GIC Strikes (a Hyperscale Data Center Deal) Again

The Singapore sovereign fund is on a data center investment roll. Its latest deal is with GDS for cloud sites in China.

Yevgeniy Sverdlik

August 15, 2019

3 Min Read
gds shanghai no. 1 data center
GDS's data center No. 1 in ShanghaiGDS Holdings

GDS Holdings, Chinese clouds’ largest data center landlord, has found a deep-pocketed partner to fund some of its already massive expansion activity. GIC, the Singapore government’s sovereign wealth fund that’s gotten into data center investing only recently – but with a vengeance – will fund a series of GDS projects starting with several for a specific, but unnamed, hyperscale customer.

The customer, which according to GDS is “a leading internet and cloud service provider,” has signed up for 130MW of IT power capacity across seven future data centers at three of the developer’s campuses, GDS CFO Daniel Newman said on the company’s second-quarter earnings call earlier this week. “But we expect the same customer to have substantially more requirement than that and over time expect the scale of what we undertake through this partnership to increase.”

GDS will fully own the assets until they’re built, but once they are, GIC will buy a 90 percent stake in each of them at the price of development and financing costs. GDS will make money on its remaining 10 percent stake from leasing the facilities to the client, but it will also manage and operate them, collecting service fees.

GDS has already built three data centers for this customer in Hebei province and nearing completion on a fourth one, in Jiangsu province. It’s keeping the Hebei facilities out of the GIC deal, while contributing the Jiangsu one to the joint venture as its first project.

Related:Ping An’s Investment in China’s GDS Is a Bigger Deal Than Most US Investors Realize

GDS has been expanding at a remarkable rate, which by proxy illustrates the rate of growth of Chinese cloud providers (tight government restrictions on foreign cloud companies have ensured that domestic providers like Alibaba dominate the market). Last year, it signed contracts for 180MW, which will almost double the size of its portfolio.

Bringing outside investors on board has become a necessity for publicly traded hyperscale data center developers like GDS. These facilities can take more than a year to build, with construction costs running in the hundreds of millions of dollars, but they don’t start generating income until they’re up and running. And even once a facility is up and running, a customer doesn’t usually fill it up on day one, so these assets don’t realize their full income potential for a long time after the initial capital commitment is made.

Public markets, collectively unable to see beyond the three-months-at-a-time earnings cycle, don’t take kindly to executive teams that report massive upfront capital commitments with a promise of stellar returns much later down the road. Partnering with patient capital like GIC helps soften the blow of those big upfront commitments to the developers’ shares. (Equinix recently enlisted GIC to help fund its hyperscale ambitions in Europe citing similar motivations.)

Related:Why GDS Thinks It’ll Go on Winning in the Chinese Data Center Market

GDS is GIC’s fourth data center deal. Prior to the Equinix agreement, it partnered with Singapore’s Polymer Connected to build hyperscale facilities in Jakarta, and before that, early last year, it invested in the recently formed US hyperscale developer EdgeCore Internet Real Estate.

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