Eversheds Sutherland advises on Springland privatisation financing

Eversheds Sutherland Hong Kong advised DBS Bank on the acquisition financing in connection with the HK$4.5 billion privatisation of Springland International Holdings Limited (“Springland”).

Springland operates a number of department stores and supermarkets in Mainland China, in particular in the Greater Yangtze River Delta region. It has branches across nearly ten cities in Jiangsu and Anhui provinces. Springland listed on the Main Board of the Stock Exchange of Hong Kong in 2010 (HKSE: 1700).

The privatisation of Springland by the offeror, Octopus (China) Holdings Limited, was by way of a scheme of arrangement under section 86 of the Companies Law of the Cayman Islands. DBS Asia Capital Limited was the financial adviser to Octopus (China) Holdings Limited. The scheme became effective in February 2020.

Lead partner, Kingsley Ong, commented: “We were delighted to work with DBS on this notable transaction and to help Octopus (China) Holdings Limited in its successful acquisition and privatisation. Our team worked to a demanding timetable and the successful close is a credit to everyone’s hard work and dedication”.

Stephen Mok, Senior Partner and Head of Corporate, Asia, added: “We are very grateful for this opportunity to advise DBS on this transaction. There are many reasons why privatisations take place. Some controlling shareholders may want to restructure and recapitalise their business with a view to re-listing later on. Some investors may see privatisations as good opportunities to take over undervalued listed companies. The current state of the stock markets present a valuable opportunity to go down this route. I expect to see more activities in this area as the sentiment of the financial markets continues to be hampered by the current pandemic.”

The Hong Kong team was led by partner Kingsley Ong, with Of Counsel Sin Joh Chuang and Simon Barrell, Associates Polly Chiu and Toby Wai, and trainee Hinny Leung.

An enhanced platform for international arbitration

Eversheds Sutherland has further strengthened its Litigation & Disputes practice with the appointment of Wesley Pang as Partner in the Arbitration team. Wesley joins the Hong Kong practice on 6 January 2020.

Wesley has broad experience in advising global corporate clients on major, cross-border disputes. He also acts for clients on investor-State cases, on both contentious and non-contentious issues.

He joins the Eversheds Sutherland practice from the Hong Kong International Arbitration Centre where he was Managing Counsel . Wesley’s arrival comes at an important time; arbitration is the preferred dispute resolution mechanism for clients in the energy and projects sectors and Asia’s share of these markets continues to grow, and increased activity is accompanied by demand for experienced disputes lawyers.

The arbitration market in Hong Kong is growing, and more generally across Asia. This sector-driven demand emanates in part by Chinese state owned enterprises (SOEs) and other Chinese organisations. Disputes in the energy and construction sectors are also increasing, in part as a result of China’s ‘Belt and Road’ initiative. Wesley is well-placed to advise these and other Asia-based and multinational organisations that are active in the region and globally.

Stephen Kitts, Managing Partner Asia, commented:

“This is a strategic hire for Eversheds Sutherland. With Wesley’s arrival we can now offer our clients a full-service disputes offering, something very few other international practices in Hong Kong have achieved.”

“Wesley’s significant experience across a number of the global practice’s priority sectors, including energy, infrastructure and projects. His experience in advising on disputes in these sectors matches our transactional expertise, particularly in working with Chinese SOEs and corporates. Wesley is also a respected figure in the arbitration community, where he is a regular speaker at international conferences and seminars.”

Paul Worth, Co-Global Head of Litigation & Dispute Management, added:

“Clients expect the highest quality legal advisers. Wesley’s unique background combines experience on major arbitrations with a well-developed understanding of the arbitration market.”

“He joins the Hong Kong team on the same day as Mark Hughes, who joins from Slaughter and May. Their arrival is a very clear demonstration of our commitment to develop our Asia practice. This follows a number of other significant, strategic hires globally during the calendar year for 2019, as we build on our existing platform as the 7th largest disputes practice in the world.”

