Singapore rides pan-Asian data centre trend

Singapore

PRIVATE equity firms are pushing deeper into the data centre market in Singapore - as they are in other parts of the world - as Covid-19 prompts more companies to go digital.

SpaceDC, a Singapore-headquartered data centre provider, is backed by the Republic's sovereign wealth fund GIC. On Wednesday, it launched a premium data centre in Jakarta, Indonesia, catered for the Southeast-Asian (SEA) market.

Princeton Digital Group (PDG), another data centre operator based here, just secured a new US$360 million equity investment led by Ontario Teachers' Pension Plan Board, with private equity firm Warburg Pincus - its first and largest institutional investor - continuing its participation in this new fundraising round.

The private equity interest reflects a global trend. Data from Synergy Research showed that of the 388 deals worth some US$90 billion aggregated from 2015 to mid-2020, private equity investments made up at least half of the deals by both value and volume.

To build a pan-Asian data centre business, Singapore - as a digital hub and with its ease of doing business - comes as a natural choice for companies such as PDG to set up shop.

Set up by former Tata Communications executives, PDG opened its headquarters in Singapore three years ago, said Rangu Salgame, PDG's chief executive and chairman.

The company already has 18 data centres across Singapore, China, India and Indonesia. Including the latest fundraising round, it has raised some US$860 million over the past three years.

Mr Salgame told The Business Timesthat he and his partner saw a "big gap in the market" at the time for large Internet companies that were preparing to expand significantly in Asia, to have service providers with global standards, but are also very focused on Asia.

He added that the infrastructure that Singapore offers, along with its large number of submarine cables, made the Republic a "very compelling place" to enter the market and start such a business.

PDG invests by buying companies outright, doing "telco carve-outs" where data centres are bought from telecom companies, and building data centres from ground up in places such as Shanghai and Mumbai.

"A multipronged investment strategy, a very good team and the right kind of capital in Warburg Pincus. That gives us the ability to execute (what) we did in the last few years," he added.

The funds raised from the latest round will allow PDG to continue "aggressively" expanding. It plans to invest further in the four countries where it has a presence, and eyes other markets in the region such as Japan, South Korea and the rest of SEA.

These regions are chosen in line with the needs of PDG's customers, said Mr Salgame, as the company takes "a lot of insight" on which countries or cities are going to "become important for (its customers)".

Darren Hawkins, chief executive of SpaceDC, said that the red-hot demand has translated to a pressing need for locally-based data centres to cut the time it takes for data to be retrieved - that is, latency.

As such, private equity firms see long-term growth opportunities and are willing to invest in experienced data centre operators that not only know the SEA market well, but can build campuses to the "highest global standards (and) at low power usage effectiveness", he added.

Greater investments from private equity firms also come as a win for data centre companies, which may struggle to keep up with the high capital expenditures (capex) required of data centres.

McKinsey partner Sai Tunuguntla, who is the global leader of the network operations domain and leads issues on telecommunications technologies across the Asia-Pacific (Apac), said this is especially so for smaller, regional data centre companies, which see private equity firms as "important growth and investment partners", as they "lack sufficient capex and need cash infusion to build and drive scale efficiencies".

Even if existing major data centre operators are profitable and generating plenty of cash, said John Dinsdale, chief analyst and research director at Synergy Research, they may still be looking for external investors to help them build more scale without weakening their balance sheets too much.

As the data centre market continues to see strong demand in the near term, Mr Dinsdale said, competition between operators in the region remains hot due to the presence of global players with portfolios in several Apac markets, along with "strong local players active primarily in their home countries".