The race to build large, modern data centers to drive the development of artificial intelligence is becoming increasingly intense across Asia. At the same time, the complexity of raising capital is also growing.
As costs surge, many companies that build and operate data centers in high-tech hubs such as Malaysia’s Johor–Singapore Special Economic Zone (JS-SEZ) are moving away from traditional financing methods. These have typically relied on equity from company founders or a small group of investors, combined with conventional bank loans.
Instead, they are now turning to institutional investors — including sovereign wealth funds, private equity firms and credit companies — while adopting new borrowing strategies that may entail additional risks. Some of these strategies come with higher interest rate demands.
“Everyone has reached the point where they need to raise more capital,” said Gary Goh, founder and director of Kuala Lumpur-based data center consultancy Sprint DC Consulting. “You will need private capital one way or another.”
The ability of Asian developers to secure more ambitious financing deals is a consequence of the global demand for computing power. Potential customers — ranging from telecommunications companies to cloud-computing giants such as Google and Amazon — are making massive commitments, and these agreements enable developers to secure funding for their projects.
However, in recent weeks, investors have begun to question the importance of such leasing contracts in data-center lending. Oracle’s shares fell sharply after the cloud-computing company’s data-center lease commitments surged to US$248 billion.
Commercial banks in Asia have tightened lending standards for data-center projects, reflecting concerns about the use of customer credit ratings in credit assessments and worries that the potential customer base is becoming concentrated among a handful of major technology players, according to banking experts and data-center operators. They noted that banks are being asked to conduct more rigorous due diligence and to require higher utilization rates before approving credit.
Mark Fong, chief executive of data-center developer and operator Empyrion Digital, warned that operators are not paid until tenants are able to move in and actually use IT capacity. Concerns surrounding data-center deals in Asia also include a complex geopolitical issue: the risk that technology used in artificial-intelligence projects could be diverted to China, in violation of U.S. or other countries’ export restrictions.
In March, Malaysian property developer Exsim Group terminated a hyperscale data-center contract with Aperia Cloud Services after two Aperia executives were charged in Singapore with conspiracy and fraud. Singaporean authorities are investigating whether restricted chips were used to benefit Chinese AI startup DeepSeek.
Exsim said in a statement that the data center was fully funded by the company and that it did not anticipate any difficulty in securing occupancy.
China’s presence is particularly evident in places such as the JS-SEZ, located just across the strait from Singapore. China’s ByteDance is among the key tenants of Chinese operators such as DayOne, the overseas arm of GDS Holdings, and Bridge Data Centers. TikTok, a ByteDance unit, said it would also invest US$3.8 billion this year in data-hosting services in Thailand, another emerging data-center hotspot.
“Banks are concerned about geopolitical challenges — what happens if a project they finance serves Chinese end users, and those end users face supply-chain difficulties in acquiring advanced GPUs (graphics processing units)? In that case, colocation lease contracts could be canceled,” said Vivian Wong, senior Southeast Asia analyst at data-center research firm DC Byte.
By contrast, according to Goh, a former investment banker who is now seeking to connect private-equity and private-credit investors with capital-hungry developers, institutional investors are unlikely to resist the profit potential of Asian data centers.
Data from MSCI show that nearly US$70 billion in private capital has flowed into data-center operators and their projects across the Asia-Pacific region over the past decade. About US$40 billion of that amount was invested in just the past two years.
In 2024, private-equity giant Blackstone acquired data-center developer AirTrunk for A$24 billion (US$16 billion), a record valuation in the region that Blackstone said reflected future project commitments. Reuters reported in November that KKR is in advanced talks to acquire Temasek’s ST Telemedia Global Data Centres at a valuation exceeding US$5 billion. Vantage Data Centers completed the acquisition of a data-center site in Johor from Yondr Group after receiving US$1.6 billion in investment from Singapore’s GIC and the Abu Dhabi Investment Authority.
Hundreds of billions of dollars will be needed to build the facilities currently planned across Asia.
Pritesh Swamy, head of research and market analytics for the Asia-Pacific Data Center Group at real estate services and consultancy Cushman & Wakefield, estimates that construction costs in the region, excluding IT equipment, are around US$10 million per megawatt. One megawatt equals one million watts. This means that a hyperscale project — defined as 100 MW or more — would have construction costs of roughly US$1 billion.
“The data-center sector has become extremely capital-intensive, and the pace and scale of data-center construction are unprecedented,” Rangu Salgame, chairman, CEO and co-founder of developer Princeton Digital Group, told Nikkei Asia. “There has been massive capital formation, and it now appears that large-scale capital is concentrated in the hands of a few major investors.”
(Source: cafef.vn)
