AI ructions sharpen India’s data-centre edge

KKR & Co

Wed 12:00

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Ujjaini  Dutta
BENGALURU, Nov 11 (Reuters Breakingviews) - India's data centres are starting to look extraordinarily attractive. Unlike in the US, the country remains an easy place to build the AI-critical infrastructure. It is also well insulated from the fallout around Nvidia CEO Jensen Huang's affair with an alleged Chinese spy: any resulting squeeze on chip supplies could slow data-centre development elsewhere in Asia in countries with closer ties to the People's Republic. That strengthens KKR's KKR.N hand as it seeks to offload an Indian portfolio worth perhaps $5 billion.
The deal is an important pillar of KKR's plan to slice up and monetise its largest Asia Pacific acquisition. In February, it bought one of the region's biggest data centre operators alongside minority partner Singapore Telecom STEL.SI in a deal carrying an $11 billion enterprise value. ST Telemedia Global Data Centres is a collection of fast-growing local businesses spanning Europe, South Korea and Japan. One-third of its data centres are in Southeast Asia, a region that could feel the most heat from the Nvidia NVDA.O saga. 
Its joint venture in India, where STT GDC owns a 74% stake in an over 600-megawatt portfolio alongside 26% owner Tata Communications TATA.NS, looks less complicated. KKR and Tata had planned an initial public offering as part of the wider acquisition, but now an outright sale looks more sensible. Although a sale may yield a lower valuation, it would provide a cleaner exit for KKR. Public market investors from the US to Australia also have turned sceptical on data centre providers as construction gets harder to execute. 
India is one of the few markets where fast large-scale construction with renewable energy is still possible. With access to powered land, it's feasible to complete a buildout in India within about two years; in the US it might take three to six years - and, speaking at the Global Financial Leaders' Investment Summit in Hong Kong last week, Brookfield Corp BN.TO CEO Bruce Flatt said the easy sites in the country have all been used. 
Although some public resistance to the data centre buildout is emerging in Indian cities, the pushback is not politically potent. New Delhi is also providing attractive incentives, such as a two-decade tax holiday till 2047 for foreign firms. Overall data centre capacity is expected to grow fivefold to 8 gigawatts in three years. 
The most logical buyer for KKR's assets would be its own partner, $5 billion Tata Communications. Its larger sister company, $95 billion Tata Consultancy Services TCS.NS, is developing AI data centres with US private equity firm TPG TPG.O. But with the wider Tata group locked in a power struggle, executing a complicated related party deal looks like too much trouble. In the end, that may be their loss. 
       
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CONTEXT NEWS
Private equity group KKR, Singapore Telecom and Tata Communications, the shareholders of STT Global Data Centres India, have initiated plans to sell their data centre portfolio at a valuation of over $5.5 billion, The Economic Times reported on November 2, citing people familiar with the situation. The business comprises 34 data centres across 10 cities in the country with a total capacity of 613 megawatts, according to the company's website.
Brookfield and Macquarie are among the investors in discussions over a potential stake acquisition in STT GDC India, Moneycontrol reported on November 5, citing people familiar with the matter. Other potential investors include Caisse de dépôt et placement du Québec, Canada Pension Plan Investment Board and Digital Realty, although formal bids have yet to be submitted.
     

(Editing by Una Galani; Production by Eileen Soreng)
((For previous columns by the author, Reuters customers can click on DUTTA/ujjaini.dutta@thomsonreuters.com))