If you would like to find out more information, please visit: https://www.eversheds-sutherland.com/


ZTE tests China’s commitment to international law

ZTE, a Chinese technology firm, has been hit with US sanctions that threaten to cripple the company. Two lessons can be drawn from this experience. First, that companies disregard US laws at their peril. Second, that a global supply chain is inherently risky and every effort should be made to promote nationally developed technology. It looks as though China will focus on the second. That is the wrong approach.

ZTE is China’s second-largest manufacturer of telecommunications equipment, with a stock market value of $20 billion before its recent troubles. About 60 percent of its revenue comes from network business and 32 percent from consumer business. It is the fourth-largest seller of smartphones in the United States.

In Japan, it has partnered with Softbank and NTT Docomo, seeking to claim a 10 percent share of the SIM market. The company has about 200 employees in Japan, some of whom work at a Tokyo research and development center that is focused on 5G and other next-generation network technologies that Japan will roll out for the 2020 Summer Olympic Games in Tokyo. Reportedly, those facilities are too small and the company is planning to expand to accommodate between 500 to 600 engineers.

Those plans may now be on hold. Last year, the US Commerce Department wrapped up a two-year investigation of ZTE by concluding that it had violated US law by illegally shipping telecommunications equipment to Iran and North Korea. The company was charged with — and subsequently admitted to — violating US sanctions to obtain “hundreds of millions of dollars in contracts” with Iranian enterprises, including the government, from 2010 to 2016.

As a result, the US imposed a combined civil and criminal penalty and forfeiture of $1.19 billion on the company, the largest penalty ever levied in an export control case. In addition, ZTE agreed to a seven-year suspended denial of export privileges, which could come into effect if any aspect of the agreement was not met or if the company committed additional violations.

ZTE also said it would fire four senior employees and punish dozens of others who were involved. Earlier this month, it was discovered that ZTE had misled the US Commerce Department by making false statements, obstructing justice and “affirmatively misleading” the government in regard to those punishments. ZTE had dismissed the four senior employees as promised, but had not disciplined 35 others by either reducing their bonuses or reprimanding them.

US Commerce Secretary Wilbur Ross was blunt: “ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”

This breach triggered the seven-year ban, along with a ruling that prohibits US companies from selling to ZTE for the same period of time. That, some analysts have concluded, could put the company out of business, since it is estimated that as much as 30 percent of the components in ZTE equipment originates in the U.S. Not only companies but financial institutions — in and out of the US — are going to consider ZTE to be radioactive and avoid doing business with the firm.

The US penalty is not ZTE’s only problem. Also this month, the head of Britain’s national cyber security center sent a letter to that country’s telecommunications organisations warning that “the national security risks arising from the use of ZTE equipment or services within the context of the existing UK telecommunications infrastructure cannot be mitigated.” Other governments should be similarly concerned.

ZTE called the US decision “unacceptable” and has sought to provide additional information to modify the US Commerce Department ruling.

The Chinese government also criticised US penalties against its companies, saying that it will protect the interests of Chinese firms and urged Washington to deal with the issue in accordance with the law.

That is the issue. ZTE agreed to accept a penalty and then lied about its implementation. Beijing should be worried that its companies disregard not only the law, but their promises to national legal authorities. Beijing agreed to sanctions against Iran and North Korea and ZTE’s actions undercut them. Beijing should have been pressing the company to comply with the trade restrictions, rather than outsourcing enforcement of its international obligations to Washington. This is a worrying indicator of Beijing’s thinking about the rule of law and how it will promote international peace and security.

China’s seeming indifference to those obligations is troubling, but more disturbing is the conclusion that the best course of action is to develop a high-tech industry that would make the country’s technology independent. China has plans to develop a national semiconductor industry to reduce foreign vulnerability. This is part of a larger plan to not only develop Chinese national champions across a range of cutting-edge technologies, but to insulate its economy from foreign pressure.

That is worrisome for many reasons, not least being the balkanisation of national communications markets, with competing standards and reduced interoperability. For Japanese companies whose supply chains span the Asia-Pacific, the prospect is harrowing.