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Pieces are joined as potential regional data centre giant marks out turf

Samantha Chiew
Samantha Chiew • 7 min read
Pieces are joined as potential regional data centre giant marks out turf
STT GDC is rapidly expanding its data centre footprint, including STT Singapore 6, its sixth and largest data centre to date. Photo: STT GDC
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If data is the new oil as the fancy quip goes, data centres (DCs) are the new goldmines. Pieces have been put in place for the potential creation of a global DC player ultimately backed by Temasek Holdings, as the multiple players race to pan their gold by meeting the surging demand for computing capacity from wider deployment of artificial intelligence (AI) applications. 

On June 18, Singapore Telecommunications Z74 -

(Singtel) announced that its regional DC arm Nxera, which has backing from private equity firm KKR, has formed a DC joint venture (JV) with Telekom Malaysia (TM), marking a formal partnership between the two incumbent telcos of the two countries. 

In a separate announcement minutes after, Singtel says it is part of a consortium led by KKR investing an initial $1.75 billion in ST Telemedia Global Data Centres (STT GDC), an indirect subsidiary of Singapore Technologies Telemedia, itself a unit of Temasek, which also holds a 51.81% stake in Singtel. The investment can go up to $3 billion with KKR owning 14.1% and Singtel 4.2%. 

STT GDC has a portfolio of nearly 100 DCs with a total capacity, consisting of both existing capacities plus those under construction, of some 1.7GW. Nearly a third of the DCs are in India, via a partnership with Tata Group, and the rest are mainly in the UK and Germany. Three are in Malaysia and six are in Singapore.

“In our view, this investment will allow Nxera and STT GDC to operate synergistically and present the option to merge in the longer term to create a global player with large scale,” says DBS Group Research on June 19. 

Under terms of the agreement between Singtel and TM, their JV, ST Dynamo DC, is paying RM178.2 million ($51.1 million) to buy a 168,959 sq m plot of freehold land to build a DC campus in Johor, which is a recent scene of bustling data centre construction and investment activity. TM will hold 51%, while Singtel’s Nxera will hold the remaining 49%. Both parties will commit up to RM1.15 billion as initial capital over five years for the JV, and Nxera’s pro rata share will be RM564 million.

See also: Temasek future-proofs its investment charter

ST Dynamo will have an initial capacity of 64MW, which can be increased to 200MW. In addition to data centres, the JV partners will boost the submarine cable connectivity between Singapore and Johor to enhance digital connectivity.

The initial $1.75 billion investment in STT GDC by a consortium led by KKR, with participation from Singtel, will mark the largest digital infrastructure investment in Southeast Asia year to date. 

The investment will be via redeemable preference shares (RPS) that come with detachable warrants. Upon full exercise of the warrants, the consortium will invest an additional $1.24 billion, bringing the total investment to nearly $3 billion.

See also: Accelerate innovation: Why smart corporates are becoming venture clients

Singtel’s share of the initial investment is $400 million and the RPS accrues dividend at a rate of 6.5% per annum, or 7.75% per annum if any dividend is not paid in cash and deferred on any dividend payment date. If all the warrants are exercised, Singtel will invest a total of $684 million in STT GDC for a stake of 4.2%.

Dividend guidance remains

Analysts are positive on Singtel with this development. “The JV completes its regional DC footprint, with scale economies to drive longer-term growth for its Digital InfraCo business, which is a key growth engine,” says RHB Bank Singapore, which has kept its “buy” call and $3.25 target price.

RHB notes that Singtel has entered into similar JVs in Indonesia with Telkomsel Indonesia and Medco Power to build a 51MW DC in Batam Island, as well as with Advanced Info Services in Thailand for a 40MW DC. “With the Malaysia DC, its overall DC capacity is set to grow from 62MW in Singapore now to over 250MW region-wide over the next three years,” says RHB, which sees the DC pre-empting capacity constraints in Singapore and meeting the overflow of inventory from the island-state.

RHB estimates the peak funding requirement to be around RM3 billion, which could be defrayed from the proceeds raised from the sale of Singtel’s 20% stake in Nxera to KKR last September for $1.1 billion. 

DBS Group Research, too, has maintained its call and $3.50 target price on Singtel for over 35% upside potential and 6% yield. “This partnership is part of the initiative to grow the core operating profit from Singapore and Australia over the next two to three years, which has a high correlation with Singtel’s share price.” 

These two deals will help Singtel meet its target of generating more than 20% of its ebitda from two key growth engines, its enterprise services unit NCS, and the regional DC business. “Following the deals, we believe Singtel is now even better-positioned to capitalise on rising DC demand in the Asean region,” say CGS International analysts Kenneth Tan and Lim Siew Khee. 

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UOB Kay Hian (UOBKH) analysts Chong Lee Len and Llelleythan Tan believe that given TM’s connections,  the JV can secure sufficient power, water and fibre (connectivity) to allow for a timely foray in an increasingly crowded DC play in Johor. “Hence, speed to market remains a key advantage for the JV,” state the analysts. In addition, given Singtel’s regional growth trajectory, they estimate the Johor DC to be worth up to RM10 billion under a “blue sky” scenario and add 6 cents per share in value to Singtel, thereby inspiring them to keep their “buy” call along with a higher target price of $3.05, up from $2.99. 

“We are positive on the JV,” say the analysts, who project a fair value of $3.16 for Singtel and RM7.80 for TM come 2030. 

Hussaini Saifee of Maybank Securities similarly cheers these DC investments as positive for Singtel. He notes that Singtel has “extensive experience” of operating DCs as it already has around 8% market share in the highly fragmented Singapore DC space. 

However, with AI growing in popularity, demand for computing power drawn from DCs has “further accelerated”. For one, a typical ChatGPT search requires 10 times more DC resources than a Google search. Saifee also thinks the new graphics processing units coming from Nvidia need more power density and thus the requirement for modern DCs. 

In a previous interview with The Edge Singapore, Singtel’s group CFO Arthur Lang has alluded to how Singtel is partnering with Nvidia to pilot the business of renting out GPU capacity as a potential growth area. Saifee, citing projections by Fortune Business Insights, says that the GPU as a service market size is expected to expand at a CAGR of 36% by 2032 to US$50 billion.

Saifee estimates that with these investments, Singtel’s leverage levels will be slightly increased from 1.56x to 1.62x net debt to ebitda. The company is on an active asset recycling programme where it is juggling a multi-prong bid to reduce debt, invest in new growth such as DCs, while increasing dividends to keep shareholders happy. The company at its recent briefing for earnings for FY2024 ended March announced a new, recurring dividend component of 3 to 6 cents per share that will be on top of its regular dividend payout. Citing the management, Saifee, who has kept his “buy” call and $3.24 target price, notes that Singtel has committed to this guidance and he figures Singtel will pay between 15.9 cents and 18 cents per share for the coming FY2025 and FY2027, which translates into a yield of 6–7%.

HSBC analyst Piyush Choudhary believes that with the growth in Singtel’s core businesses including NCS, the data centres, and the regional associates, its profits and dividends will improve. He projects Singtel to pay dividends of 16.4 cents for FY2025 and 17.8 cents for FY2026. “We think the outlook for dividends is upbeat with additional dividend from asset-recycling initiatives,” the analyst states in his June 19 report, where he has kept his “buy” call and $3 target price. 


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