Singtel to sell 20% stake in regional data centre business valued at $5.5 bil

Singtel to acquire NCS in $1 bil dealSingtel’s regional data centre business is set to receive a major boost with Singapore Telecommunications (Singtel) Z74 2.07% announcing a partnership with investment firm KKR. Through a fund managed by global investment firm Kohlberg Kravis Roberts & Co. L.P., KKR will commit up to $1.1 billion in cash for a 20% stake in the business, putting its enterprise value at $5.5 billion, a 60% increase on the $3.4 billion assessed by DBS Group Research. This is the first time Singtel and KKR are working together, with the telco set to benefit from the investment firm’s expertise and capital.

Singtel’s regional data centre business is set to gain significant momentum with the announcement of a new strategic partnership with global investment firm KKR. Through a fund managed by Kohlberg Kravis Roberts & Co. L.P. (KKR), KKR will invest up to $1.1 billion in cash for a 20% stake in the business, pushing its enterprise value to $5.5 billion, which is 60% greater than the $3.4 billion estimate made by DBS Group Research.

This significant investment marks the first collaboration between Singtel and KKR, and will provide the telco with access to KKR’s expertise in data centres and telecommunications infrastructure, as well as capital to support the business. With this investment, KKR is also aiming to grow its Asia Infrastructure Strategy.

The proceeds from the transaction will be used to fund the expansion of Singtel’s regional data centre business across ASEAN markets, including Singapore, Indonesia and Thailand as well as to explore opportunities in other markets such as Malaysia. Part of Singtel’s Digital InfraCo unit since June, the telco is already recognised as one of the largest data centre operators in Singapore and currently has 62MW of capacity.

This investment is likely to drive more growth for Singtel, especially with Telkom and Medco Power in Indonesia and GULF and AIS in Thailand already partnered with the telco in the development of data centres in Batam and Bangkok. The data centre portfolio is forecast to reach a total combined capacity of over 155MW once the three new projects are operational in 2025, with the potential to scale up to more than 200MW.

“KKR’s investment underscores the quality of our data centre portfolio and confidence in our plans to scale the business,” says Bill Chang, CEO of Singtel’s Digital InfraCo. “Our expertise in designing, building and operating data centres, and our connectivity leadership in the region, together with KKR’s strong track record in supporting digital infrastructure assets and its platform-building expertise makes for a powerful combination. We look forward to building on the strong momentum we have achieved to grow the business into one of the region’s leading green and sustainable data centre platforms with rich hyper-connectivity services.”

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Arthur Lang, group CFO at Singtel, adds: “The investment by KKR crystallises the latent value of our data centre assets and we hope this illuminates value for our shareholders in the coming months.”

David Luboff, Partner and Head of Asia Pacific Infrastructure at KKR, sees potential in their venture. “We are pleased to provide this tailored solution to support the regional data centre platform of Singtel, one of the most longstanding and distinguished corporations in Singapore and a leading digital infrastructure provider in Asia Pacific. We look forward to working closely with Bill, Arthur and Singtel’s talented team to meet this tremendous demand, and sharing our global expertise and network to accelerate the platform’s growth across the region.”

The data centre market in Southeast Asia is expected to grow by 17% over the next five years, compared to 12% for the rest of the world, and investments ranging from US$9 billion to US$13 billion are predicted to flow into the region.

With demand for data centres expected to outpace supply due to the widespread adoption of artificial intelligence (AI), as well as enterprises transitioning to the cloud, Malaysia, Indonesia, and Thailand look set to experience the most significant capacity increases. Johor in particular will benefit from spill-over demand from Singapore due to local space constraints.

KKR will have the option to increase its stake to 25% by 2027 at the pre-agreed valuation, with the transaction expected to be completed by the fourth quarter of 2023. The unaudited net assets of Singtel’s regional data centre business as of June 30 were around $19 million.

“With more than $6 billion being unlocked since we embarked on our strategic reset two years ago, we continue to focus on unlocking value for our shareholders,” concludes Lang as he looks forward with optimism to this new venture.