Singtel sells 20% of its data center arm to fund expansion in Southeast Asia

Singtel announced Monday that global investment firm KKR has agreed to acquire a 20% stake in its regional data center business in a deal worth up to $1.1 billion Singapore dollars (US$807 million). The investment puts the enterprise value of Singtel's overall regional data center business at S$5.5 billion ($4 billion).

KKR will have the option to increase its stake to 25% by 2027 at a pre-agreed valuation. The transaction is expected to be completed by the fourth quarter of 2023.

The fresh capital will be primarily used to build regional data centers in Singapore, Indonesia and Thailand. The deal, the first collaboration between Singapore's largest telco and KKR, will accelerate Singtel's expansion into Southeast Asia's burgeoning data center market.

"The data center industry is growing at an accelerated pace given the unprecedented industry trends we are witnessing. The investment by KKR crystallizes the latent value of our data center assets and we hope this illuminates value for our shareholders in the coming months," Arthur Lang, group CFO at Singtel, said in a statement.

According to management consulting firm Kearney, Southeast Asia's data center market is expected to grow by 17% over the next five years compared to 12% for the rest of the world, with $9 billion to $13 billion in investments projected to flow into the region.

While data center capacity is poised to increase at a compound annual growth rate of 19% from 2021 to 2026, demand is expected to outpace supply driven by increased data consumption, enterprises transitioning to the cloud and the rapid rise of AI in the region.

Malaysia, Indonesia and Thailand could see the biggest increase in capacity, with Johor in particular benefitting from spillover demand from Singapore due to the island state's supply constraints.

Growing data center footprint

Singtel's regional data center business is part of the Digital InfraCo unit which was formed in June 2023. It has been growing this business anchored by its expertise in Singapore where it is one of the largest operators.

In addition to 62MW of existing capacity in Singapore, Singtel is building a new 58MW DC Tuas in Singapore. It has also partnered with Telkom and Medco Power in Indonesia and GULF and AIS in Thailand to develop data centers in Batam and Bangkok, respectively.

Once the three new projects are operational in 2025, Singtel's data center portfolio will deliver a total combined capacity of over 155MW, with room to scale up to more than 200MW.

Bill Chang, CEO of Singtel's Digital InfraCo, is confident of the company's plans to scale the business in Southeast Asia. The growing need to handle high performance computing tasks such as generative AI will also spur a significant growth in GPU-powered data centers in the years to come.

"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 center platforms with rich hyper-connectivity services," Chang stated in the press release.

Partnership transcends monetary investment

Besides the injection of new capital, Singtel is keen to tap KKR's expertise by investing in data centers and critical telecommunication infrastructure.

"KKR is a highly credible partner in the data center space, and we look forward to our strategic partnership in scaling up the platform to become a meaningful growth engine for Singtel," Lang said in a statement.

Worldwide, KKR's investments in the data center infrastructure sector have included CyrusOne, which is known in the development and operation of sustainable, scalable, high-availability and flexible data center solutions; Global Technical Realty, a build-to-suit and roll-up acquisition data center platform in Europe; and CoolIT Systems, a leading provider of scalable liquid cooling solutions in Canada.

"Robust digital infrastructure, including high-quality data centers, 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," said David Luboff, partner and head of Asia Pacific infrastructure, KKR.

"We will work closely with Singtel to meet this tremendous demand and share our global expertise and network to accelerate the platform's growth across the region," he added.

KKR's investment in Singtel is its latest foray into Southeast Asia, which forms part of its Asia infrastructure strategy.

The company's infrastructure assets in the subregion include Pinnacle Towers, a digital infrastructure platform in Asia with a strong focus on the Philippines; as well as First Gen, a provider of clean and renewable power in the Philippines. It also has a stake in Aster Renewable Energy, a renewables platform that develops, builds and operates solar, wind and energy storage projects in the region.