Data centres load on debt
Two data centre operators in Malaysia are seeking syndicated loans of about US$6bn combined as South-East Asia’s booming demand for digital infrastructure feeds a pipeline of multi-billion dollar financings.
Bain Capital-owned Bridge Data Centres is targeting a US$2.8bn five-year borrowing, soon after DayOne Data Centres launched a US$3.38bn-equivalent financing.
More data centre operators from South-East Asia are poised to tap the loan market in the coming quarter, comprising both refinancings and new borrowings for facilities serving cloud computing and artificial intelligence customers.
The surge in deals is prompting borrowers and arrangers to explore alternative funding streams, such as Islamic finance and a choice of currencies, to tap wider pools of liquidity.
DayOne, formerly known as GDS International, has split its five-year amortising borrowing into a M$7.5bn (US$1.68bn) Islamic financing and a US$1.7bn term loan. The US$3.38bn-equivalent deal is the largest widely syndicated data centre financing from Malaysia and the biggest Islamic local currency term facility for the sector.
DayOne previously raised ringgit for a smaller M$1.27bn five-year club green financing in 2023 to complete the development of Nusajaya Tech Park Data Center Campus Plot 1 in Johor.
“There are so many data centre deals going after the same pool of lenders, so the Islamic structure helps reduce competition because its investors will be different from those that join in dollars,” said a loan banker.
BDC’s US$2.8bn loan comprises a US$1.5bn facility for refinancing, a US$1bn tranche for capital expenditure that is available in US dollars or Singapore dollars as an optional currency, and a US$300m revolving credit facility that is not being syndicated.
On the dollar tranches, there “will likely be a lot of overlap among the banks” because both BDC and DayOne have China-headquartered parent companies and similar tenants for their data centres, according to a Singapore-based banker.
DayOne is the international unit of Chinese data centre operator GDS Holdings, while BDC is part of WinTriX DC Group, formerly known as Chindata Group, which Bain Capital took private in 2023.
“There will be some competition but both deals have large arranger groups so syndication should not be an issue in the sense that they do not need to raise that much from the market,” the Singapore-based banker said.
Seven MLABs – CIMB, Credit Agricole, DBS Bank, Maybank, OCBC Bank, Standard Chartered and United Overseas Bank – have fully underwritten the senior secured facilities for DayOne, while BDC’s transaction has a larger group of 11 lenders at the top with Citigroup, Clifford Capital, Credit Agricole, DBS, Deutsche Bank, JP Morgan, MUFG, Sumitomo Mitsui Banking Corp and UOB as active bookrunners.
Same but different
Both secured deals carry leverage ratios of about 5x and portfolios diversified across multiple offtakers, with proceeds earmarked to refinance existing debt and fund capital expenditure. However, DayOne benefits from its parent's guarantee, which translates into tighter pricing compared with its rival.
DayOne is offering top-level all-in pricing of 263.2bp and 239bp based on opening interest margins of 240bp over Klibor and 220bp over SOFR for the ringgit and dollar tranches respectively. BDC will pay top-level all-in pricing of 265.82bp based on an opening interest margin of 250bp over term SOFR. BDC’s financing carries a corporate guarantee from seven of the developer’s Malaysian project companies.
The BDC loan offers richer pricing than a US$490m five-year loan completed last June that carries a corporate guarantee from Stack HK, the holding company of parent WinTriX’s data centre projects in China. That loan offered a top-level all-in of 238.62bp based on a margin of 220bp over SOFR.
Some potential lenders see the guarantees from the Malaysian project companies as riskier than a corporate guarantee from the parent, as they do not have a full picture of the operations of the unfamiliar data centres and their cashflow projections, thus the pricing is richer.
Despite the data centre sector's growing financing needs, only a handful of syndications totalling about US$1.72bn-equivalent have been completed so far in Malaysia.
That tally includes the US$490m facility for BDC closed last June that is being refinanced by the latest transaction; AirTrunk’s S$530m (then US$402m) five-year sustainability-linked loan for its JHB1 data centre that closed in October, which is being refinanced as part of a larger S$3.78bn-equivalent three-year SLL for Singapore, Hong Kong and Malaysia assets after Blackstone acquired the developer; and Yondr Group’s US$835.5m borrowing that was wrapped up earlier this month.
“The market is not toppish yet, but it will get there because DayOne and BDC will take away a lot of dollar liquidity,” said a senior Singapore-based banker. “Deals that come later may find it tough to attract liquidity, and terms may start getting tighter with richer pricing to draw lenders.”
So far, terms on the financings have generally aligned but future deals may need a twist to attract lenders.
“That is where the structuring comes in, with covenants, security, land charge and other terms as differentiators,” said the first loan banker.