GIC Aims for the Cloud in China Data Centre Tie-Up with GDS   

GDS Holdings has entered into an agreement with GIC to build and operate hyperscale data centres in China, including in markets beyond the country’s first tier cities, according to a statement by the Shanghai-headquartered company.

Initially, the Singaporean sovereign wealth fund will be working with the data centre developer to deliver build-to-suit data centres for a leading Internet and cloud service provider which is already one of GDS’s leading customers, the companies said.

The agreement to develop network infrastructure facilities is being unveiled just under two years after GDS formed a strategic partnership with Alibaba to develop a data centre campus in Hebei, and just over a year after the company received a “Rock Solid” Data Centre Partner Award from the internet titan.

GIC Programme Parallels GDS-Alibaba Projects

“As cloud and new technologies continue to drive the digital transformation in China, we look forward to building our relationship with GIC, leveraging our mutual strengths to deliver unique solutions to our customers that underpin their growth and expansion, while creating long-term value for our shareholders,” William Huang, GDS’s chairman and chief executive officer said.

The Nasdaq-listed firm, while declining to identify the anchor client for its build-to-suit programme, did indicate that it has already completed three data centres for the customer at a campus in Hebei province. GDS also said that it has signed a memorandum of understanding with the Internet firm to build multiple facilities at several of its China campuses.

The first project of the partnership with GIC, a data centre already under construction by GDS at the customer’s campus in Jiangsu province, is nearly complete, according to the statement. Alibaba eighteen months ago began building a data centre in Nantong, a city just north of Shanghai in Jiangsu province.

Expanding into Second Tier Cities

Under the terms of the agreement with the sovereign wealth fund, GDS will enter contractual commitments with the internet and cloud provider to develop the build-to-suit data centres under separate project companies.

On completion, GDS will sell 90 percent of the equity in the project companies to GIC at pricing based on development costs plus financing.

The data centre company, which will retain ten percent of the equity and will continue to operate the facilities, will earn a return over the life of the project from its equity investment plus recurring service fees.

GDS said in its statement that, while its core business is still in first tier cities, the company is expanding into China’s second tier cities as the country’s Internet and ecommerce giants scale up their facilities in these locations to host less latency-sensitive data and applications.

Capital Support for a Loss-Making Business

The tie-up the $359 billion sovereign wealth fund comes after GDS in March had secured a $150 million equity investment from Ping An Overseas Holdings that would help the data centre provider add to its 220,818 square metre portfolio of bit barns across China.

The eighteen-year-old company, which listed in 2016 has received investor support despite having consistently reported annual net losses since 2014 as it pushes forward with its expansion strategy. GDS, which posted a net loss for the second quarter of 2019 of RMB 93.2 million ($13.6 million), last year was accused by investment fund Blue Orca Capital LLC of overstating the utilization rate at one of its flagship data centres, which the company flatly denied.

GIC Delves Deeper into Data Centres

The partnership with GDS is the latest in a string of data centre ventures by the Singapore sovereign wealth fund that tally up to more than $1.8 billion in combined investments.

Just two months ago, California data centre provider Equinix announced that it had formed a $1 billion joint venture with GIC to build and operate hyperscale data centres in Europe. In the same month, data centre provider Polymer Connected announced it had partnered with GIC to build two data centres in Jakarta.

In February last year, GIC teamed up with Denver-based investment firm Mount Elbert Capital Partners and Canadian pension fund manager OPTrust to create EdgeCore Internet Real Estate, LLC, a vehicle for developing, acquiring and operating data centres in North America.

That venture was said at the time by EdgeCore to have an initial capitalisation of over $800 million of equity, and was expected to support about $2 billion in development and investment.