CDH hits first close on China data center fund

This is the first industry sub-fund under CDH Mezzanine - of the country's foremost players in the space - which closed its fifth vehicle at RMB8 billion in April. It is also the first renminbi-denominated fund dedicated to data center investments. LPs include insurance companies, university endowments, state-owned enterprises.

The fundraising process started in April despite disruptions related to COVID-19. Six months represents a new record time for a CDH Mezzanine first close, according to Ning Hu, founding partner of the firm's mezzanine business.

The fund will cooperate with leading domestic third-party data center service providers and invest in high-quality projects in core cities. CDH Mezzanine has previously deployed nearly RMB1 billion in data centers, including three projects in first-tier cities. Two of these have been exited. The CDH Mezzanine team is also looking to invest in overseas data center projects.

“Data center projects provide both stable cash flow and high yield returns. They fit the investment preferences of mezzanine funds very well. At the same time, the mezzanine fund helps data center service providers increase their asset scale while avoiding excessive dilution of shareholder equity,” said Tao Ye, who leads the deployment of the new fund.

Investments will be restricted to high-quality projects in top-tier cities, which is intended to minimize post-investment operational risk. Ye added that CDH will not invest at any price. “Although the accelerated entry of capital has inflated valuations, we will carefully examine project costs and choose entry points at reasonable prices," he said.

Earlier this month, Chinese regulators abolished restrictions on investment by insurers in strategic emerging industries. Data centers, identified as a key area under the government's "new infrastructure" initiative, are expected to receive even more investor attention.

China's data center industry was worth RMB156.3 billion in 2019. It is expected to exceed RMB200 billion in 2020, according to Qianzhan, a local consulting firm. Compound annual growth over the past 10 years has been nearly 40%.

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• Topics
• Greater China
• Fundraising
• Renminbi fund
• Infrastructure
• Infrastructure
• China
• data center
• CDH Investments Management