Data centres look to diversify
Having already raised billions of dollars from the Asian loan market, data centre operators in the region remain hungry for capital, which is creating financing opportunities not just for banks but also for other providers of liquidity.
Blackstone Group-backed AirTrunk launched a S$2.248n (US$1.67bn) green financing for the construction of a new hyperscale data centre in Singapore, close on the heels of a S$3.78bn-equivalent sustainability-linked loan that wrapped up syndication with 20 existing and first-time lenders joining 11 mandated lead arrangers, bookrunners and underwriters.
“There is sufficient capacity in the bank market, but the advice we are giving our clients is that it does not make sense to only rely on the loan markets and you need to think about potential alternate sources of long-term financings once the data centre assets are stabilised,” said Siong Ooi, co-head of capital markets group for Asia Pacific at MUFG. “The types of solutions we are exploring for data centre clients are asset-backed financings, and project bonds in US private placement format.”
While there is ample appetite among banks to fund large-scale data centres that specialise in delivering massive computing power and storage capacity to global tech giants – the so-called hyperscalers – financings could start to tap into liquidity beyond the traditional bank market.
“As we have seen in the syndicated loan market over recent years, data centre financings can either be corporate-style or project-specific, depending on the stages of development or operation or jurisdiction of their businesses,” said Andrew McDermott, head of corporate and leverage finance, Australia and New Zealand at Credit Agricole. “In time, it would be reasonable to expect that large-scale data centre businesses will diversify their funding requirements into other debt capital markets.”
Data centre operators in Asia Pacific have at least US$9.27bn-equivalent in loans in the pipeline after signing or closing syndication of US$14.1bn of such borrowings in the past year, according to LSEG LPC data.
Other borrowers include DayOne Data Centers, the international unit of China’s GDS Holdings, Bain Capital-backed Bridge Data Centres, Warburg Pincus-backed Princeton Digital Group, DigiCo Infrastructure REIT, Australia-listed industrial property and digital infrastructure investor Goodman Group and Firmus Metal Singapore, a unit of Australia’s Firmus Technologies.
While bank loans still dominate the borrowings, financiers expect data centres to diversify into other forms of liquidity as the industry evolves in Asia Pacific.
According to MUFG’s Ooi, banks are well-placed to support greenfield data centres. “Once those assets are completed, it makes sense to put some of them into alternate long-term financing markets,” he said.
AirTrunk sent a request for proposals in January for a capital markets financing that could come in the form of a securitisation deal. Asset and commercial mortgage-backed securities for data centre operators are well established in the United States, but the concept has been slow to catch on in Asia.
CDC Data Centres raised an inaugural A$308m (US$185m) US private placement with 10 and 15-year tranches in 2022, along with a A$2.68bn loan with two to seven-year tenors from a club of 15 lenders. The company, formerly known as Canberra Data Centres, subsequently raised a A$120m 37-month club facility last September and two syndicated loans with seven to 12-year tenors totalling A$830m last August and in May 2023, attracting liquidity from banks and insurers in Japan.
Some data centres are targeting investors seeking higher yields. Firmus Metal Singapore is eyeing a US$120m 42-month private credit financing, which offers an interest margin of 11% over one-month SOFR.
PDG is expected to launch a holdco financing into syndication after raising a series of club loans at the operating company level. In March, it converted its Rp1.7trn (US$103m) loan for its data centre in Jakarta into a green financing. That followed a US$95m green loan for a facility in Singapore last June and a M$1.276bn (US$280m) green loan for its hyperscale project in Malaysia last May.
Diversification of funding sources will become more important for the data centres as some lenders are mindful of concentration risks and starting to become selective. In March, DayOne Data Centers launched a US$3.38bn-equivalent loan into syndication, including a M$7.5bn Islamic financing.
“A possible challenge could be these data centres have similar hyperscaler offtakers, such as Amazon, Google, Microsoft and ByteDance,” said a Hong Kong-based senior banker at an international bank. “Some lenders may consider the aggregation of certain offtakers to be too high.”
Meanwhile, some offtakers are also pulling back on their planned investments. For instance, Microsoft is reported to be slowing down on data centre deployment in locations including Indonesia and Australia.
Nonetheless, many bankers are still bullish on the growth potential of the sector.
“You have very reputable private equity counterparts behind some of these businesses, with contracted offtakes from Double A rated and above US hyperscalers, such as Microsoft, Amazon, Google – that is a very attractive feature of these deals," said Scott Austin, head of loan capital markets, Australia and project finance syndications, Asia Pacific at Sumitomo Mitsui Banking Corp. "If you are doing co-location with smaller businesses that are renting cloud space, that is not the same."
According to Credit Agricole’s McDermott, strong demand among lenders exists for large data centre businesses whose customers include hyperscalers. “Key considerations for new build-outs include the size of the facility, acceptable construction risks and access to sufficient power and water. Lenders will be a little more selective on smaller data centre businesses,” he said.
“Data security and storage, coupled with the development of AI, demand is growing exponentially,” said SMBC’s Austin. “Banks, markets counterparts, underwriters will monitor deal by deal. We are under no illusion that this [pace of growth] will continue indefinitely. We are constantly checking in to make sure our read on market is accurate and there is investor liquidity on a given structure and terms.”
(Additional reporting by Sandra Tsui)