Blackstone Group early this week announced that it had invested RMB 1.06 billion ($150 million) for a stake in NASDAQ-listed Chinese data centre developer 21Vianet Group through a private placement.
The investment makes the US fund manager one of the largest institutional shareholders in the carrier neutral dat centre provider while bringing Blackstone into China’s rapidly expanding market for server facilities.
“China’s public cloud is experiencing exponential growth and 21Vianet is positioned to meaningfully accelerate its deployment of data centre capacity,” said Jasvinder Khaira, a senior managing director with Blackstone’s Tactical Opportunities division.
Serving China’s Internet Giants
While the investment provides an opportunity for Blackstone grab a slice of China’s growing data centre market, it also supports 21Vianet’s ability to expand its services in the country’s wholesale and enterprise data center markets, according to a press release from the Beijing-based firm.
The investment comes several months after 21 Vianet achieved a significant milestone by signing a memorandum of understanding with Alibaba in October last year to deploy Internet data center services on behalf of the e-commerce giant for a project in eastern China. The first half of the project — set for completion by the first half of 2020 — is expected to generate revenue of RMB 600 million ($85m) over the term of the agreement between the two companies, according to a press release from 21Vianet Group.
Now 11 years old, 21Vianet serves a base of about 5,000 customers with its IDC, cloud and business VPN services. The company — which operates in more than 20 cities throughout China — intends to use the proceeds from the private placement on capital expenditures to reinforce its position in China’s data center market.
21Vianet’s leadership sees the new partnership with Blackstone as underlining its status in the market and equipping tie for further growth.
“This investment is a valuable vote of confidence in the strategy being pursued by our team,” said Josh Chen, 21Vianet founder and executive chairman. “Blackstone’s experience, connections and knowledge of the data center sector globally will help us embrace new infrastructure and digital transformation opportunities to better serve our customers.”
Blackstone Joins Fidelity, Morgan Stanley
Under the terms of the private placement, a fund managed by Blackstone Group will subscribe for $150 million in newly issued Class A preferred shares in 21Vianet. Blackstone’s investment can be converted into the company’s American depositary shares at the price of $17 per American Depositary Share, or converted into the company’s Class A ordinary shares at the corresponding conversion price, according to the 21Vianet press release.
As part of the transaction, Blackstone will designate a non-voting observer to attend meetings of the 21Vianet Board of Directors, subject to maintaining its shareholding at or above a specified percentage threshold.
Although the corporate announcement did not specify the scale of Blackstone’s stake in 21Vianet, the company will see some familiar names on the list of shareholders in the data centre firm, with Fidelity affiliate FIL Investment Management (Hong Kong) holding a 7.6 percent slice and Morgan Stanley having established a 7.2 percent holding. Singapore’s Temasek Holdings has a 4.9 percent stake in the company according to public records.
Additional information regarding the private placement will be included in a Form 6-K to be filed by 21Vianet with the US Securities and Exchange Commission.
China Data Centre Market to Grow 61%
Driven by increasing use of cloud services and expanding use of mobile data, China’s data center market has grown exponentially in the past decade. Between 2016 to 2020, the market has had a compound annual growth rate on capex revenue of around 13 percent, according to a report by market research firm Technavio.
That pace of expansion received an added boost on 4 March 2020, when the Central Committee of China’s Communist party in a meeting declared accelerating the construction of new infrastructure such as 5G networks and data centers as a national priority. Since that meeting, firms across China, including Alibaba, Tencent and China Telecom, have launched new data center projects or accelerated current construction.
In addition to Blackstone, other international fund managers have been eager to capitalise on growing demand for data centres in mainland China.
In November of 2019 Gaw Capital unveiled a joint venture with mainland data centre developer and operator Centrin Data which aims to acquire, develop and run hyperscale facilities in China. The new investment vehicle has already been seeded with a 6,400 rack data centre in the city of Kunshan — just west of Shanghai.
Just a month earlier UK fund manager Actis announced that it had taken a majority stake in China-focused data centre specialist Chayora Holdings with a $180 million investment.
According to a report by Beijing’s Intelligence Research Group, the value of China’s data centre market reached RMB 122.8 billion in 2018 – an increase of 29.8 percent from the previous year. That market is now expected to expand to expand by another 61 percent to reach RMB 200 billion in value by the end of this year, according to the research agency.