|04 September, 2019

Data-centre IPO is safer proxy for tech bubble

Multi-tenant data centres took off after the financial crisis, when many companies began outsourcing storage to reduce IT budgets, and the advent of new innovations is fueling fresh demand

A panel outside the Hong Kong Exchanges displays top active securities during morning trading in Hong Kong, China October 11, 2018.

A panel outside the Hong Kong Exchanges displays top active securities during morning trading in Hong Kong, China October 11, 2018.

REUTERS/Bobby Yip

HONG KONG  - Data centres are a safer proxy for the tech bubble. UK-based Global Switch could file for a Hong Kong listing of at least $1 billion as soon as this month, according to Refinitiv publication IFR. Rising internet usage for everything from cloud storage to 5G requires more server warehouses. Returns have been stronger for this type of real estate than for other hum-drum property, too. It’s a neat way to play the internet era for buyers with a weaker stomach.

Multi-tenant data centres took off after the financial crisis, when many companies began outsourcing storage to reduce IT budgets, and the advent of new innovations is fueling fresh demand. Buyout firm Bain Capital and infrastructure investor Brookfield Asset Management are among those that have been snapping them up in Asia and the United States.

Global Switch is next on the block. Acquired by Britain’s billionaire Reuben brothers in 2007, it has since attracted Chinese backers. It runs 12 data centres across Europe and Asia Pacific and is valued at roughly 7.5 billion pounds following a recent stake sale to Chinese steelmaker Shagang . Shares in similar U.S.-listed companies have delivered: Equinix, InterXion and CyrusOne have generated total returns of 61%, 52% and 42% this year, compared to 23% for the Dow Jones U.S. Real Estate Index.

There’s plenty of growth, too. Global Switch’s flash new warehouses in Hong Kong and Singapore and a tie-up with Richard Li’s PCCW hint at the opportunity in Asia-Pacific. The multi-tenant data centre market in that region is expected to grow 12% annually to $28 billion by 2024, Cushman & Wakefield reckons. That will make it significantly larger than in the United States.

One big challenge in any offering will be to reassure investors that Global Switch’s Chinese ownership is an asset more than a liability. Australian defence officials and former British cabinet minister Malcolm Rifkind have raised security concerns in the past. Unrest in Hong Kong means listing in New York, where more peers trade, could be smarter. But for investors more comfortable with geopolitical risk than the kind of financial uncertainty that comes with volatile tech startups, Global Switch could be a more stable bridge to the data revolution.

CONTEXT NEWS

- An investment vehicle controlled by British billionaires David and Simon Reuben has sold a 24% stake in UK-based data-centre operator Global Switch to a Chinese buyer in a deal valued at 1.8 billion pounds, the company said in a statement on Aug. 27.

- Chinese steelmaker Jiangsu Shagang will buy the stake from Aldersgate Investments and become Global Switch’s biggest shareholder with a 49.9% holding. Shagang had previously acquired indirect stakes in the company.

- Global Switch owns, operates and develops multi-tenanted data centres in Europe and Asia-Pacific.

- The company plans to file an application for a Hong Kong listing of at least $1 billion as early as September, people close to the deal told Refinitiv publication IFR earlier. CLSA, Goldman Sachs and JPMorgan are acting as joint sponsors.

(Editing by Una Galani and Katrina Hamlin)

© Reuters News 2019

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