Asian Data Centre Firms Rake in Billions From Global investors

Data centre operators from the Asia Pacific are raking in billions of dollars worth of investments from global investors looking to tap into the artificial intelligence boom.

The region is leading the world in data centre deals this year, despite surging demand turning up valuations, and experts say their value will only increase given the nascent nature of the industry and its growth outlook.

A valuation benchmark for the sector was set in September when a consortium led by Blackstone agreed to buy Australian data centre group AirTrunk for an implied enterprise value of over A$24 billion ($15.58 billion), or over 20 times the target’s forward core earnings.

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The deal propelled Asia Pacific to the top of the mergers and acquisitions (M&A) league table in the global data centre market this year. Deal value totalled $17.03 billion, more than half of the global transactions, LSEG data showed.

The high valuations for the sector in Asia are partly linked to data centre operators adding more capacity as countries and companies respond to booming demand for AI.

The process to sell a minority stake in Indonesian data centre NeutraDC, for example, has attracted interest from Singapore Telecommunications (Singtel) and BDx Data Centers, among others, two sources with direct knowledge of the matter said.

A sale of roughly 20% to 30% stake in the data centre arm of Indonesian state-owned communication company Telkom, which kicked off in October, could value the business at more than $1 billion, sources have said.

Brokerage BRI Danareksa Sekuritas’ analyst Niko Margaronis said NeutraDC could be valued at more than 20 times core earnings helped by factors including a capacity expansion plan to reach 500 megawatt by 2028 to 2030, from around 60 MW by end-2024.

Valuations are also being driven by the nascent nature of the business in the region.

“If someone comes and gives you a one gigawatt contract, you’re probably doubling or more than doubling the capacity,” Projesh Banerjea, director at investment firm KKR, said.

KKR bought a 20% stake in the Asian data centre of Singtel for S$1.1 billion ($818.64 million) last year and partnered Singtel to invest S$1.75 billion in ST Telemedia Global Data Centres in June. Earnings multiples for the deal were not disclosed.

“Valuations of data centre assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers,” Manjit Balgir, Bank of America’s Asia telecom and digital infrastructure head, said.

Upsized IPOs

In another example, Australia’s HMC Capital said on November 21 that strong interest from investors had led the company to upsize the IPO of its data centres business DigiCo REIT by A$100 million to A$2.75 billion.

The listing, Australia’s largest this year and scheduled to debut on the local bourse on December 12, translates into a valuation of 26 times forward earnings, according to DigiCo’s IPO prospectus.

The new valuation benchmark for data centre deals compares with average market-wide multiple of around 16 times core earnings in the broader private infrastructure deals globally, according to asset intelligence and data company Realfin.

asia pacific data centre deals — Graph: Reuters

Inadequate infrastructure

The sustainability of the valuation premium in the coming years, however, will be tested by execution risks in markets where power capacity and infrastructure are inadequate, some investors said.

Reliability on the actual delivery of data centres will become a lot more critical for tenants, said Gilles Chow, CPP Investments’ managing director and head of real estate for North Asia.

“Ultimately we see Asia Pacific data centre markets remaining a positive growth story in the medium term but anticipate that growth in the sector may cool a little as capacity comes online,” Charlie Wilson, Asia M&A and private equity head at law firm Sidley Austin, said.

Reuters, with additional editing by Vishakha Saxena

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]