Shanghai Pudong Development Bank provides a RMB 221 million loan to Shanghai Sailing Qiyu Enterprise Management Consulting Centre for the acquisition of Astrum Education Group

Project narrative

On August 15, 2016, the Shanghai Branch of Shanghai Pudong Development Bank Co., Ltd. (SPDB) entered into a RMB 221 million credit loan facility agreement (Chinese: 并购贷款合同) with Shanghai Sailing Qiyu Enterprise Management Consulting Centre LLP — a special purpose vehicle (SPV) and joint venture of Shanghai Sailing Jiaotong University Education Equity Investment Fund Partnership (Limited Partnership), an equity fund managed by Shanghai Sailing Equity Investment Fund Partnership (Limited Partnership), as limited partner and Shanghai Runqi Investment Management Center (Limited Partnership) as general partner — for the acquisition of Astrum Education Group Limited. This loan carried a maturity period of three years and a final maturity date of August 14, 2019. Shanghai Xinnanyang Only Education & Technology Co., Ltd. — a shareholder in Shanghai Sailing Jiaotong University Education Equity Investment Fund Partnership — issued a financial support comfort letter to SPDB for the repayment of this loan in July 2016. This loan was secured by (i.e. collateralized against) a first fixed charge of all 85,000 Class A ordinary shares each of a nominal value of £0.01 GBP and 129,500 Class B ordinary shares each of a nominal value of £0.01 GBP (all issued share capital) in Astrum Education Group Limited held by Star Education Investment Limited and all related rights as charged in a charge over registered shares security agreement by Star Education Investment Limited on November 8, 2016. The charge was satisfied on December 31, 2019. The proceeds were to be used by the borrower support a £42.5 million GBP sale and purchase agreement dated July 15, 2016 for the acquisition of the entire issued share capital of Astrum Education Group Limited — a British private education provider that owns and manages colleges and the supply of education services — by Star Education Investment Limited — an England and Wales-incorporated special purpose vehicle and wholly owned subsidiary of Shanghai Sailing Qiyu Enterprise Management Consulting Centre — as buyer, Sovereign Capital Limited Partnership III as the seller, and Shanghai Sailing SJTU Education Equity Investment Fund LLP as guarantor. On September 1, 2016, Star Education Investment acquired 100% of the share capital in Astrum Education Limited. At the time of the acquisition, Astrum Education owned three independent sixth form and day to boarding colleges in Central London: Duff Miller College, Lansdowne College, and Chelsea Independent College. Duff Miller and Lansdowne were merged into a full senior school, Kensington Park School in 2018. As part of the acquisition, in 2016, Shanghai Xinnanyang Only Education & Technology Co., Ltd. issued an acquisition comfort letter to Shanghai Sailing Jiaotong University Education Equity Investment Fund Partnership that Only Education would acquire Astrum Education after two years, giving the borrower's shareholders an exit plan for their investment. This acquisition comfort letter came alongside its financial support comfort letter to SPDB for repayment. However, on April 10, 2019, Only Education disclosed, for the first time, its financial support comfort letter and announced that it had been issued without review by its board of directors. After the acquisition, Astrum suffered from a decline in enrollment and revenue in 2017 and 2018. At the same time, the borrower faced financial distress. As of August 11, 2019, the remaining unpaid principal was RMB 216 million with RMB 1.6258 million of unpaid interest; Sailing Qiyu was unable to repay the balance of the loan. At the same time, Only Education failed to honor its acquisition comfort letter or financial support comfort letter, never expressing its intention to fulfill either letters. The Shanghai Stock Exchange issued a letter of inquiry to Only Education on why it failed to honor the letters. In 2020, the Shanghai Securities Regulatory Bureau issued a warning letter to Only Education. Furthermore, after the loan expired, SPDB demanded repayment of the loan's interest and principal. It filed a lawsuit against Shanghai Sailing Qiyu Enterprise Management Consulting Centre, Shanghai Runqi Investment Management Center, and Shanghai Sailing Jiaotong University Education Equity Investment Fund Partnership for repayment.