CDB provides a €150 million EUR loan to P4 for Phase 1 of Universal Mobile Telecommunications System (UMTS) Project

Project narrative

On October 31, 2006, China Development Bank (CDB) entered into a €150,000,000 EUR senior term loan agreement with P4 Sp. z o. o. — a Poland-incorporated telecommunications company that was, at the time of the loan, a joint venture between Novator Telecom Poland S.a.r.l., a Luxembourg-incorporated wholly-owned subsidiary of Cayman Islands-incorporated Novator One L.P., a business entity controlled by Icelandic billionaire Thora Bjorgolfssona (70% equity stake) and by Netia Mobile Sp. z o. o., a Poland-incorporated wholly-owned subsidiary of Netia S.A., a Warsaw Stock Exchange-listed alternative provider of fixed-line telecommunications services in Poland (30% equity stake) — for Phase 1 of the Universal Mobile Telecommunications System (UMTS) (3G Telecommunications Network) Project. This vendor financing loan carried a maturity period of 10 years with a three-year availability period and an amortizing repayment profile and consisted of two €75,000,000 EUR tranches. CDB acted as Mandated Lead Arranger. BPH S.A. served as facility agent and security agent. Record ID#108883 captures the 2006 loan. Netia S.A. provided a share retention guarantee worth a maximum €27,000,000 EUR, covering repayment of 30% of the outstanding amounts under one of the tranches (limited to €75,000,000 EUR), increased by interests and costs (capped at €90,000,000 EUR), and was obligated to ensure that its stake in P4 would not be disposed prior to August 23, 2008. Novator provided a pledge for its 70% stake. Netia and Novator One L.P. also entered into an equity contribution agreement that during the repayment period, P4's share capital would be increased or the shareholders would grant subordinated loans to P4 pro rata to their respective shareholdings in P4 to ensure that P4 could meet its obligations up to a maximum committed amount of €300,000,000 EUR. Netia and Novator also entered into a subordination agreement to subordinate all of its financial receivables due from P4, including any subordinated shareholders loans, by giving priority to the receivables due under the CDB facility. Novator Telecom S.a.r.l. issued a registered financial pledge of the shares in P4 it owned to secure the CDB loan. On October 31, 2006, and February 16, 2007, Netia Mobile Sp. z oo (later renamed as Netia Spółka Akcyjna UMTS Spółka komandytowo – spółka komandytowo) pledged its entire 30% stake in P4 as security (collateral) for the loan. On May 9, 2007, Netia Mobile Sp. z oo provided additional security in the form of a registered pledge and a financial pledge in favor of the security agent Bank BPH S.A. on 90 new shares in P4 with a nominal value of zł500 PLN each constituting 0.25%, acquired by Netia Mobile Sp. z oo and registered on February 27, 2007. The shares in question, together with the shares on which the pledge was established on October 31, 2006 and February 16, 2007, constitute all of the shares of Netia Mobile Sp. z oo in P4. On February 22, 2008, Netia Spółka Akcyjna UMTS Spółka komandytowo – spółka komandytowo provided additional security in the form of a registered pledge and a financial pledge in favor of security agent Bank PeKaO S.A. (as the legal successor of Bank BPH SA) on 702 new shares of P4 with a nominal value of zł500 PLN each, constituting 1.31% of the share capital of P4, including 468 shares registered on January 2, 2008 and 234 shares registered on February 15, 2008. Novator Telecom S.a.r.l. issued a registered financial pledge of the shares in P4 it owned to secure the CDB loan. On May 25, 2007, Cyprus-incorporated Tollerton Investments Limited, a wholly-owned subsidiary of Greece-incorporated Olympia Development S.A., acquired a 22% stake in P4, leaving Novator Telecom Poland S.a.r.l. with 54.6% of share capital and Netia Mobile Sp. z o.o. holding 23.4%, per an agreement dated January 31, 2007. As part of the acquisition, Tollerton provided collateral pledges and guarantees according to its pro rata 22% share, while Netia's and Novator's guarantees and pledges were modified accordingly, with Netia's guaranteeing now only covering €21,060,000 EUR of one of the used tranches of the loan. On February 22, 2008, Netia Spółka Akcyjna UMTS S.K.A. (formerly Netia