NTT Global Data Centers, the data center arm of Japan-based NTT Inc., is pursuing at least $1 billion in fresh funding to underwrite development projects across the United States, according to people familiar with the plans.
The company has engaged Citigroup Inc. to help structure and place the capital by selling equity stakes in a newly created development company dedicated to U.S. data center projects. Those people said the size of the equity offering could be expanded if investor demand proves strong, and that a credit facility may also be arranged alongside or subsequent to the equity raise.
Sources say the unit has begun distributing marketing materials to a select group of prospective long-term investors, including pension funds and infrastructure investors, as it prepares for a formal sales process that is likely to begin in the coming weeks.
NTT Global Data Centers is identified in the reporting as the world’s third-largest data center provider outside China. The planned development company will hold and manage pre-revenue, early-stage assets rather than operating mature facilities.
Creating a dedicated vehicle for those early-stage projects is meant to give data center builders greater flexibility in seeking capital. By isolating development-stage assets, sponsors can approach a wider array of long-horizon investors who typically allocate to infrastructure, but who also can demand higher returns in exchange for taking on development risk.
Under the structure described to the people, investors buying stakes in the development company would assume exposure to projects prior to revenue generation, which raises the potential for greater volatility in returns and increases the importance of careful underwriting by both the sponsor and investors.
While the company is targeting stable, long-term sources of capital such as pension and infrastructure funds, the ultimate size of the equity placement and the decision to add debt will depend on investor appetite and the financing needs of the pipeline of U.S. projects.
Context and implications
The formation of a stand-alone development vehicle is a financing approach aimed at matching the risk profile of early-stage physical assets with investors willing to assume that risk for potentially higher returns. The approach also gives the sponsor the ability to separate developing projects from operating portfolios.
Details on individual project locations, timelines, or the final structure and pricing of the proposed equity sale were not provided in the reporting.