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

KKR has agreed to invest up to $1.1 billion to acquire a 20% stake in the regional data centre business of Singapore Telecommunications (Z74 2.07%), the first cooperation between the two parties. The investment will value the business at $5.5 billion, around 60% higher than the DBS Group Research’s estimate of $3.4 billion.

Singtel’s Regional Data Centre business is part of the Digital InfraCo unit, which was formed in June. It is already one of the largest data centre operators in Singapore with 62MW capacity. The telco is also building a 58MW data centre in Tuas, as well as partnering with Telkom and Medco Power in Indonesia and GULF and AIS in Thailand to develop data centres in Batam and Bangkok, which is expected to generate a total combined capacity of over 155MW when the new projects are complete in 2025.

The investment by KKR, a global investment firm, will help expand the regional data centre business across Asean markets, including Singapore, Indonesia and Thailand, and explore other markets such as Malaysia. Singtel will also be able to tap into KKR’s expertise investing in data centres and telecommunication infrastructure globally.

KKR will have the option to increase its stake to 25% by 2027 at pre-agreed valuations. Additionally, the proceeds from the transaction will go to expanding the regional data cenre business and exploring markets.

“KKR’s investment underscores the quality of our data centre portfolio and confidence in our plans to scale the business by capitalising on the digitalisation and rapid AI adoption that is transforming this region. 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,” said Bill Chang, CEO of Singtel’s Digital InfraCo.

Data centre demand in Southeast Asia is expected to outpace supply due to higher data consumption, enterprises transitioning to the cloud and the rapid rise of artificial intelligence (AI) in the region. Malaysia, Indonesia and Thailand could see the biggest increase in capacity with Johor, in particular, benefitting from spill-over demand from Singapore due to the island state’s supply constraints. The growing need to handle high performance computing tasks such as generative AI will also spur a significant growth in graphics processing units (GPU)-powered data centres in the years to come.

Singtel Group Chief Financial Officer, Arthur Lang added: “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. 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.”

David Luboff, partner and head of Asia Pacific Infrastructure at KKR, said: “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. Robust digital infrastructure, including high-quality data centres, will play a crucial role in enabling Southeast Asia’s flourishing digital economy, and Singapore is well-placed to serve as a central hub for the region. 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.”

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The unaudited net assets of Singtel’s regional data centre business as of June 30 was approximately $19 million. The transaction is expected to be completed by the fourth quarter of 2023.

KKR’s investment puts the enterprise value of Singtel’s overall regional data centre business at $5.5 billion, around 60% higher than the $3.4 billion estimate by DBS Group Research. Additionally, 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 could see as much as US$13 billion in investments flowing into the region.

This is the first collaboration between Singtel and KKR and it will be able to tap on KKR’s expertise investing in data centres and telecommunication infrastructure globally in addition to capital. KKR itself is making this investment as part of its Asia infrastructure strategy. With this strategic partnership, Singtel and KKR will look to scale the platform to become a meaningful growth engine for Singtel with the potential to unlock even more value for shareholders.