Former KKR Exec Teams with CITIC to Lead $300M Investment in China Data Centre Operator

A Beijing private equity firm has teamed up with a fund management division of China’s CITIC Group in a bet on growing demand for server co-location and cloud computing on the mainland, according to an announcement this week.

DCP Capital, a four year old firm set up by one-time KKR China chief executive David Liu and his former team-mate at the US PE firm, Julian Wolhardt, partnered with Citic Private Equity Funds Management (CPE) to lead a $300 million investment in Hotwon Group, a Beijing-based operator of developer and operator of data centres focused on the co-location market.

“Hotwon is founded by a highly dedicated management team with strong entrepreneurial spirit and deep industry expertise,” Liu, who serves as executive chairman of DCP, said in a statement. “As China’s data center industry continues to grow rapidly, we look forward to working closely with Hotwon’s management and fully leverage our broad industry network, operational expertise and M&A experience to help Hotwon strengthen its leadership position and achieve sustainable growth.”

The investment by the mainland private equity firms comes as global fund managers compete for opportunities in Asia’s fast growing data centre market, with Gaw Capital, Blackstone and Bain Capital all having pursued investments in Chinese server facilities this year.

Targetting First-Tier Growth

Appearing at an event in Beijing on Tuesday, Hotwon Group chairman Huang Zhashun said that his company would use the new funding to consolidate the company’s competitive advantages in providing Internet infrastructure for China’s core cities, while further expanding its network across the country.

“In addition to capital support, DCP will bring us world-class operational capabilities and corporate governance expertise,” Hotwon’s Huang said. “As we enter the new era of ‘new infrastructure’ in China, DCP will be a valuable partner to help Hotwon grow to the next level.”

Citic Private Equity Funds Management had invested in Hotwon’s series A round in 2018, and renewed its commitment in this latest fund raising.

In its statement DCP stressed Hotwon’s commitment to developing data centres in prime locations within China’s first tier cities, with current data centre capacity in China currently weighted towards more distant locations. Hotwon has a pipeline capable of hosting 80,000 server racks, according to the statement, with DCP indicating that the fresh funding would enable the company to complete those projects.

China’s data traffic per capita currently stands at only 13 percent of the US level, according to DCP’s figures, with the company pointed to significant growth potential.

Founded in 2015, Hotwon has already developed six data centres, according to its website. At present, the company shows 18 data facilities across the country, including one each in the first tier cities of Shenzhen and Guangzhou, as well as in more distant locations including the Gansu provincial capital of Lanzhou and Guizhou in southern China. Eight of the projects are hosted in facilities carrying the name of local telecom operators on the mainland.

DCP Capital last year closed on its debut fund after taking in $2.5 billion in commitments.

Mainland Data Centre Surge

The investment by DCP and CPE gives the fund managers hope of cashing in on what has rapidly become one of real estate’s hottest investment niches, as the COVID-19 pandemic has highlighted demand for server facilities and global giants has placed bets on data centre operators.

At the end of September this year Bain Capital reaped the rewards of having assembled an Asian data centre platform, built around a mainland China operation, with the $540 million NASDAQ IPO of Chindata.

Earlier that same month Hong Kong-based Gaw Capital closed on $1.3 billion in funding for its own China data centre investment initiative. That fund received significant backing from the Abu Dhabi Investment Authority after setting up a joint venture with Beijing-based data centre operator Centrin Data to acquire, develop and operate hyperscale facilities.

In June of this year Blackstone had taken its own angle on China data centres by investing $150 million in NASDAQ-listed 21Vianet, which serves 5,000 data customers in 20 Chinese cities, including tech giant Alibaba.