Growth trend: SingTel satellite dishes are seen in Singapore. The amount KKR is paying for the stake values the regional data centre business at US$4bil. — Bloomberg
SINGAPORE: A giant American private equity group will commit up to S$1.1bil (US$806mil) for a 20% stake in Singtel’s regional data centre business.
Singtel told the Singapore Exchange yesterday that the telecommunication company had reached a “definitive agreement” with KKR & Co in the first collaboration between the firms.
The amount KKR is paying for the stake values the regional data centre business at S$5.5bil (US$4bil).
Singtel shares rose on the news, trading up two Singapore cents or 0.8% to S$2.42 yesterday.
Singtel group chief financial officer Arthur Lang told The Straits Times the valuation was “extremely attractive” and “a massive validation of the segment’s latent asset value”.
Industry estimates put the imputed valuation – as a multiple of earnings before interest, taxes, depreciation and amortisation (Ebitda), or, a measure of a business’s financial health – in the high 30s.
In comparison, valuations of other data centre companies tend to be around the low 20s.
Ultimately, the deal – to be completed by the fourth quarter of 2023 – will not only shed light on the value of Singtel’s key assets but also provide investors with a better sense of where the group’s share price ought to be.
Lang believes Singtel’s shares – which are trading at about 7.5 times Ebitda – are “severely undervalued”, but the KKR deal will enable the market to more accurately price the entire group through the sum of its parts.
“With more than S$6bil being unlocked since we embarked on our strategic reset two years ago, we continue to focus on unlocking value for the benefit of our shareholders,” he said.
The mega deal gives KKR the option to raise its stake to 25% at a pre-agreed valuation by 2027 in the regional data centre business, which falls under Digital InfraCo, the group’s standalone infrastructure unit created in June.
Digital InfraCo chief executive Bill Chang said KKR’s investment “underscored the quality of our data centre portfolio and confidence in our plans to scale the business” and that the proceeds from the stake sale will fund the building of “a pipeline of growth in the regional platform”.
The fresh capital will accelerate the group’s aim of breaking into South-East Asia and also support emerging demand from generative artificial intelligence (AI) users, with the next-generation data centres likely to make an appearance in the next 18 to 24 months, he noted.
The higher-density designs are needed to cope with the increased AI workload, and novel ways of cooling the servers are also a must because they generate a lot more heat.
This is where Singtel will be able to “tap KKR’s expertise investing in data centres and critical telecommunication infrastructure globally”, Chang said.
In addition to its existing operations here, Digital InfraCo had announced projects in Tuas, Bangkok and Batam with a combined capacity of more than 155 megawatts (MW) that will be operational by 2025. This capacity could be scaled up to 200MW.
There are also plans to expand elsewhere in the region, with the unit exploring opportunities in Malaysia and other markets.
However, because the business is very capital-intensive, there is a need to bring in partners “that will grow with us”, Singtel’s Lang said. — The Straits Times/ANN
