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Sustainable Infrastructure Awards 2024: Digital goes green
Project financing embraces ESG to support the construction of data centres in the region
The Asset 24 May 2024

From Australia to India, infrastructure development is on the rise across Asia-Pacific as policymakers redouble their efforts to transition to renewable energy and improve connectivity links. One area that has drawn increasing focus in recent years is the rapid development of digital infrastructure, particularly data centres.  

With the growing use of artificial intelligence (AI) applications and cloud computing, there has been a strong demand for new facilities to support the technology’s expanding data processing and storage requirements. Concerns around data sovereignty in the United States and other jurisdictions have prompted Asian countries such as India, Malaysia and Thailand to construct local data centres.

The Asia-Pacific data centre market is ripe for investment, and, according to Renub Research, it is forecast to expand at a compound annual growth rate of 12% to reach US$53.58 billion by 2028.

“Investor demand for data centres is strong, with a wide range of buyers seeking stabilized assets,” CBRE Research says in a commentary. “However, there remains a lack of stock for sales.”

A growing list of data centre operators are looking to establish themselves in the region. from US-based companies such as Equinix, Digital Realty and EdgeConneX to regional players such as Digital Edge DC, STT GDC and GDS. 

Green focus

While various factors, such as the availability of suitable land area, are key to growing the data centre segment in a particular jurisdiction, a more critical component is having sufficient power supply, particularly clean energy, to support the growing computing demand. Data centres account for 1% to 1.5% of global electricity use, the International Energy Agency estimates, contributing to nearly 1% of energy-related greenhouse gas emissions.

Looking to address this issue, many of the new data centre project financings in Asia are now being structured with environmental, social and governance (ESG) considerations in mind. Last year, for example, Digital Edge closed a US$335 million green loan for the first phase of development of its 100-megawatt data centre project in South Korea.

In Indonesia, EdgeConnex secured the first-ever sustainability-linked loan (SLL) for a data centre in the country, with margin adjustments on meeting key performance indicators related to power usage effectiveness, renewable energy use, and achievement of safety goals.

In Hong Kong, Asia-Pacific real estate firm ESR signed a HK$1.6 billion (US$205 million) sustainability-linked loan to fund the conversion of a cold storage facility into a data centre, with interest reduction incentives linked to the project’s sustainability targets.

Last year Sydney-based AirTrunk executed a A$4.6 billion (US$3.05 billion) sustainability-linked loan, the largest such financing for a data centre operator globally. The SLL combined carbon, energy and water usage effectiveness as key performance indicators and also incorporated gender equity into the KPI.

The emergence of green-focused data centres is a good sign for several jurisdictions interested in having more digital infrastructure while pursuing their commitments to climate change mitigation. Last year, for example, Singapore ended a three-year pause on new data centre projects while stressing the need for new facilities to have higher green standards.

Mitigating risks

Though banks’ appetite for taking part in the funding of data centre projects is growing, there is a need for a balanced and prudent approach to underwriting such projects. This involves closely examining the data centre’s offtaker contract to determine whether it is servicing an established organization such as Microsoft or Tencent, or a lesser-known, new-economy company with no solid track record, as banks are normally wary about financing speculative builds.

“The track record of the sponsor alone is not enough for us to finance as we also look at the direct agreement sponsors sign with offtakers,” explains a banker familiar with data centre financing. “We look at the party, the tenor and, most importantly, the termination rights of the parties and what penalties they have to pay if they terminate for convenience.”

With demand for data centre development not expected to drop off anytime soon, banks will need to consider how they can cope with possible client concentration risk and, in the next stage of development, use the capital markets to help take data centre debt off their lending books. 

As part of The Asset’s coverage of infrastructure developments, we are pleased to list here several winning digital infrastructure deals as part of the Triple A Sustainable Infrastructure Awards 2024.

For more information about this award programme please go here.

If you are interested to attend our awards dinner gala in Singapore on July 9th, 2024, please contact us at celebrate@theasset.com.

Stay tuned in the coming days as we announce more winners of the Triple A Sustainable Infrastructure Awards 2024. Watch this space!

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