Mobile) entered into an agreement to sell a 23.4% stake in P4 to Tollerton and Novator. The proceeds were used by the borrower to purchase hardware elements of the future UMTS network from Huawei Polska Sp. z o.o. under a €150 million EUR contract awarded on February 7, 2006, including the acquisition of transmitter construction sites and core network construction sites and related network costs and related civil works investments, allowing for a fully equipped backbone network with base and mobile stations with data transmission rates of up to 14.4 megabits per second, allowing support of video phone, video conferencing, pocket television (TV), and Internet services. P4 held a frequency reservation for third-generation (3G) mobile telephony system in Poland obtained on August 23, 2005. The network began operations in 2007. This was described as one of the largest foreign financings of CDB, its first investment in telecommunications and in 3G technology, and Huawei's first key project in Europe. Then, on June 17, 2008, CDB entered into a €490 million EUR loan agreement with P4 Sp. z o.o. — now jointly owned by Novator Telecom Poland S.a.r.l. (75% equity stake) and Tollerton Investments Limited (25% equity stake) — to support the expansion of its 3.5G telecommunication network and certain defined operating activities. The loan carried a maturity period of 10 years with a three-year extension option, with a maturity date in October 2018. The loan was repayable quarterly installments The loan carried an interest rate based on one-month, two-month, or three-month EURIBOR plus a margin. CDB served as arranger and underwriter. Initial close was in May 2008. Record ID#110261 captures the 2008 loan. The proceeds were to be used by the borrower to finance its 3.5G High Speed Downlink Packet Access (HSDPA ) network and other network modifications and expansions and support its operations. The expansion was expected to expand the Play network's 3G mobile telephony coverage from 30% of the Polish population to 75% in 36 months, giving services to 1,000 towns in Poland and building 6,000 NodeBs on the 2100 MHz frequency. Huawei would continue to serve as the primary supplier to P4. Together with an ejection of €450 million EUR in equity from the shareholders, the CDB loan gave P4 (which, at the time had only been in operations for 16 months, already had 1.4 million customers, making the fourth largest operator in the Polish mobile market) a fully funded business plan. The loan was the first investment in the mobile telephony sector by a Chinese bank on such a scale in Europe. On January 31, 2014, JPMorgan issued bonds of €870 million EUR and zł130 million PLN for PLAY, which were used to refinance all the remaining CDB-provided debt the same day. Huawei's role in Poland's networks later became subject to national security concerns in the 2010s, with concerns that Huawei's technology could be used for espionage. Play's use of Huawei equipment and CDB's involvement in financing it were particular concerns, as by 2019, a majority of Play's base stations used Huawei equipment. In July 2018, Play announced it would use Ericsson to supply certain components. In January 2019, Poland arrested two people, including a Chinese sales employee of Huawei in Poland (and former employee at the Chinese consulate in Gdańsk) and a former intelligence officer of the Polish internal security service, on allegations of espionage by the Chinese government (coming a month after the arrest in Canada for Huawei chief financial officer and daughter of its founder, Meng Wanzhou, for violating U.S. sanctions related to Iran). Huawei fired the arrested employee and insisted his actions had nothing to do with the company. Huawei denied that it was a vehicle for the Chinese government and maintained that it was independent. The espionage trial for the two began in June 2021, with the employee accused of spending seven years spying for China and trying to bolster Huawei's ability to influence the Polish government, while the former intelligence officer was accused of sharing information on public information (giving the former Huawei employee of a monitoring system guarding against unauthorized access to classified information sent via fiber optic communication networks at Military University of Technology in Warsaw).