Chinese data center operator GDS Holdings has announced that it has entered into definitive agreements to monetize, on a net basis, a 70% equity interest in certain of its data centers, at an implied enterprise value (“EV”) to EBITDA multiple of around 13 times.
In a first of a kind transaction, GDS is selling a 100% equity interest in certain data center project companies to a private REIT (“P-REIT”), which is a special purpose equity scheme involving the issue of an Asset Backed Security (“ABS”). The ABS is 70% subscribed by top tier institutional investors in China, led by China Life Insurance Company Limited (“China Life”), whilst GDS subscribes for the remaining 30% and retains the rights for on-going operation of the underlying data centers.
The ABS will be listed on the Shanghai Stock Exchange as a standardized security product. The P-REIT structure is specifically designed to facilitate an eventual injection of the ABS into a public REIT vehicle (“C-REIT”) when qualified.
The total EV for the transaction is up to approximately RMB 2.9 billion. The total equity consideration is up to approximately RMB 1.7 billion, or RMB 1.2 billion net of the 30% reinvestment by GDS in the ABS. GDS will receive net cash proceeds of approximately RMB 500 million at closing. The remaining net cash proceeds of approximately RMB 700 million will be paid when certain milestones are met related to the ramp-up of the underlying data centers. GDS will deconsolidate the data center project companies including existing debt and other net liabilities of around RMB 1.2 billion at closing.
“We are delighted to announce this breakthrough deal for our asset monetization program,” said William Huang, Chairman and CEO of GDS. “This is a first P-REIT transaction in the China data center sector, featuring a true sale and successful monetization of data center assets. We highly appreciate the participation from China Life as anchor investor, and China Life Investment Management Company Limited as coordinator and advisor (the alternative investment platform of China Life Group), which highlights their confidence in our capabilities as a leading data center operator in China, as well as in the outlook for the sector as we move forward into the AI era.”
The transaction is expected to close within the next three months and is subject to certain closing conditions.
