Investors looking to pick up bargains while others are heading for the exit should keep their eye on the likely listing in Hong Kong of warehouse operator Global Switch.
Where else can you get exposure to the perils of Brexit, the U.S.-China trade war and the tech selloff, all at once? Throw in privacy concerns for good measure.
Chinese-owned, London-based data-center operator Global Switch is looking at a Hong Kong initial public offering later this year. The company was valued at £8.4 billion ($10.8 billion) in a recent private share sale, so the IPO should clear more than that if the timing is right.
It operates 11 data centers in major cities in Europe and Asia. It would be a snub to the London Stock Exchange for Global Switch to switch its listing location to Hong Kong. But the move would bring it near its main existing investor base and focus of expansion.
The company is venerable by data-center standards. Set up in 1998, the year that Google (GOOGL) was founded, it has been run since 2008 by CEO John Corcoran, a former banker and member of property asset manager Brookfield's finance team in Australia.
It now has 3.66 million square feet of humming machines in London, Paris, Frankfurt, Amsterdam and Madrid, as well as Hong Kong, Singapore and Sydney. Its expansion plans include Shanghai and Tokyo in the short term, its center of gravity shifting to Asia, with South Korea, Taiwan and India on the horizon.
It is a good question where data centers fit in the investment firmament. They could be classified as real estate, tech, infrastructure and anywhere in between. Clients want operators with a proven track record, the ability to hyperscale and a wide geographic base.
Companies rely on their data-storage facilities as much as they do on their physical offices, if not more so. E-commerce clients now require "five-nine" performance -- in other words, 99.99999% "uptime" -- with any disruption at all cause for damages. Then there's the backup.
Last July, a consortium of six Chinese investors grouped together to purchase 24.99% of Global Switch for £2.1 billion ($2.7 billion). Hence the US$10.8 billion pricetag.
Another Chinese consortium with overlapping investors bought 49% of Global Switch in December 2016 for £2.4 billion ($3.1 billion). That group then upped their holding to a majority 51% stake a year later.
The company's Chinese ownership has raised eyebrows in terms of data sensitivity. China requires all Chinese data to be held within China. While privacy protections for consumers with the corporations that they use are good in China, all data is ultimately open to government control, access and scrutiny.
The existing investors who provided follow-on funds in the second investment include asset management company AVIC Trust and the Hong Kong arm of the boutique investment bank Haoyue Capital. The steelmaker Jiangsu Sha Steel Group led the first consortium, which also includes the insurer Ping An Group (PNGAY) .
On the 24.99% stake, they brought in new investors, such as China Citic Bank (CHCJY) , which is also providing debt funding for the Chinese infusion. In the process of the latest stake sale, Global Switch chairman Li Qiang, who assembled the Asian investors in the first place, increased his personal stake in the company from 0.7% to 4.8%.
While £1.8 billion ($2.3 billion) of the stock purchase went to Global Switch, the other £300 million ($386 million) was paid to Aldersgate Investments, the private-equity arm of the billionaire British developers David and Simon Reuben.
The Reuben Brothers took full ownership of Global Switch in 2007, but have now sold down their holding. They remain "joint controllers" of the company alongside the two groups of Chinese investors.
Aldersgate now owns 24.0% of the company, the new consortium holds the 24.99%, and the existing Asian investors own the remaining 51%. The company says those existing shareholders expect to remain investors even after the company goes public.
Global Switch declared last year that it intends to go public in 2019. According to Sky News, it now plans to hire investment banks "in the coming weeks" to plot the Hong Kong stock sale.
Global Switch has a cooperative agreement with the global wing of China Telecom (CHA) , which has become the end customer of facilities in Hong Kong and Singapore. Global Switch also has a joint venture with Daily-Tech Beijing Co., the China-focused data-center company founded by Li, the Global Switch chairman. Daily-Tech operates some of the centers that Global Switch develops, and they are partners on a Shanghai data center.
Global Switch says that all its facilities operate according to the national-security strategy of the British government. It's also at pains to point out that, according to a recent company statement, it "simply builds and operates" high-end centers to the highest specs.
"It then leases space to its customers who fit out their own secure cages with their own servers -- these cannot be accessed by Global Switch nor its investors," it states.
