Data is the new black gold

SINGAPORE (Sept 23): In a few fiery moments, the drone strikes on Saudi Aramco’s main facility at Abqaiq cut 5% off the global oil supply. Oil prices surged as much as 20% when the markets reopened as analysts scrambled to make sense of the impact. The IPO of state-owned oil company Saudi Aramco, already delayed multiple times, seemed likely to be pushed back again, amid major damage to its operations, which accounted for half of the kingdom’s oil production. Iran, or elements backed by it, has been blamed as the likely perpetrator, giving rise to fears that a US-led retaliation might ensue.

But, even as the Saudis fought to get the facility and its oil supply back online, global markets did not react quite the way it did during the two previous “oil shocks” of 1973 and 1979.

That markets did not go into panic mode, nor did queues start forming at petrol stations, highlights a new norm: Oil may no longer be seen as the strategic asset it once was. 

See also: ‘Oil jitters’ and ‘Yield-accretive data centres and offices spur DPU, NAV and AUM growth’

To be sure, Saudi officials project a full recovery to pre-attack output of 4.9 million barrels per day (bpd) by end-September. The kingdom has also pledged to meet all existing commercial commitments even if it has to draw down its reserves. Meanwhile, higher-than-expected US inventory numbers put a lid on further price hikes.

Saudi Arabia remains the world’s largest oil exporter, but global supply today is more diversified. Shale producers, for one, are meeting a greater proportion of domestic US demand. In addition, countries are looking for renewable sources of energy as concerns over global warming grow. Many developed markets, including Singapore, have imposed a carbon tax. 

In Singapore, investors’ attention may have been more on a slew of deals involving data centres than the Middle East tensions. Over just two days, Singapore-based companies announced plans to spend $2.5 billion to buy or build data centres. 

Data centres, typically drab warehouses, are the critical components of the digital economy. They provide secure locations to house racks upon racks of computer servers, from which computing power is drawn to run applications, send emails and load websites over the “cloud”. These buildings are also where photos, videos and all other personal information are stored. As a result, required data centre capacity is ballooning in tandem with the volumes of data being created.

Data centres are where more investors are taking up positions now. And, as the related fundraising has shown, they are doing so with gusto. 

Keppel DC REIT on Sept 16 announced plans to buy a 99% stake in Keppel DC Singapore 4 and 1-Net North Data Centre for a total consideration of $585.1 million. On the same day, Mapletree Industrial Trust (MINT) and Mapletree Investments announced a joint venture to acquire a US$1.4 billion ($1.9 billion) data centre portfolio in North America.

The fundraisings undertaken for both deals received enthusiastic response from the market. Keppel DC REIT raised $235.4 million via a placement that was 9.3 times covered and its units are now trading at an 11% premium to the placement price of $1.74 a unit. Despite the sizeable placement and preferential equity fundraising, unit prices surged 10%. KDC REIT units are trading at a noticeable premium to the placement and preferential equity issuance prices of $1.744 and $1.71 a unit respectively. 

The following day, on Sept 17, MINT raised $400 million through a placement. As an indication of demand, MINT’s private placement was upsized by 19.3 million units, approximately 6.3 times covered, and the price was at the top end of the indicative range, at $2.265 a new unit. Both deals are going to be earnings-accretive. 

And, it was not just the real estate investment trusts that were in action. Wing Tai Holdings, a decidedly more traditional company with interests in garment selling and property, has waded into data centres as an investment too. On Sept 16, its ­wholly-owned subsidiary, WT DC Trust II, announced that it was buying a freehold data centre in Victoria, Australia for A$51 million ($48.2 million). 

According to the US Energy Information Administration, global oil consumption for 2019 will grow by 0.9 million bpd — a slowdown from the growth of 1.3 million bpd in 2018. By contrast, technology research firm IDC projects global data creation of some 163 zettabytes by 2025 — up 10 times from 2017.  

This past week might just have seen the intersection of two long-term structural trends: unabated growth of everything “data” in the digital economy versus the eventual shift away from oil as the energy source in an industrial economy. But it is clear where the smart money is going.

This story first appeared in The Edge Singapore (Issue 900, week of Sept 23) which is on sale now. Not a subscriber? Click here