The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, Feb 4 (Reuters Breakingviews) - Demand for data centres is booming thanks to artificial intelligence. That's the straightforward rationale underpinning KKR's KKR.N biggest Asia-Pacific investment, which values one of the region's top operators at almost $11 billion including debt. But the financial logic is far more opaque.

Tuesday's deal involves KKR and Singapore Telecommunications STEL.SI agreeing to buy the 82% of privately-owned ST Telemedia Global Data Centres they don't already have a claim on for S$6.6 billion ($5.2 billion) in cash from Temasek-owned parent STT Communications. The buyers first invested in 2024, paying S$1.75 billion for redeemable preference shares and as yet untapped warrants which, once exercised, will account for the remainder of the common equity, according to someone familiar with the matter. After the transaction, the U.S. private equity giant will own three-quarters of the data-centre group, with the rest held by Singtel, whose largest shareholder with 52% is Temasek.

The problem is, it's not clear whether the buyers or seller are getting the better deal. This latest transaction implies an S$8 billion equity valuation for STT GDC. But there's no way of knowing how that compares to two years ago, since the terms of the warrants, including at what price they convert into shares, were not made public.

Moreover, the headline enterprise value of S$13.8 billion, or $10.9 billion, means little since that includes not just net debt but also "capital expenditure for committed projects". The latter is notoriously hard to gauge from the outside: it's effectively an estimation of how much capex will be required to be able to offer customers the services they have pledged to pay for; estimates of those income streams are logged as "contracted EBITDA" — another number that is not disclosed. The buyers have said STT GDC has a pipeline of data centre projects of over 1.7 gigawatts, without elaborating.

The opacity is similar to Blackstone's BX.N A$24 billion ($16 billion) purchase of Australia-based AirTrunk at the end of 2024. That enterprise value also included contracted capex and helped the sellers put a value on the business that was twice what was expected. True, many AI-related forecasts require guesswork and a healthy dose of optimism. From 2025 to 2030, data centre capacity additions are estimated to be between 69 GW and 141 GW — a huge range — according to Macquarie, citing different projections.

For outsiders, this makes KKR's deal and others even harder to compute.

($1 = 1.2702 Singapore dollars)

($1 = 1.4243 Australian dollars)

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CONTEXT NEWS

KKR and Singapore Telecommunications on February 3 said they have agreed to acquire for S$6.6 billion ($5.2 billion) the 81.7% they don't already have a claim on of ST Telemedia Global Data Centres from Temasek-backed parent STT Communications. The deal, Singapore's largest M&A transaction in four years and the largest data centre transaction in Southeast Asia, values the target's enterprise at S$13.8 billion, including debt and capital expenditure for committed projects.

In 2024, the buyers first invested S$1.75 billion in the company. KKR and Singtel currently hold redeemable non-voting preference shares and warrants representing roughly 14.1% and 4.2% of STT GDC respectively.

Upon completion, KKR will own 75% of STT GDC, with Singtel holding the rest, "taking into account the conversion of existing redeemable preference shares".

Citi is acting as lead financial adviser to KKR and Singtel and provided acquisition financing.

($1 = 1.2690 Singapore dollars)

(Editing by Antony Currie; Production by Streisand Neto)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))