Prepare for a price ‘shoot out’! Bidders to jostle for $15bn-plus AirTrunk

AirTrunk is an Asia-Pacific data centre specialist.

It’s the business end of the $15bn-plus tussle for data centre company AirTrunk, as supercharged bidding groups start to seek approvals and formalise their offers.

Late this week and early next, each firm involved in the bidding will need to formally front their respective investment committee to secure a final sign-off. Given the size of the transaction, the financing required, and the huge capital expenditure planned for AirTrunk, it’s not for the faint-hearted.

That’s why there are just two heavy-hitting camps ready to battle it out for the Asia-Pacific/Japan data centre specialist. Final bids in the closely watched auction are due in the week beginning August 26.

One person close to the process said: “It will just be a shootout on the price.”

The auction pits Blackstone and the Canadian Pension Plan Investment Board, known as CPP Investments, against a consortium of five investment firms.

The second group includes IFM Investors, Silver Lake, DigitalBridge and Global Infrastructure Partners.

Bankers and lawyers are also trawling through the debt financing requirements for the AirTrunk transaction. That includes a staple debt package that is linked to the sale process, but also changes to Australia’s thin capitalisation rules. They are aimed at limiting the amount of debt deductions multinationals can claim in an income year, and may weigh on deliberations on the AirTrunk transaction, given the bidding parties involved.

It’s no secret that the data centre industry has been a hot investment space in recent years, even as participants and governments fiercely debate their growing energy consumption. Data centres – which provide around-the-clock processing and storage of data – require cooling and ventilation.

Blackstone has been active in the data centre space this year. Earlier this year, it acquired the former Britishvolt industrial site in northeast England to advance plans to build large data centres. The project was reported as having earmarked investment of up to £10bn ($19.4bn) in the region.

In the opposing camp, Silver Lake and New York- listed DigitalBridge in June led a $US9.2bn ($14bn) equity investment in Vantage Data Centers, to help fund the company’s growth across five continents.

Vantage owns or controls more than 25 sites in North America and Europe, the Middle East and Africa, equating to more than three gigawatts of expected capacity.

That provides some perspective on the growth that may lie ahead for AirTrunk.

Sydney-based AirTrunk is pushing ahead with Asia-Pacific expansion plans and late last month opened a Malaysian hyperscale data centre in Johor Bahru, known JHB1.

The new site is part of AirTrunk’s regional platform of 11 centres, representing more than 1.4 gigawatts of total capacity.

AirTrunk chief Robin Khuda.

This column understands Macquarie Group’s asset management arm owns some 60 per cent of AirTrunk, while Canada’s PSP Investments holds about 30 per cent. AirTrunk chief executive Robin Khuda and staff own the remainder. The ownership split hasn’t been previously disclosed and spells an even more lucrative payday for Macquarie, if the sale price exceeds $15bn, as expected. Analysts had previously estimated Macquarie held a smaller stake in AirTrunk.

To give readers an idea on emissions, a Macquarie sustainability report for 2021 puts AirTrunk’s emissions as 442,000 tonnes of carbon dioxide or equivalent in the baseline year of 2022. The document targeted a 100 per cent reduction in that figure by 2030.

That’s all well and good given Macquarie is unlikely to own the asset by then, if this year’s AirTrunk auction succeeds. The sustainability report says Macquarie would draw on energy efficiency improvements, onsite and offsite renewables and renewable energy procurement to help meet that ­target.

Elsewhere in the document, it says AirTrunk’s global 2021 scope 1 and 2 emissions increased by 73 per cent from the prior year due to “substantial business growth” such as scaling up its data centre in Singapore.

AirTrunk does seem committed to reducing emissions. In late 2021, the company reorganised its debt with lenders, moving to a loan where interest paid is tied to energy usage. It has also tapped sustainable financing loans in Japan.

AirTrunk’s latest 2023 sustainability report shows scope 1 emissions increased but the company’s acquired carbon offsets cancelled them out, while scope 2 emissions – spanning location and market-based emissions – fell.

The mooted sale of AirTrunk comes four years after the second Macquarie Asia-Pacific Infrastructure Fund invested, in a deal that valued the developer and operator of data centres at $3bn. Macquarie led a consortium – including PSP – that purchased about 88 per cent of AirTunk.

While the sale progresses, it’s also clear Macquarie’s appetite for data centres hasn’t waned.

Last week, the Macquarie Korea Infrastructure Fund agreed to purchase South Korea’s Hanam Data Centre for 734 billion South Korean won ($818m). That figure rises to KRW918 billion when transaction costs and additional capital to complete mechanical, electrical and plumbing works are included.

The next few weeks will prove intense as global and local firms position themselves to snap up AirTrunk. Investment committees will put deal-makers through their paces on the transaction metrics, and given the IFM consortium includes five firms, it will be interesting to see if any players fall away from the group.

Barrenjoey exit

Barrenjoey’s head of research, founding partner Craig Stafford, is parting ways with the firm, set to join ASX-listed Transurban as head of investor relations at the end of September. It’s a big move for Stafford who has spent 26 years in investment banking, including covering infrastructure stocks such as Transurban early in his career, his LinkedIn profile shows.

Stafford is following a well-trodden path of research analysts transitioning into investor ­relations.

Other analysts that have made the jump include Macquarie’s Tony Jackson who went on to do a long stint in investor relations at QBE Insurance, before handing the IR reins to Goldman Sachs analyst Ashley Dalziell. Former UBS deputy research chief James Coghill decamped to Insurance Australia Group in 2020, and is now investor relations general manager at Aristocrat. Kelly Hibbins – formerly of UBS – went on to an IR job at Babcock & Brown and after various other roles is Ramsay Healthcare’s head of investor relations.

Macquarie’s investor relations chief Sam Dobson was the firm’s longstanding head of transport research before taking the role.

Barrenjoey’s Guy Fowler. Picture: John Feder

Stepping into Stafford’s shoes at Barrenjoey are Matt Ryan and Nick McGarrigle, who will jointly lead research.

Stafford’s departure – while on sabbatical from Barrenjoey – comes as the firm’s staff and partners are expecting to be informed of bonuses in a few weeks. Employees are not anticipating a change to the staggered and sometimes monthly payments that more senior staff receive. More junior employees tend to receive more of an upfront payment from their bonus, relative to those higher up.

It’s set to be a solid fiscal year for the Matthew Grounds and Guy Fowler-led Barrenjoey, given it worked on deals including Guzman y Gomez’s ASX listing, Star Entertainment’s capital raising and the sale of Suncorp’s bank.

Magellan Financial Group – which owns a 36 per cent economic interest in Barrenjoey – reports earnings this week, which will shed light on the latter’s performance. Magellan’s interim profit presentation noted it was pleased with Barrenjoey’s progress and that the firm was profitable in the first half.

Airlie’s win

Magellan’s funds update last week confirmed its Australian equities arm Airlie saw a notable increase in funds under management to $7.1bn as at July 31. This column flagged that industry fund Cbus was consolidating several equities mandates and as a result handed as much as $1bn in additional funds to existing manager Airlie.

While some of the increase from $5.4bn to $7.1bn will reflect a stronger market in July, it’s clear mandate wins for Airlie bolstered the figure.

Magellan’s total funds under management stood at $38.4bn as at July 31.