Borqs Technologies to negotiate with CFIUS to fully divest Holu Hou Energy

Borqs Technologies announced the company has received a letter dated December 13 from the Department of the Treasury on behalf of the Committee on Foreign Investment in the United States, or CFIUS, stating that the company is required to negotiate with CFIUS to fully divest its ownership interests and rights in Holu Hou Energy due to HHE solar energy storage system and EnergyShare technology for Multi-Dwelling Residential Units, or MDU’s, being deemed a critical technology and therefore a potential national security risk. As stated in the letter, HHE is considered a top ten solar energy storage supplier in Hawaii, has only been increasing its market share, expects to grow at an exponential rate, and focuses on multi-family dwelling units which are common in military housing. Due to Borqs’ IoT software development and hardware sourcing capabilities in China, CFIUS is concerned that through Borqs, the PRC could gain significant visibility and exert influence over HHE’s business operations and get access to HHE critical technology. CFIUS is requiring the company to design a plan to mitigate all identified national security risks to the satisfaction of CFIUS. Borqs intends to comply to the requirements from CFIUS and enter into a National Security Agreement with various departments of the U.S. Government with a plan that is effective, monitorable and verifiable to voluntarily divest Borqs’ investment interests and rights in HHE. HHE’s commercialization of its solar energy storage system and novel EnergyShare technology for MDU’s has enabled the company to open up a new market segment for renewable energy in the USA – likely worth several billions of dollars. In the last year the company’s MDU development pipeline has reached thousands of individual units in Hawaii alone, with California MDU potential being at least one to two orders of magnitude higher in the coming years. One segment of this new market is for communities of military and other government personnel. Since Borqs’ financial support in HHE starting from October 2021, HHE has signed approximately $50M in contracts and has a pipeline approaching half a billion dollars. The company said, "We believe this voluntary mitigation will enable the tremendous inherent value of HHE to be realized and that the divestment can be a profitable transaction for Borqs’ shareholders. The plan to mitigate will include engaging a nationally recognized investment bank with experience in administering competitive sales and auction processes, assigning and hiring of security and monitoring personnel to directly communicate with CFIUS, immediate and complete removal of all Borqs administrative and technical influence over HHE, immediate voluntary reduction of Borqs ownership of HHE from a majority to a minority position and with the target of divesting all. The Company believes such points will enable the Company to accomplish the divestment in an orderly manner."