Digital infrastructure investment is on the rise in Southeast Asia, buoyed by investor demand for alternative assets that can deliver stable dividends and attractive exit values, said industry experts.
The demand for digital infrastructure assets is expected to increase due to the rapid growth in e-commerce and the drive towards digital inclusivity in the region, they said.
IN THE SPOTLIGHT
“In terms of what’s in demand, data centres, fibre networks, and tower infrastructure are all of interest to investors,” Usman Akhtar, partner and head of private equity for Southeast Asia at Bain & Company, told AsianInvestor.
There are currently 3.5 million telecom towers in Asia Pacific (Apac) — or 70% of the global tower assets in play — with Malaysia, Indonesia, and the Philippines emerging as major players in the space, he said.
“Fibre (network) in Southeast Asia is already substantial ($3.5-4.5 billion in Indonesia, $4 billion in Malaysia, $2 billion in the Philippines) with massive growth potential,” he said, adding that Indonesia and Singapore have interesting opportunities for data centre investments.
Digital infrastructure investors currently include sovereign and public pension funds with patient capital and infrastructure funds, which include private equity firms, he said.
There are also private capital platforms that are set up to grow the asset bases, such as Digital Edge, a diversified data centre platform that is backed by Stonepeak, a leading global alternative investment firm with $46 billion in assets under management (AUM).
Singapore-based Digital Edge has investments in Japan and South Korea, and has in the past year also invested in data centres in the Philippines and fibre assets in Indonesia with local partners.
Spurred on by strong tailwinds from the rapid digitalisation in the region, investors in this space can profit from the sale of a platform that has scaled up significantly at the point of exit, on top of stable dividend returns, said Akhtar.
Digital infrastructure assets are also less likely to be regulated in terms of pricing, which gives the operators and investors the flexibility to raise tariffs during inflation.
Meanwhile, more new opportunities are opening for institutional investors as telecommunications companies in the region seek to “delayer” their multi-sector businesses.
“This delayering could separate out utility businesses, from network technology and software offerings, from service businesses, from platform tech businesses, and thus open up more opportunities for keen-eyed investors to come in with smart money to support this delayering by telcos,” said Akhtar.
His view is corroborated by the recent $1.47 billion sale of about 6,000 telecom towers by the Philippines’ PLDT to edotco Group and Singapore-based EdgePoint, a portfolio company of global digital infrastructure investor DigitalBridge, which has $45 billion in AUM.
Last year, Indonesia’s PT Indosat sold a huge block of 4,400 telecom towers to EdgePoint Indonesia for $750 million, while Malaysia’s Time Dotcom and the Charoen Pokphand Group of Thailand are understood to be keen on monetising the data centres they own in their respective country.
These developments could attract the attention of investors such as the Indonesia Investment Authority, which has identified digital infrastructure investments as a priority, and Singapore’s GIC, which has significant data centre investments in Japan and South Korea.
DIGITAL FOR ALL
Investors are optimistic about Southeast Asia’s digital infrastructure sector because of the widespread popularity of e-commerce and the drive to promote digital awareness and inclusivity by the individual countries of the 10-nation grouping also known as Asean.
Asean economies have experienced significant growth in retail e-commerce, which is fuelling the demand for a broad range of digital infrastructure development to support the businesses and consumers, Mark Uhrynuk, corporate and securities partner at Mayer Brown, told AsianInvestor.
“This reshaping is creating not only opportunities for the people in the region but also a significant range of investment opportunities for impact and other investors,” he said.
According to information provider eMarketer, e-commerce sales in Southeast Asia are expected to hit $89.67 billion in 2022, a 20.6% jump from last year, and will cross $100 billion by next year. Five Asean countries —the Philippines, Indonesia, Vietnam, Malaysia, and Thailand—will rank among the top 10 markets in terms of retail e-commerce sales growth.
Asean governments are also promoting greater digital inclusivity in their respective country by making Internet connectivity more accessible and affordable for end-users. This can assist economic recovery and growth following the pandemic, said Bertrand Guiot, head of real assets and investment banking for Southeast Asia at Natixis Corporate and Investment Banking (CIB) to AsianInvestor.
“Last year, Natixis CIB was involved in the financing of Telecom Towers in Indonesia, benefitting a large portion of the rural population by reducing the digital divide. The social impact of this kind of development allows a vast percentage of a previously underserved population to access digital financial services, improve access to education and health services – to name just a few,” he said.
The investment demand for digital infrastructure in Southeast Asia will be sustained by its growing population — projected to reach 741 million by 2035 from 680 million currently — which will fuel the region’s digital economy, he said.
But data centres, in particular, can become a source of environmental concern because of their heavy electricity and water consumption, said Guiot, who is also Natixis’ head of infrastructure funds coverage for Asia Pacific.
For now, Southeast Asia’s digital infrastructure is firmly on the investor radar. “Quite simply, this continues to be a market with a lot of growth headroom. We see massive long-term potential, underpinned by some incredible secular tailwinds as the massive consumer base in this region continues to go digital,” said Bain’s Akhtar.