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Sale of Indonesia's NeutraDC attracts strong interest

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Australia's DigiCo IPO upsized due to strong demand

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Data centres sale can fetch over 20 times core earnings

multiple

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Asia tops M&A activities in global data centre market in

2024

By Yantoultra Ngui, Kane Wu and Scott Murdoch

SINGAPORE/HONG KONG/SYDNEY, Dec 4 (Reuters) - Global

investors are queueing up to invest in data centre operators in

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 ($15.58

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

Singapore Telecommunications (Singtel) and BDx Data

Centers, among others, two sources with direct knowledge of the

matter said.

A sale of roughly 20% to 30% 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 $1 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 500 megawatt by 2028 to 2030, from around 60 MW by

end-2024.

Telkom group spokesperson Ahmad Reza told Reuters the sale

process is "underway 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

U.S.-headquartered I Square Capital, declined to comment.

Singtel did not respond to requests seeking comment.

In another example, Australia's HMC Capital ( HMCLF ) said on

Nov. 21 that strong interest from investors had led the company

to upsize the IPO of its data centres business DigiCo REIT by

A$100 million to A$2.75 billion.

The listing, Australia's largest this year 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 Manjit Balgir,

Bank of America's Asia telecom and digital infrastructure head.

EXECUTION RISKS REMAIN

The AirTrunk deal has propelled Asia Pacific to the top of

the M&A league table in the global data centre market this year,

with deal value totaling $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% stake in the Asian data center of Singtel

for S$1.1 billion ($818.64 million) last year and partnered

Singtel to invest S$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 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 Charlie Wilson, Asia M&A and

private equity head at law firm Sidley Austin.

($1 = 1.5468 Australian dollars)

($1 = 1.3437 Singapore dollars)