Two years after buying an industrial asset in Hong Kong’s Kwai Chung district as its first major acquisition in the city, ESR has secured a HK$1.6 billion ($205 million) sustainability-linked loan to finance conversion of the former cold storage facility into a data centre.
The five-year secured, committed facility has a tiered incentive mechanism where ESR will be entitled to an interest reduction when the project’s sustainability targets are achieved, with local utility operator CLP Power helping to formulate key performance indicators for the green loan, the Hong Kong-listed developer and fund manager said in a statement today.
“We are very proud of the ESG credentials of our data centre in Hong Kong and thank Crédit Agricole CIB, SMBC and UOB for supporting it with the SLL,” ESR co-founders and co-CEOs Stuart Gibson and Jeffrey Shen said. “With the continued increase in data centre demand, our support from CLP Power also helps to bolster tenants’ environmental commitments and helps Hong Kong achieve its carbon neutrality goals.”
Crédit Agricole CIB acted as sole sustainability advisor and coordinating bank for the loan, while SMBC and UOB acted as sustainability agents. All three lenders are also mandated lead arrangers for the facility. The credit facility is the first sustainability-linked loan in Hong Kong for a brownfield data centre project, and is ESR’s seventh green credit facility bringing its sustainability-linked financing to $4 billion in total.
Kwai Chung Conversion
The green loan will be used to convert the former Brilliant Cold Storage Tower 2 in Kwai Chung into the ESR Kwai Chung Data Centre HK1, which is designed for an IT power load of 21.3 megawatts.
ESR acquired Brilliant Cold Storage Tower 2 from local private company Stan Group for $230.8 million in 2021, and last year signed a memorandum of understanding with CLP Power to cooperate on green initiatives for data centres and logistics projects in Hong Kong and China’s Greater Bay Area.
The 15-storey building occupies a 34,595 square foot site in Kwai Chung, which over the years has become a hotspot for data centres. During the same month that ESR acquired the Brilliant Cold Storage Tower 2, US-based data centre REIT Digital Realty opened its second facility in Hong Kong on a site just two kilometres (1.2 miles) away. In July last year ESR won permission from Hong Kong authorities to convert the property into a data centre.
In mid-2022 ESR closed on over $1 billion in equity commitments for its inaugural data centre fund, noting at the time that it had assembled a pipeline of eight projects totaling over 300 megawatts in capacity across the region.
Meeting Green Targets
To meet the targets under its green loan, ESR is incorporating features such as a diesel-generator-free construction site and a green wall in the building’s façade. The company added that it is targeting tenants with strong sustainability credentials to rent the premise.
Crédit Agricole CIB described the credit facility as an important way to reduce the environmental impact of the real estate sector.
“Any efforts in transitioning to a low-carbon economy within the real estate sector brings significant impact on limiting global warming to 1.5 degrees above pre-industrial levels, as the sector contributes nearly 40 percent of global GHG emissions,” said Carmen Tsang, head of sustainable investment banking for Greater China at Crédit Agricole CIB.
The French lender has made green loans an area of emphasis in Asia Pacific, including arranging a triple-currency green bond offering totalling more than $6 billion in value on behalf of the Hong Kong government during June.
In 2020 Crédit Agricole CIB brought the first green interest rate swaps to Asia Pacific capital markets in a deal supporting Australian industrial specialist Goodman Group’s Goodman Interlink distribution centre in Hong Kong.
That HK$590 million deal was tied to Goodman achieving LEED Silver certification under the US Green Building Council’s regimen for green buildings and a Gold certification under Hong Kong’s BEAM system for the multi-storey logistics facility.