GIC to invest in China data centers

The sovereign wealth fund has agreed to acquire 90% equity interests in built-to-suit data centers in lower-tier cities across China from GDS, which will develop the projects as 100% owner during the construction phase. Financial terms have not been specified, although compensation has been contemplated as equal to development and financing costs subject to certain conditions.

GDS, an experienced data center player in the country, will act as operator after transfer of control and retain its 10% stake in each project. The first project under the agreement is a data center in Jiangsu province that is now said to be nearly complete. GDS said GIC would buy a 90% stake in the operation "shortly" but no timeframe or transaction details have been confirmed. 

The plan aims to address growing demand for supercomputing capacity outside of tier-one cities among GDS's clients, including large internet and cloud service providers. "[W]ith this hybrid approach, we have succeeded in bringing external equity capital from a world class investor directly into the project level, providing us with a new and alternative funding solution which may be extended to a wider realm when and where it is optimal to do so," William Huang, CEO of GDS, said in a statement.

A similar strategy has been pursued by Warburg Pincus, which has agreed to develop and acquire data centers in China via a partnership with US-listed internet services provider 21Vianet, which seeded the joint venture with four existing projects valued at around $300 million. Earlier this year, Bain Capital backed a pan-Asian data center platform through the merger of existing portfolio companies in China, Southeast Asia, and India.

GDS is an investee of SBCVC, a Chinese venture capital arm of SoftBank. The company positions itself as the leading operator of its kind in China with almost 600 blue chip customers. It raised $192 million in a US IPO in late 2016, having targeted around $260 million. Shares jumped 8% to $41.67 apiece following confirmation of the GIC agreement and last closed at $39.01, giving the company a market capitalization of around $5.7 billion.

Data infrastructure in Asia is seen as a compelling trend for investors due to the continued growth in demand for greater computing capacity and internet access in remote areas and emerging markets. Data-focused assets are said to benefit from a more flexible and scalable development profile than traditional infrastructure. Recent activity by GIC includes a $713 million investment in Indian telecom service provider Bharti Airtel, which manages a tower portfolio through its Infratel division.

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