Global investment firm KKR has agreed to acquire a 20% stake in Singtel’s regional data centre business for S$1.1 billion (US$800 million).

The investment puts the enterprise value of Singtel’s overall regional data centre business at S$5.5 billion. KKR will have the option to increase its stake to 25% by 2027 at the pre-agreed valuation.

The collaboration, the first between the two companies, allows Singtel to tap into KKR’s expertise in investing in data centres and critical telecommunication infrastructure globally in addition to capital.

The proceeds from the transaction will be used to accelerate the expansion of the regional data centre business across Asean markets, including Singapore, Indonesia and Thailand, while exploring markets like Malaysia and others. This will widen the business’ strategic choices, giving a variety of options to monetize the business in the future.

The deal is expected to be completed by the fourth quarter of 2023, subject to regulatory approvals and customary closing conditions.

Singtel’s regional data centre business is part of its Digital InfraCo unit, which was formed in June 2023. In addition to 62 megawatts of existing capacity in Singapore, Singtel is building a new data centre, the 58MW DC Tuas, its largest in the country so far.

The communications technology group has also partnered with Telkom and Medco Power in Indonesia and GULF and AIS in Thailand to develop data centres in Batam and Bangkok respectively. Its data centre portfolio will deliver a total combined capacity of over 155MW once the three new projects are operational in 2025, with room to scale up to more than 200MW.

Rapid growth

Southeast Asia’s data centre market is expected to grow by 17% over the next five years, compared with 12% for the rest of the world, with US$9 billion to US$13 billion in investments projected to flow into the region.

While data centre capacity is poised to increase at a compound annual growth rate of 19% from 2021 to 2026, according to management consulting firm Kearney, demand is expected to outpace supply, driven by increased data consumption, enterprises transitioning to the cloud, and the rapid rise of artificial intelligence in the region.

Malaysia, Indonesia and Thailand could see the biggest increase in capacity with Johor, in particular, benefiting from spillover demand from Singapore due to the island state’s supply constraints. The growing need to handle high performance computing tasks such as generative AI will also spur a significant growth in GPU-powered data centres in the years to come.

KKR is making the investment in Singtel’s data centre business as part of its Asia infrastructure strategy.

The firm’s infrastructure investments in Southeast Asia have included Pinnacle Towers, a digital infrastructure platform in Asia with a strong focus on the Philippines; First Gen, a leading provider of clean and renewable power in the Philippines; and Aster Renewable Energy, a renewables platform that develops, builds, and operates solar, wind, and energy storage projects in the region.

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