AI-Driven Demand Fuels Soaring Valuations in Asia-Pacific Data Center Market

Sizzling valuations are no bar for Asia data centre deals as AI growth beckons

SINGAPORE/HONG KONG/SYDNEY (Reuters) - Global investors are queueing up to invest in data centre operators in Asia Pacific either by buying stakes directly or via public offerings, unfazed by their rich valuations that are driven by demand for artificial intelligence-based services. Many industry executives say the regional data centres will continue to command high valuations due to the nascent nature of the industry and its growth outlook. Some, though, say a lack of robust infrastructure could cast a cloud on their outlook. Data centres house computer servers and equipment that companies use to process and store data. A valuation benchmark for the sector was set in September when a consortium led by alternative asset manager 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. 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. Telkom group spokesperson Ahmad Reza told Reuters the sale process is "underway and progressing well". He declined to comment on details including valuations, stake sale size and parties interested. BDx, an Asia Pacific data centre operator backed by U.S.-headquartered I Square Capital, declined to comment. Singtel did not respond to requests seeking comment. In another example, Australia's HMC Capital said on Nov. 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 Dec. 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. "Valuations of data centre assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers," said Manjit Balgir, Bank of America's Asia telecom and digital infrastructure head. EXECUTION RISKS REMAIN The AirTrunk deal has propelled Asia Pacific to the top of the M&A league table in the global data centre market this year, with deal value totaling $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 the nascent nature of the business in the region, and to data centre operators adding more capacity as countries and companies respond to booming demand for AI. "If someone comes and gives you a one gigawatt contract, you're probably doubling or more than doubling the capacity," said KKR's director Projesh Banerjea, referring to the still-nascent state of the data centre market in Asia. KKR bought a 20% stake in the Asian data center 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. 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," said Charlie Wilson, Asia M&A and private equity head at law firm Sidley Austin. (Reporting by Yantoultra Ngui in Singapore, Kane Wu in Hong Kong and Scott Murdoch in Sydney; Additional reporting by Vineet Sachdev in Bengaluru; Editing by Sumeet Chatterjee and Muralikumar Anantharaman)

Sizzling valuations are no bar for Asia data centre deals as AI growth beckons

SINGAPORE/HONG KONG/SYDNEY, Dec 4 (Reuters) - Global investors are queueing up to invest in data centre operators in Asia Pacific either by buying stakes directly or via public offerings, unfazed by their rich valuations that are driven by demand for artificial intelligence-based services. Many industry executives say the regional data centres will continue to command high valuations due to the nascent nature of the industry and its growth outlook. Some, though, say a lack of robust infrastructure could cast a cloud on their outlook. Data centres house computer servers and equipment that companies use to process and store data. A valuation benchmark for the sector was set in September when a consortium led by alternative asset manager Blackstone (BX.N), opens new tab 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. The process to sell a minority stake in Indonesian data centre NeutraDC, for example, has attracted interest from Singapore Telecommunications (Singtel) (STEL.SI), opens new tab 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 (TLKM.JK), opens new tab, 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. Telkom group spokesperson Ahmad Reza told Reuters the sale process is "underway and progressing well". He declined to comment on details including valuations, stake sale size and parties interested. BDx, an Asia Pacific data centre operator backed by U.S.-headquartered I Square Capital, declined to comment. Singtel did not respond to requests seeking comment. In another example, Australia's HMC Capital (HMC.AX), opens new tab said on Nov. 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 Dec. 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. "Valuations of data centre assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers," said Manjit Balgir, Bank of America's Asia telecom and digital infrastructure head. EXECUTION RISKS REMAIN The AirTrunk deal has propelled Asia Pacific to the top of the M&A league table in the global data centre market this year, with deal value totaling $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 the nascent nature of the business in the region, and to data centre operators adding more capacity as countries and companies respond to booming demand for AI. "If someone comes and gives you a one gigawatt contract, you're probably doubling or more than doubling the capacity," said KKR's (KKR.N), opens new tab director Projesh Banerjea, referring to the still-nascent state of the data centre market in Asia. KKR bought a 20% stake in the Asian data center 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. 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," said Charlie Wilson, Asia M&A and private equity head at law firm Sidley Austin. ($1 = 1.5468 Australian dollars) ($1 = 1.3437 Singapore dollars) Reporting by Yantoultra Ngui in Singapore, Kane Wu in Hong Kong and Scott Murdoch in Sydney; Additional reporting by Vineet Sachdev in Bengaluru; Editing by Sumeet Chatterjee and Muralikumar Anantharaman Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Artificial IntelligenceArtificial Intelligence Yantoultra Ngui Thomson Reuters Yantoultra Ngui is a Southeast Asia Deals Correspondent with Reuters in Singapore, covering M&A and capital market deals in a region that is fast emerging as a hot destination for startup investors, unicorns and IPOs. He previously was a reporter at Bloomberg and The Wall Street Journal. Notably, he was part of WSJ's team that covered the financial scandal at Malaysian state fund 1MDB. Yantoultra graduated with an MBA in Finance from Universiti Putra Malaysia in 2010. Kane Wu Thomson Reuters Kane Wu covers M&A, private equity, venture capital and investment banks in Asia. She tracks the region's most high-profile deals, fundraisings as well as investment trends amidst geopolitical, macroeconomic and regulatory changes. She was nominated for a SOPA Excellence in Business Reporting award for coverage of China regulatory crackdown in 2021. Prior to Reuters, she worked at the Wall Street Journal and also wrote about Asia's loan market for Thomson Reuters Basis Point. She is based in Hong Kong. Scott Murdoch Thomson Reuters Scott Murdoch has been a journalist for more than two decades working for Thomson Reuters and News Corp in Australia. He has specialised in financial journalism for most of his career and covers equity and debt capital markets across Asia and Australian M&A. He is based in Sydney.