KUALA LUMPUR: Malaysia’s data centre (DC) sector is entering a new phase of more sustainable growth after a period of rapid expansion, with capacity expected to more than triple by 2030, said S&P Global Ratings.
Associate director of corporate ratings Spencer Ng said the anticipated surge in DC capacity will translate into a sizeable funding requirement of over US$20 billion for power, shell equipment and chips.
"The scale of growth is immense for the next few years," he said, adding that Malaysia remains competitive in the regional DC landscape, despite rising costs.
He said this is supported by its proximity to Singapore, strong subsea cable connectivity and improving power and water infrastructure, particularly in Johor, which hosts about 80 per cent of the country’s DC capacity.
Ng said this during an S&P Global Ratings webinar on Malaysia Credit Outlook: Geopolitics, Data Centres, And The Future Of Credit today.
He said policy measures, including tighter approvals favouring artificial intelligence (AI)-ready and resource-efficient facilities, as well as revised electricity and water tariffs, will support the national agenda and meet the power and water efficiency requirements for newly built DCs.
In addition, policies such as greening pathways and penalties for electricity underutilisation would help to discourage speculative demand and allow the prioritisation of more imminent grid connections, he said.
"If we look at the grid connection time supported by greening pathways, it's shortening by as little as 12 months, which we have seen is very competitive globally if we compare it to the United States (US) or United Kingdom (UK) or even to major hubs in Asia-Pacific, with grid connection times ranging from three to 10 years," he said.
On funding, he noted that banks have a sizeable funding requirement and could reach their sectoral limits for DC-related funding.
"We think it will shift towards alternative capital resources, such as project finance and private credit, which could be a bridge to that funding gap.
"The benefits for project finance are that it can accommodate construction risk, while private credit caters for flexibility in structures and actually, in the US, which we see as the benchmark market for DC financing, we have seen an acceleration in DC project finance transactions," he said.
Another funding channel would be structured finance, which is well established in the US but remains less explored in Malaysia, he said.
"It will take time for investors to get familiar with the structure. Moreover, there's a limitation for structured finance to take on significant and unmitigated construction risk. So, we think the pace of such issuances would therefore accelerate only as more DCs reach completion," he said.
On the banking sector, director of financial institution ratings Nikita Anand said exposure to DC financing remains modest at about one per cent of total loans, with banks taking a cautious and gradual approach to increasing lending to the sector.
She said while banks have yet to hit sectoral limits, constraints could emerge over time, particularly for smaller banks, given large financing requirements and regulatory caps on single borrowers.
"The bank’s funding appetite is guided by internal sectoral concentration limits and regulatory borrowing caps. While no sector typically exceeds about six to seven per cent of total loans, or around US$30 billion.
"Banks remain cautious and lend below this, also keeping single-borrower exposure well under the 25 per cent regulatory limit -- usually at 10 to 20 per cent given the large deal sizes and sustainability considerations," she said.
Meanwhile, its senior economist for Asia-Pacific Vishrut Rana said DC investments are providing a near-term boost to Malaysia’s economic growth through construction and investment, equipment purchases, and utilities.
However, he noted that the medium-term impact is more balanced as DCs are relatively low value-added activities with high reliance on imported equipment and limited job creation. - Bernama
