Blackstone will invest a further $250 million in Beijing-based data centre developer VNET Group, as the US private equity giant looks to jump-start a bet that has suffered in the wake of China’s crackdown on domestic firms listing on American exchanges.
Funds managed by Blackstone have agreed to make the investment in VNET by purchasing $250 million worth of convertible notes at 2 percent interest with a five-year term, the NASDAQ-listed firm said last Friday in a release.
The latest deal follows Blackstone’s acquisition of a stake in VNET, then known as 21Vianet Group, through a $150 million private placement announced in June 2020, when the Chinese firm’s American depositary shares ended the month trading at close to $25 each. After peaking at $42.60 last February, the ADSs are down nearly 75 percent in the past 12 months, mirroring the stock slumps of Shanghai-based GDS and Beijing-based Chindata.
The five-year notes are convertible into VNET ADSs, each representing six Class A ordinary shares, at $11 per ADS, or a premium of 35 percent to last Thursday’s closing price of $8.14. The shares closed Tuesday in New York at $10.01, up 23 percent since VNET’s announcement.
Josh Chen, founder and executive chairman of VNET, said the firm has accelerated the growth of its data centre footprint in high-demand locations across China’s Tier 1 cities during the past two years.
“Blackstone’s investment provides us with the capital to take advantage of a robust pipeline of attractive development projects that support our hyperscale and enterprise customers,” Chen said. “We look forward to building on this partnership with Blackstone.”
Blackstone’s initial investment in 2020 made the Manhattan-based fund manager one of the largest institutional shareholders in the carrier-neutral data centre provider, while bringing it into China’s rapidly expanding market for server facilities.
The group led by billionaire co-founder and chairman Stephen Schwarzman paid $150 million for newly issued Class A preferred shares, convertible to ADSs at a price of $17 per share or to Class A ordinary shares at the corresponding conversion price.
As part of the 2020 transaction, Blackstone designated a non-voting observer to attend meetings of the Chinese firm’s board of directors, subject to maintaining its shareholding at or above a specified percentage threshold.
Faith in Server Barns
The latest transaction is expected to take place this month. Blackstone is currently the second-largest shareholder in VNET, behind London-based TT International Asset Management, according to public statements by the company.
VNET operates in more than 30 cities throughout China, serving over 6,000 hosting and related enterprise customers such as internet companies, government entities, blue-chip firms and small to mid-sized enterprises.
The flow of Chinese IPOs on New York exchanges has dried up since mid-2021 as mainland officials have sought to bring such listings back home, citing national security concerns over vital information infrastructure.
Although Beijing’s ongoing scrutiny has spooked investors, Jasvinder Khaira, a senior managing director with Blackstone’s tactical opportunities division, struck an optimistic note Friday.
“Under the leadership of Josh and the management team, VNET has become one of the top data centre operators in China with a strong operating track record,” Khaira said. “Data centres and the ongoing migration to the cloud are two of Blackstone’s highest conviction themes globally and we believe VNET plays an important role in the buildout of China’s digital new infrastructure.”