Singapore-based telecommunication company Singtel has announced a definitive agreement with American private equity group KKR & Co. Under the agreement, KKR will invest up to S$1.1 billion ($806 million) for a 20% stake in Singtel’s regional data centre business. This partnership marks the first collaboration between the two firms.
The investment values Singtel’s regional data centre business at S$5.5 billion ($4 billion). Singtel’s shares rose by 0.8% following the news. Singtel Group Chief Financial Officer, Arthur Lang, described the valuation as “extremely attractive” and a “massive validation of the segment’s latent asset value.”
Industry estimates suggest that the imputed valuation of Singtel’s data centre business, in terms of earnings before interest, taxes, depreciation, and amortization (EBITDA), is in the high 30s. This is higher compared to other data centre companies, which tend to have valuations in the low 20s.
The deal, expected to be completed by the fourth quarter of 2023, will shed light on the value of Singtel’s key assets and provide investors with a better understanding of the company’s share price. Singtel’s shares are currently trading at about 7.5 times EBITDA, which Lang believes is “severely undervalued.” The partnership with KKR will enable the market to more accurately price the entire group based on the sum of its parts.
As part of the agreement, KKR has the option to raise its stake to 25% at a pre-agreed valuation by 2027. Singtel’s regional data centre business falls under Digital InfraCo, the company’s standalone infrastructure unit. The proceeds from the stake sale will fund the building of a pipeline of growth in the regional platform.
The fresh capital will enable Singtel to accelerate its expansion into Southeast Asia and address the growing demand from generative artificial intelligence (AI) users. Singtel plans to introduce next-generation data centres within the next 18 to 24 months. These data centres will have higher-density designs to handle increased AI workloads, requiring innovative cooling solutions due to the increased heat generated.
Singtel will leverage KKR’s expertise in investing in data centres and telecommunication infrastructure globally. Aside from its existing operations, Digital InfraCo also has announced projects in Tuas, Bangkok, and Batam, which will have a combined capacity of over 155 megawatts and will be operational by 2025. The unit is also exploring expansion opportunities in Malaysia and other markets.
Singtel acknowledges the capital-intensive nature of the business and aims to bring in partners that will support its growth.