KKR to Buy 20% of Singtel’s Datacenter Arm for $800 Million

KKR to Buy 20% of Singtel’s Datacenter Arm for $800 Million

(Bloomberg) -- KKR & Co. agreed to pay S$1.1 billion ($807 million) for a fifth of Singapore Telecommunications Ltd.’s regional datacenter business, making its latest bet on Asian digital infrastructure.

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The investment firm will have an option to raise its stake to 25% by 2027, it said in a statement, under a deal that puts the Singtel unit’s enterprise value at about S$5.5 billion. Singapore’s largest telecoms provider will use the capital to bankroll an expansion across Southeast Asia and into new markets such as Malaysia and Vietnam, Chief Financial Officer Arthur Lang said in an interview with Bloomberg TV’s Rishaad Salamat, Yvonne Man and David Ingles. Its shares rose as much as 1.7% early Monday before retreating.

KKR is one of the region’s biggest investors in the server networks and piping needed to power the internet and train a new generation of AI services, demand for which is surging in the wake of OpenAI’s ChatGPT. As part of the deal, KKR can take up to two seats on the board of Singtel’s datacenter business, Lang said.

The private equity firm raised $3.9 billion for its first Asia-Pacific infrastructure fund around 2021, amassing one of the region’s largest pools of capital to funnel into everything from renewable energy to communication towers. Digital activity surged during the pandemic, though internet valuations have since come down as Covid petered out. The firm’s past investments encompassed Indian electricity companies and Pinnacle Towers, the leading power producer and a telecoms operator in the Philippines.

“There’s a tremendous need for datacenter storage and compute capacity in Singapore,” Lang said. Power allocation is “just as important, if not more important, than the supply of land,” he said. Singtel has teamed up with local partners who can help it expand in Southeast Asia, he added.

Read more: KKR Raises $3.9 Billion in Biggest Asia Infrastructure Fund

What Bloomberg Intelligence Says

Singapore Telecommunications’ sale of a 20% stake in its data-center unit to KKR for S$1.1 billion could lower leverage by around 0.2x and might support an upgrade by Fitch, which has its A rating on positive outlook. The funds are earmarked for growth but demonstrate the telco’s track record of monetizing assets to keep net debt-to-Ebitda, including dividends from associates, below 2x in recent years.

- Sharon Chen, analyst

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Global private equity firms in past years have shifted away from focusing on buyouts toward becoming investment houses with portfolios of alternative assets such as infrastructure and real estate. They’re finding willing recipients among governments in Asia, who need private capital to finance airports, toll roads and utilities.

The regional datacenter market is expected to grow by an average of 17% over the next five years, attracting $9 billion to $13 billion of investments during that period, KKR and Singtel said in their joint statement. They expect their deal to close around the end of 2023.

--With assistance from Ville Heiskanen, Rishaad Salamat, Yvonne Man and David Ingles.

(Updates with comments from executive starting in second paragraph.)

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