DigiCo drops on ASX debut as data centres hype shows signs of cooling
The year’s biggest float has flopped on its ASX debut when investors sold off HMC Capital’s DigiCo trust and the lack of support could have ramifications for the data centre frenzy.
The marquee float of the year, the DigiCo Infrastructure REIT launched by David Di Pilla’s HMC Capital, was given a harsh reception by investors on Friday, with its shares plunging by as much as 10 per cent on their ASX debut.
The much-hyped stock was sold off heavily ahead of the market close, raising questions about how the vehicle that owns $4.2bn of data centres in Australia and US would bounce back.
The fall from its $5 issue price to a close of $4.55 surprised investors as the REIT was heavily promoted by four-top investment banks and retail brokers, generating expectations of a share price rise. The register was tightly packed with HMC’s “friends and family” and retail investors who bought into the data centre theme.
But in a reversal for the stock – and potentially HMC Capital’s ambitions of expanding in the field – it started slowly and fell away, closing down 9 per cent on the first day of trading.
The fall dragged down management company HMC Capital, which also lost 7.24 per cent to $11.27, as investors had expected the new fund to rise.
Market players said that the register was overloaded with retail investors and the stock lacked institutional support, with few chasing it on market due to the relatively low quality of the assets, some still under development.
The strategy to rely on mum-and-dad investors could come under pressure, as few institutions are expected to step up to meet further selling until the stock bottoms out. Global funds also avoid externally managed trusts like DigiCo and can be reluctant to back cross-border trusts amid global volatility.
Ahead of the listing Mr Di Pilla had been bullish about the prospects.
“The growth opportunity is huge ahead of us,” he said, saying there were only about 10 listed groups worldwide providing an exposure to the rising asset class that was being transformed by the AI revolution.
Mr Di Pilla said the trust’s assets were growing strongly and it could become a “globally relevant” stock in coming years.
He also pointed to the group’s development pipeline, most of which has power secured, and played down the risk of DigiCo’s complexes being overtaken by new technology.
“The reality is that just the sheer amount of data that’s being created around the world, and the need for storage of that data, is increasing,” he said.
Mr Di Pilla is backing the company’s “unique” model as an owner, manager and developer of data centres, saying it gives the trust a broad landscape to invest across and provide a mix of yield and growth. But the poor first-day performance could hinder these ambitions.
The debut is likely to add more scrutiny to sector heavyweight the Goodman Group, as well as potentially take some heat out of a number of contests for data centre portfolios – as successfully listing assets is a potential exit strategy.
The area has been running hot since US private equity giant Blackstone paid $23.5bn to buy the Airtrunk platform and it announced plans to grow to about $100bn. While Blackstone is operating in the private arena, DigiCo’s stock plunge was public and it will continue to be exposed to negative market sentiment.
The register is heavily weighted to retail. Mr Di Pilla thanked broker Morgans for its efforts at a launch ceremony at the ASX. Rival brokers have questioned how sticky this money will be in the face of losses at the start of the trust’s trading life.
Despite its frenzied deal making across new fields, ranging from private credit to energy transition, HMC Capital has a relatively poor track record in launching listed real estate investment trusts. There are some concerns that DigiCo could follow the Healthco Healthcare and Wellness REIT, which listed at $2 and then undertook a dilutive right issue before losing market support and dropping to $1.03.
HMC Capital’s lack of a long-term track record, despite it picking up management teams in the US and locally, has also been an issue among investors.
Fund managers said that demand for data centre stock may have been partially sated last week when sovereign fund China Investment Corporation sold down a $1.9bn parcel of Goodman Group stock via Citi.
The botched share sale meant that investors had already picked up a heavy volume of data centre-related stock and did not want to buy again this week.
The new DigiCo stock now joins other listed real estate investment trusts which are trading at a discount, although its specialty in data centres meant this came as a surprise.
Before the stock was listed, HMC Capital’s detractors noted both the aggressive nature of its expansion plans and use of financial engineering to bolster yields to investors.
These issues may reduce demand from institutions which otherwise want to back the data centre theme, and regaining their interest will be crucial to getting the stock into major indices.
The plunge is likely to prompt some fallout among the banks which both underwrote the float and also put their clients into such a data transaction.
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