By Yantoultra Ngui, Kane Wu and Scott Murdoch

Global Investment in Data Centres in Asia Pacific

SINGAPORE/HONG KONG/SYDNEY (Reuters)

Global investors are eager to invest in Asia Pacific data centre operators, whether through direct stakes or public offerings, undeterred by high valuations driven by artificial intelligence-based services demand.

Industry executives indicate that regional data centres will maintain high valuations due to the industry's early development and optimistic growth prospects. However, concerns about inadequate infrastructure could pose challenges.

Data centres serve as facilities for processing and storing data using computer servers and equipment.

Valuation Benchmark Set

In September, a consortium led by Blackstone agreed to buy Australian data centre group AirTrunk for an implied enterprise value exceeding A$24 billion ($15.58 billion), representing over 20 times the target's forward core earnings.

Interest in a minority stake sale of Indonesian data centre NeutraDC includes potential buyers like Singapore Telecommunications (Singtel) and BDx Data Centers. A planned sale of a 20% to 30% stake in the data centre division of Indonesian state-owned Telkom could value the business above $1 billion.

Analyst Niko Margaronis from BRI Danareksa Sekuritas suggested NeutraDC might be valued over 20 times core earnings, supported by capacity expansion plans targeting 500 megawatts by 2028-2030, up from approximately 60 MW by end-2024.

A spokesperson for Telkom mentioned the sale process is progressing well but refrained from commenting on specifics.

Increased IPO Size Due to Strong Interest

Australia's HMC Capital reported that heightened investor interest led to upsizing the IPO of its data centres business, DigiCo REIT, by A$100 million to A$2.75 billion. This listing, Australia's largest for the year, is set to debut on December 12, at a valuation of 26 times forward earnings per DigiCo's prospectus.

The new valuation benchmark for data centre transactions stands in contrast to an average multiple of about 16 times core earnings for global private infrastructure deals, according to Realfin.

Manjit Balgir, Bank of America's Asia telecom and digital infrastructure head, noted that data centre asset valuations reflect the sector's rapid growth, driven by orders from hyperscale customers.

Execution Risks Persist

The AirTrunk acquisition has positioned Asia Pacific at the forefront of the global data centre M&A market this year, with a deal value totaling $17.03 billion, more than half of the global transactions, per LSEG data.

The elevated valuations in Asia are tied to the industry’s emerging status and operators' capacity expansions in response to rising AI demand.

KKR's director Projesh Banerjea highlighted the rapid growth potential, citing large contracts like a one-gigawatt agreement that could significantly increase capacity. KKR bought a 20% stake in Singtel's Asian data centre for S$1.1 billion ($818.64 million) last year.

Some investors express caution about the sustainability of high valuations amid execution risks related to power capacity and infrastructure inadequacies. Gilles Chow, CPP Investments' managing director, emphasized the growing importance of reliability in data centre delivery for tenants.

Charlie Wilson, from Sidley Austin, noted that while the Asia Pacific data centre market remains a positive growth narrative, a slight cooling of sector growth is anticipated as new capacity comes online.

($1 = 1.5468 Australian dollars)

($1 = 1.3437 Singapore dollars)