Singtel to form regional data centre platform with partners in South-east Asia

Singapore

SINGTEL looks set to take advantage of the growing demand for data centre capacity in South-east Asia as it leverages its local experience in the field to grow its data-centre platform abroad.

On Friday, the telco announced a conditional agreement to sell a 70 per cent stake in Australia Tower Network (ATN), which operates telecommunications towers for Singtel's Australian telco subsidiary Optus, for A$1.9 billion (S$1.88 billion) in cash.

The transaction gives ATN, which owns 2,312 mobile network towers and rooftop sites, an enterprise value of A$2.3 billion, Singtel said. The buyer, AS Infra Tower, is a unit of a superannuation fund in Australia.

The consideration of A$1.9 billion consists of A$900 million to be paid by AS Infra, A$500 million as a return of capital by ATN to Singtel, and A$500 million as repayment of outstanding loans by ATN to Optus.

These funds will go towards Singtel's 5G rollout, the expansion of NCS' digital services business and other growth initiatives.

Singtel's estimated net gain on the disposal is S$400 million. The sale is expected to be completed by the end of October.

The divestment is part of the company's efforts to reinvest in growth areas that will underpin sustainable dividend payouts for investors. As part of its infrastructure growth strategy, the telco said that it will form a regional data centre platform with partners in South-east Asia.

To that end, it has signed a memorandum of understanding with Thai power and infrastructure company Gulf Energy to build and develop data centres. Singtel also announced it is in advanced talks with its Indonesian partner Telkom to explore acquiring and building data centre assets in Indonesia and South-east Asia.

Singtel group chief executive Yuen Kuan Moon expressed confidence in the telco's ability to compete effectively in the region.

He noted that the company has proven itself able to operate efficiently in Singapore. Currently, its seven data centres generate an annual revenue of over S$250 million with an Ebitda (earnings before interest, tax, depreciation and amortisation) margin of more than 60 per cent.

Furthermore, Singtel cited Frost & Sullivan's 2020 forecast that the compound annual growth rate of data centre demand in Thailand and Indonesia are expected to grow by 28 per cent each, eclipsing the 12 per cent growth expected in Singapore.

To meet this demand, the company hopes to grow its data centre capacity from its existing 70 megawatts (MW) to 100 MW in the short to medium term.

"We are all competing for a much-larger growing pie, and whoever can operate more efficiently, build faster and bring in more differentiated services will grab a larger share of the growth in the region," Mr Moon said, adding that he believes that the company has the experience to differentiate itself and be a significant player in the region.

In the medium to long term, Singtel also expects to grow the data centre platform either through direct ownerships or through joint ventures.

Said the group's chief financial officer Arthur Lang: "The crux of it is that we will be both an owner and an operator of the assets given our capabilities, as well as the ability for us to provide connectivity services to our customers."

"Equally important are our very strong relationships that we already have with large enterprises and the hyperscalers who are looking to come into this region," he added.

Hyperscalers are companies like Amazon and Google that have applications, such as their own public cloud offerings, that scale to increase and decrease the amount of computing power they require, depending on demand.

Janice Chong, Fitch Rating's senior director of Asia-Pacific corporate ratings, said that Singtel can benefit from its established track record, board customer base and strong partner networks of Telkom and Gulf.

"Singtel can also co-invest with strategic partners to reduce the burden of future DC investments on its balance sheet," she said.

DBS analyst Sachin Mittal agreed that these partnerships will give Singtel an edge over other players in the market.

"You still need local partners, and this is an area that Singtel has not done as well in in Singapore, because they did not go for partnership with local players. As and when they localise more, I think they will have higher chances of success," he said, adding that these local partners could help to provide crucial resources such as space and construction services for the data centres.

On Singtel's part, Mr Mittal said that the company would be able to bring its experience with data centre management and its existing clientele to the platform it is building as it has been able to meet the more stringent standards set in Singapore.

"Clients are asking 'How green are these data centres?', 'Are they powered with renewable sources of energy?' and 'Who are the other tenants?'," he said, adding that there is a higher likelihood that customers with an existing relationship with Singtel would stay with the company as it already understood their needs.

Singtel noted that of its seven data centres in Singapore, its DC West and Kim Chuan DC 2 data centres are prime Tier 3+ or Tier 4 assets and have achieved the Building and Construction Authority's (BCA) Green Mark (Platinum) award.

Singtel shares closed down 1.2 per cent or S$0.03 to close at S$2.43 on Friday.