By Andy Mukherjee
(Bloomberg Opinion) -- Singapore is a major Asian refining hub, though it doesn’t have a drop of crude petroleum. Now, the tiny country is punching above its weight in data. The upshot for investors: An asset class that pays 51% in a world where earning even zero is increasingly a luxury.
There’s a limit to how many bits and bytes even a busy financial center of 5.6 million people can produce. Yet, measured by power supply, Singapore is now the world’s largest repository for storing and processing data. Facebook Inc. alone is setting up an 11-story facility, its first such custom-built center in Asia. Data-center real-estate investment trusts, or landlords who take money from public shareholders to own and manage server farms for rent-paying tech clients, are now a globally popular investment.
Singapore has unique attractions. Some are technical, such as low-latency connectivity. Another is that its investors are wealthy and old. Assured returns today excite them more than uncertain growth tomorrow. If global tech is a gold rush, Singaporeans are happy to pour money into the picks and shovels.
Consider two current deals. Keppel DC REIT, which is seeking a combined S$478.2 million ($347.8 milion) from a private sale of shares and a preferential issue, saw the placement fully covered within the first hour of bookbuilding at the top of the price range. Shares have risen 44% over the past year. Including dividends, the returns have been 51%. Keppel DC will use the newly raised funds to expand its portfolio to S$2.58 billion, spread across 17 data centers globally.
A world awash in cash helps boost the attractiveness of REIT dividends for small savers who would otherwise have to lunge for risk to earn decent yields. Not surprisingly, Mapletree Industrial Trust increased the size of its private placement to S$400 million after it was covered 6.3 times. The Singapore REIT, which wants to acquire data centers in North America, has handed 30% returns to investors over the past year.
Will the good times last? Singapore has its drawbacks. The island became the “Houston of Asia” because it had a deep-water seaport and a large rig-building industry.
The oil of the 21st century is a different industry. Data travels along copper wires and gets stored in micro-thin wafers of metal compounds, which have a tendency to heat up. The ideal storage center would be in a place where the electricity consumed in keeping servers cool isn’t as high as in tropical Singapore. Every watt of power that goes into computing as much as 0.78 watts has to be set aside to beat the year-round heat and humidity.
Neither does it help that real estate is scarce. Even with land reclaimed from the sea, Singapore remains smaller than Rhode Island.
Still, Singapore’s long-term advantage comes from being tiny, especially if Hong Kong founders as a rival.
Sprawling data centers in China’s Inner Mongolia, as well as India or Indonesia, will primarily serve domestic digital content and commerce. They’ll also be fraught with politics. Populous countries will insist on being able to trace their citizens’ online behavior in the name of national security. Localization is one price global tech firms will have to pay to access these sizable markets. With New Delhi weighing a law that would make local storage mandatory, mining tycoon Gautam Adani wants to invest $10 billion in server farms in just one state. He’s waiting to sign up the likes of Amazon.com Inc. and Google.
Alphabet Inc.’s Google, which has no data centers in China, has been in talks with Tencent Holdings Ltd. and several other Chinese firms to bring in its cloud services. However, in China’s case, an additional complication is the trade war. It’s not clear if Alphabet’s plans to offer Google Drive and Google Docs on the mainland will proceed apace amid increasing scrutiny by a hawkish establishment in Washington.
Singapore, run by the same political party since 1959, offers predictable rule of law and infrastructure to give tech companies a comfort level for storing their most valuable resource. On land costs alone, neighboring Malaysia would be cheaper. But when deciding to set up a data center, investors assign a far bigger weight to future risks. And that’s where small, stable Singapore earns its big payoff.
© 2019 Bloomberg L.P.