), P25, digital mobile radio (DMR), and Long Term Evolution (LVE) systems. Sepura was a leader in the private mobile radio (PMR) market and had provided PMR services for the 2016 Summer Olympic Games in Rio de Janeiro, Brazil. Sepura had approximately 700 staff at the time of the acquisition. It was based in Cambridge, England, with offices in Zaragoza, Spain where its subsidiary Teltronic S.A.U., a PMR communications solutions provider, was based and in Helsinki, Finland, where its subsidiary Portalify, an applications developer, was based. Sepura was considered one of the major TETRA manufacturers in the world, with market dominance in Germany, the United Kingdom, Brazil, and the United States. Sepura was listed on the London Stock Exchange. For the year ended April 1, 2016, Sepura had revenues of approximately €189.7 million EUR, adjusted operating profit of approximately €12.4 million EUR, and a loss before tax of approximately €19.0 million EUR. The acquisition was expected to allow Hytera to obtain the relevant core technologies and patents of the TETRA standard, improve the research & development of Hytera, improve its services, and give it better market share in the United Kingdom, Europe, and North America. In addition to the cash consideration, Hytera was to pay an accounting fee of £0.19 million GBP, a legal advisory fee of £0.9 million GBP, a financing arrangements fee of £0.23 million GBP, a financial and corporate broking advisory fee of £3 million GBP, and other professional services fee of £0.03 million GBP for the acquisition. Sepura was to pay financial advisory fee of £3 million GBP, a corporate broking advisory fee of £0.25 million GBP, a legal advisory fee of £1.1 million GBP to £1.25 million GBP, a public relations advisory fee of £0.03 million GBP, and other professional services of £0.12 million GBP. Due to the extended regulatory process in Germany and Spain, Sepura's legal advice fee increased to £1.7 million GBP to £2.05 million GBP and other professional services fee increased to £0.22 million GBP, while Hytera's legal advice fee increased to £1.58 million GBP to £1.7 million GBP. England and Wales-incorporated Project Shortway Limited, a wholly-owned subsidiary of Hytera Communications Corporation, would be the specific purchasing entity. The acquisition was subject to regulatory approvals, antitrust approval from German and Spanish competition commissions, the UK Department for Business, Energy & Industrial Strategy, approval for the remittance of foreign exchange out of China from the State Administration of Foreign Exchange (SAFE), the issuance of a record filing notice from the Economy, Trade and Information Commission of Shenzhen Municipality, third party approval, approval of the scheme from the court, shareholders' approval and board approval of Hytera and Sepura. By January 5, 2017, Hytera's shareholders approved the acquisition. On January 6, 2017, the Development and Reform Commission of the Shenzhen Municipality approved the deal. By February 9, 2017, a majority of Sepura shareholders approved the transaction. Around April 24, 2017, Spain's Comisión Nacional de los Mercados y la Competencia approved the acquisition. Around May 5, 2017, Germany's Federal Ministry of Economic Affairs and Energy approved the acquisition. Around May 12, 2017, the UK Secretary of State for Business, Energy and Industrial Strategy approved the acquisition. Around May 22, 2017, the High Court of Justice in England and Wales had approved the scheme of arrangement. The acquisition was completed on May 24, 2017. The acquisition was the first offer by a Chinese company for a United Kingdom main list business and was the first ever Chinese bidder to go straight to a formal intention to make an offer. The acquisition was subject to some national security considerations. On April 10, 2017, the UK Secretary of State issued a Public Interest Intervention Notice (PIIN) (only the seventh such notice issued on national security grounds and the twelfth since 2003 when the Enterprise Act came into force) to the Competition and Markets Authority (CMA) under Section 42 of the Enterprise Act 2002 in relation to the proposed acquisition by Hytera of the entire issued ordinary share capital of Sepura. On May 4, 2017, the CMA reported to the Secretary of State in accordance with section 44(2) of the Act. The Secretary of State also received further representations from the Home Office in regards to the security concerns raised by the acquisition. In response the CMA report and the Home Office guidance, the UK Secretary of State floated referring the acquisition under section 45 of the Act to the chair of the CMA for the constitution of a group under Schedule 4 of the Enterprise and Regulatory Reform Act 2013 to carry out a more detailed assessment. Hytera and Sepura offering undertakings after discussions with the Home Office to provide assurance that sensitive information and technology would protected and to ensure the maintenance of British capabilities in servicing and maintaining the TETRA Airwave Network used by emergency services in the United Kingdom. In the undertakings, Sepura and Hytera were required to implement enhanced controls to protect sensitive information and technology from unauthorized access and to provide rights of access to premises and information so that relevant agencies, such as the Home Office, could audit compliance with the security measures. Sepura and Hytera also undertook to continue the UK repair and maintenance service for the relevant devices for as long as TETRA Airwave Network remained operational. On May 12, 2017, the UK Secretary of State accepted the undertakings instead of pursuing a more detailed assessment. On March 12, 2021, equipment from Hytera was banned by the U.S. Federal Communications Commission (FCC) citing risks to the U.S. national security. Then, on September 28, 2021, the UK Secretary of State for Business, Energy and Industrial Strategy announced proposed revised statutory undertakings offered by Hytera and Sepura, as Airwave was being replaced by the Emergency Services Network (ESN), a long-term evolution fourth generation mobile communications network, with Sepura supplying products and repair services to Airwave and ESN. In July 2022, Epiris Fund II (a London-based private equity group) purchased Sepura from Hytera. The acquisition required a follow-on review under the UK's National Security and Investment Act 2021 (NSIA). Although the acquisition transferred the Sepura business into UK ownership after a period of overseas ownership, the transaction required a package of "remedies," including the implementation of enhanced controls to protect sensitive information and technology from unauthorized access, and the maintenance of UK capabilities in repairing, servicing and maintaining devices used by the UK emergency services. On June 27, 2024, the Secretary of State in the UK's Cabinet Office lifted a set of restrictions on Sepura (related to "supply chain options and engineering recruitment") though the revocation of a July 2022 final order that it imposed upon Sepura “pursuant to section 27 of the National Security and Investment Act 2021".