China’s GDS Confirms Talks to Raise Cash for International Data Centre Expansion

Three years after announcing plans to expand beyond its home market of mainland China, data centre developer and operator GDS Holdings has confirmed that it has held discussions with private equity investors regarding a potential capital raise for its international business spanning Hong Kong and Southeast Asia.

While GDS did not divulge the investors with whom it held discussions or the potential investment amount, the company issued the confirmation after Bloomberg reported that Chinese fund managers Hillhouse Capital, Boyu Capital and CDH Investments are in advanced talks to invest $500 million to $600 million in the company’s international business, with a deal possibly reached within the coming weeks, citing people familiar with the matter.

“The Company confirms that it has been in discussion with several private equity investors regarding a potential transaction with respect to its international business. However, as at the date of this announcement, no definitive legal agreements relating to any private equity capital raising have been entered into and there can be no certainty that any transaction will proceed or, if it does, what the structure of such transaction may be,” GDS said in a filing on Monday.

NASDAQ and HKEX-listed GDS, which counts Singaporean data centre provider STT GDC, Singapore sovereign fund GIC, Hillhouse and Ping An as investors, recently said that, in the third quarter, its international business made a “material” contribution to its new capacity under lease for the first time.

Hillhouse, Boyu and CDH had not yet responded to Mingtiandi inquiries by the time of publication.

Diversifying out of China

GDS revealed in its third quarter 2023 earnings call that it plans to fund the expansion of its international business through a mixture of equity and debt, with the firm targeting a private placement of at least $400 million for the equity portion.

“We have received very strong interest from regional and global investors and expect to close the capital raise in 1Q24,” Dan Newman, GDS Holdings’ chief financial officer said in the call.

GDS’ existing revenue-generating assets outside of mainland China consist of a 18.2MW facility in Hong Kong and the first phase of a 158.7MW campus in the southern Malaysian state of Johor, both of which are self-developed and owned. The company also provides services for third party data centres in Singapore, including assets owned by STT GDC.

The Shanghai-based operator and investor is currently constructing a second data centre in Hong Kong and building out the remainder of its Johor campus, with these two additions both expected to commence operation in 2025.

GDS’ proposed international pipeline also includes a third Hong Kong data centre, a second campus in Johor, a Singapore facility, and a hyperscale campus on the Indonesian island of Batam, which it intends to develop under its recently formed joint venture with Indonesian sovereign fund INA. The company expects these projects to be ready for service by the end of 2026, which would bring its international portfolio’s total capacity to 372.7MW.

“For international, our financial objectives are to create a second growth engine, which enhances our equity valuation. We are leveraging our competitive strengths to build a leading presence in regional hub markets, win landmark commitments from global and China customers and finance the business independently,” William Huang, GDS’ chairman and chief executive said in the call.

The company announced its plans to expand into Southeast Asia in 2021 in an effort to diversify its revenue sources after slowing growth in the mainland. As of September last year, however,  including assets in service and under construction, GDS’ mainland China portfolio accounted for 93 percent of its net floor area.

Southeast Asia in Focus

The potential investment by Boyu, CDH and Hillhouse, which rebranded its real assets investment division as Rava Partners last month, comes as investors continue to focus on Southeast Asian data centre opportunities.

In its latest APAC Data Centre Update, consultancy Cushman & Wakefield identified Malaysia as the fastest-growing data centre market in Asia Pacific and expects Singapore to this year join China, Japan, Australia and India as the region’s fifth market to establish at least 1GW of data centre capacity.

Earlier this week, Singapore’s Keppel Ltd signed a memorandum of understanding with Japanese real estate giant Mitsui Fudosan to explore data centre development and investment opportunities in Southeast Asia and Japan.

In September, a fund managed by US private equity giant KKR agreed to commit up to S$1.1 billion to acquire a 20 percent stake in Singtel’s data centre business to accelerate the expansion of its regional data centre business in Singapore, Indonesia and Thailand while exploring other markets like Malaysia.

STT GDC, which ranked as GDS’ largest shareholder with a 31.6 percent stake as of September, announced in November its entry into the Malaysian market with plans to develop a 120MW campus in Johor and a 20MW campus in the Cyberjaya tech hub near Kuala Lumpur, while EQT-backed data centre platform EdgeConneX in September announced its entry into Malaysia with a plan to develop 300MW of capacity across three locations.

In Indonesia, Hong Kong-based private equity firm Gaw Capital is tying up with Sinar Primera Group, an industrial developer with links to Jakarta-based heavyweight Sinar Mas, to develop a 6MW facility on the island of Batam, while Warburg Pincus-backed Princeton Digital Group has launched a 22MW hyperscale data centre on the eastern outskirts of Jakarta.