Sizzling valuations are no bar for Asia data centre deals as AI growth beckons

SINGAPORE/HONG KONG/SYDNEY - Global investors are queueing up to invest in data centre operators in the Asia-Pacific, either by buying stakes directly or via public offerings, unfazed by their rich valuations that are driven by demand for artificial intelligence-based services.

Many industry executives say the regional data centres will continue to command high valuations due to the nascent nature of the industry and its growth outlook. Some, though, say a lack of robust infrastructure could cast a cloud on their outlook.

Data centres house computer servers and equipment that companies use to process and store data.

A valuation benchmark for the sector was set in September when a consortium led by alternative asset manager Blackstone agreed to buy Australian data centre group AirTrunk for an implied enterprise value of over A$24 billion (S$20.7 billion), or over 20 times the target’s forward core earnings.

The process to sell a minority stake in Indonesian data centre NeutraDC, for example, has attracted interest from Singtel and BDx Data Centres, among others, two sources with direct knowledge of the matter said.

A sale of a roughly 20 per cent to 30 per cent stake in the data centre arm of Indonesian state-owned communication company Telkom, which kicked off in October, could value the business at more than US$1 billion (S$1.35 billion), sources have said.

Brokerage BRI Danareksa Sekuritas’ analyst Niko Margaronis said NeutraDC could be valued at more than 20 times core earnings, helped by factors including a capacity expansion plan to reach 500MW by 2028 to 2030, from around 60 MW by end-2024.

Telkom group spokesman Ahmad Reza told Reuters the sale process is “under way and progressing well”. He declined to comment on details including valuations, stake sale size and parties interested.

BDx, an Asia-Pacific data centre operator backed by US-headquartered I Squared Capital, declined to comment. Singtel did not respond to requests seeking comment.

In another example, Australia’s HMC Capital said on Nov 21 that strong interest from investors had led the company to upsize the initial public offering (IPO) of its data centres business DigiCo Reit by A$100 million to A$2.75 billion.

The listing, Australia’s largest in 2024 and scheduled to debut on the local bourse on Dec 12, translates into a valuation of 26 times forward earnings, according to DigiCo’s IPO prospectus.

The new valuation benchmark for data centre deals compares with average market-wide multiple of around 16 times core earnings in the broader private infrastructure deals globally, according to asset intelligence and data company Realfin.

“Valuations of data centre assets are reflective of the rapid growth currently being experienced by the sector, driven by large orders from hyperscale customers,” said Mr Manjit Balgir, Bank of America’s Asia telecom and digital infrastructure head.

Execution risks remain

The AirTrunk deal has propelled the Asia-Pacific to the top of the mergers and acquisitions league table in the global data centre market in 2024, with deal value totalling US$17.03 billion, more than half of the global transactions, LSEG data showed.

The high valuations for the sector in Asia are partly linked to the nascent nature of the business in the region, and to data centre operators adding more capacity as countries and companies respond to booming demand for AI.

“If someone comes and gives you a one gigawatt contract, you’re probably doubling or more than doubling the capacity,” said KKR’s director Projesh Banerjea, referring to the still-nascent state of the data centre market in Asia.

KKR bought a 20 per cent stake in the Asian data centre of Singtel for $1.1 billion in 2023 and partnered Singtel to invest $1.75 billion in ST Telemedia Global Data Centres in June. Earnings multiples for the deal were not disclosed.

The sustainability of the valuation premium in the coming years, however, will be tested by execution risks in markets where power capacity and infrastructure are inadequate, some investors said.

Reliability on the actual delivery of data centres will become a lot more critical for tenants, said Mr Gilles Chow, CPP Investments’ managing director and head of real estate for North Asia.

“Ultimately, we see Asia-Pacific data centre markets remaining a positive growth story in the medium term, but anticipate that growth in the sector may cool a little as capacity comes online,” said Mr Charlie Wilson, Asia M&A and private equity head at law firm Sidley Austin. REUTERS