A consortium of KKR and Singapore Telecommunications is in talks to raise debt of around S$5bn (US$3.83bn) to back its proposed leveraged buyout of ST Telemedia Global Data Centres in what could become the largest such financing from the sector in Asia Pacific.
While no definitive agreements for the acquisition have been announced yet – in July KKR was reported to be in talks to buy STT GDC – lenders are already showing strong interest in the potential debt financing.
KKR Capital Markets is in discussions with potential lenders to bring in around 10 lead banks to arrange the financing, which will be split into a term loan and a revolving credit facility, with a tenor of around five years.
Sources said the borrowing is expected to be tightly priced given the strong appetite for investment in data centres and the relationship pull of SingTel.
Despite the large size – the borrowing will be the biggest LBO loan from Singapore as well as the largest such financing for the data centre sector in Asia Pacific – it could be clubbed or launched into limited syndication.
The borrowing eclipses a holdco financing in 2024 for a Blackstone-led consortium’s LBO of hyperscale infrastructure specialist AirTrunk that is the largest leveraged acquisition loan for data centres in the region.
Blackstone Capital Markets self-arranged the A$5.5bn-equivalent (US$3.66bn) four-year club loan that attracted 18 banks.
STT GDC has a diversified footprint with its portfolio comprising a combined capacity of more than 2GW of IT load from more than 100 data centres in a dozen countries, according to its website.
KKR and SingTel are already partners in Nxera, a smaller-scale data centre operator that has a presence in Singapore, Indonesia, Malaysia and Thailand. In September 2023, the private equity firm agreed to commit up to S$1.1bn for a 20% stake in the SingTel-owned business.
STT GDC’s potential buyout follows the consortium’s S$1.75bn investment in STT GDC in June last year via redeemable preference shares with detachable warrants. Upon exercising the warrants in full, which it can do until June 2031, the consortium will invest an additional S$1.24bn to subscribe for ordinary shares of STT GDC aggregating to an 18.3% stake in the company.
KKR and SingTel would then hold around 14.1% and 4.2%, respectively, and ST Telemedia would remain the majority shareholder.
Investment in data centres in the region has surged since Nxera’s deal in 2023 and loans to the sector have grown alongside. Loans raised in the first 10 months of this year in Asia Pacific totalled US$28.4bn, rising from US$14.5bn-equivalent in 2024, according to LSEG LPC data.
At S$5bn, STT GDC’s acquisition financing would be near the top of the list of the biggest syndicated LBO loans from South-East Asia, according to LSEG LPC data. The largest deal is a US$4.108bn facility from 2017 that supported warehouse operator Global Logistic Properties’ delisting from the Singapore Exchange.
STT GDC itself is no newcomer to the debt markets. Last month, it raised a green loan of unspecified size to fund development of the STT Seoul 1 data centre, according to Credit Agricole, which was a mandated lead arranger and bookrunner and green loan coordinator on the financing. Mizuho and UOB were the other lenders.
In January 2024, STT GDC priced Asia’s first subordinated perpetual sustainability-linked bond – a S$450m 5.70% note priced at 298bp over SORA. The company sold its first Singapore dollar bond in 2019 followed by another senior deal in 2020.
According to an update to its medium-term note programme in November last year, STT GDC had bank borrowings totalling S$2.87bn-equivalent as of June 30 2024.