The race to build larger, more advanced data centers to power the growth of artificial intelligence is intensifying in Asia. So is the complexity in financing them.
With costs soaring, many of the companies that build and operate data centers in high-tech hotspots like Malaysia’s Johor-Singapore Special Economic Zone (JS-SEZ) are moving away from traditional funding approaches, which typically involved using equity from company founders or a pool of investors, augmented by plain-vanilla bank loans.
Now, they are raising money from institutional investors—sovereign wealth funds and private equity and credit firms—and employing new borrowing strategies that can carry additional risks. Some structures include higher interest rates. Others can dilute the holdings of existing shareholders by issuing additional equity to lenders as a “kicker” to boost returns.
“Everybody has gone to the point of having to raise additional capital,” said Gary Goh, founder and director of data center advisory firm Sprint DC Consulting in Kuala Lumpur. “You will need private capital one way or another.”
The ability of Asian developers to strike more ambitious financing deals is a byproduct of the global demand for computing power. Prospective tenants—ranging from telecom companies to massive cloud service providers such as Google and Amazon, known as hyperscalers—are making giant leasing commitments, and those agreements are enabling developers to secure project financing based on the creditworthiness of their well-heeled renters.
However, investors have begun to fret in recent weeks over how important these leases have become in data center lending. Oracle shares have previously fallen as the cloud computing company’s data center leasing commitments soared to USD 248 billion.
Commercial banks in Asia have tightened lending standards for data center projects, reflecting worries about the use of customer credit ratings in underwriting decisions and concerns that the pool of potential customers is concentrated in a small number of big tech names, according to bankers and data center operators. Bankers are being asked to conduct more due diligence and request a higher occupancy rate before approving credits, they said.
Mark Fong, chief executive of Empyrion Digital, a data center developer and operator, cautioned that operators do not get paid until tenants are able to move in and utilize the IT capacity. In single-tenant data centers, if customers fail to do so—or walk away—operators can be left with facilities requiring extra capital to be refurbished.
Worries about data center deals in Asia include a geopolitical wrinkle: the possibility that technology used in AI projects could be diverted to China in violation of US or other export restrictions.
In March 2025, Malaysian developer Exsim Group terminated a hyperscale data center contract with Aperia Cloud Services after two Aperia executives were charged in Singapore with criminal conspiracy and fraud for allegedly misleading suppliers about the end users of computer servers that contain critical Nvidia chips. Singaporean authorities are investigating whether the restricted chips were used to benefit Chinese AI startup DeepSeek.
Exsim said in a statement that the data center is fully funded by the company and it does not foresee challenges in securing full occupancy.
The Chinese presence is particularly notable in places like the JS-SEZ, located just across the Causeway from Singapore. China’s ByteDance is a major tenant of Chinese operators such as DayOne, the overseas unit of GDS Holdings, and Bridge Data Centers. ByteDance unit TikTok said it would also invest USD 3.8 billion in “data hosting services” in Thailand, another emerging hotspot for data centers.
“Banks are concerned about geopolitical challenges—what if what they are financing is a site that might serve Chinese end users, and these end users have supply chain challenges with getting advanced GPUs (graphics processing units)? Then this co-location contract might go down the drain,” said Vivian Wong, lead analyst for Southeast Asia at data center research firm DC Byte.
By contrast, institutional investors are finding it hard to resist the potential returns for Asian data centers, according to Goh, a former investment banker who seeks to connect private equity and private credit investors with developers looking for cash.
“Everybody is throwing in money,” said Goh.
Over the past decade, nearly USD 70 billion in private equity investments have been made in data center operators and their projects in the Asia Pacific region, data from MSCI shows. Some USD 40 billion of these investments were made in the past two years alone.
In 2024, private equity powerhouse Blackstone acquired data center developer Airtrunk for AUD 24 billion (USD 16 billion), a record valuation for the region that Blackstone says reflects future project commitments. KKR is in advanced talks to buy out Temasek’s ST Telemedia Global Data Centers at a valuation of more than USD 5 billion, Reuters reported in November 2025. Vantage Data Centers completed the acquisition of a data center site in Johor from Yondr Group after it received USD 1.6 billion in investment from Singapore’s GIC and the Abu Dhabi Investment Authority.
Hundreds of billions of USD will be required to build facilities now being planned in Asia.
Pritesh Swamy, head of research and insights for the Asia Pacific Data Centre Group at real estate services and consulting firm Cushman & Wakefield, estimates that construction costs in the region, excluding IT equipment, are about USD 10 million per megawatt. One MW is a millions watts. That means a hyperscale development, a project of 100 MW or more, would cost roughly USD 1 billion to build.
At the end of the second quarter, Asia Pacific data center live capacity had reached 13.7 gigawatts. One GW is a billion watts. Commitments have been made to build another 14.4 GW of capacity, while a further 33.8 GW are in early-stage planning, according to DC Byte.
“The data center space has become very capital-intensive, and the speed and scale at which data centers are being built is unprecedented,” Rangu Salgame, chairman, co-founder, and CEO of developer Princeton Digital Group, told Nikkei Asia. “There has been massive capital formation, and currently it looks like that large-scale capital is in the hands of a few large investors.”
PDG, a Singapore-based data center developer and operator founded in 2017 and backed by private equity firm Warburg Pincus, is an example of how the industry is financing its Asian expansion with the help of institutional investors and more complex debt instruments.
In June last year, it secured a USD 1.3 billion preferred equity investment from US infrastructure fund Stonepeak. These instruments rank higher in a company’s capital structure than common equity—giving holders priority in a restructuring—and offer fixed dividends, in the manner of a bond. They can also be converted into common equity under certain conditions.
Salgame said the Stonepeak investment would help the company expand but would dilute the holdings of shareholders. PDG’s last equity round came in 2022 when it raised USD 505 million from investors led by Abu Dhabi’s sovereign wealth fund, Mubadala.
Shortly before it sold the preferred shares, PDG took on USD 1.2 billion in debt, which included USD 800 million in project financing for several data centers in Asia and a USD 400 million “holdco” loan from a consortium of global banks led by Barclays, BNP Paribas, and Deutsche Bank.
In holdco deals, developers set up a holding company that can borrow on behalf of more than one project. This offers greater flexibility, but costs more. Interest rates tend to be about two to three percentage points higher, bankers say.
The higher rates, in turn, attract institutional investors.
Chin Seng Chew, a Singapore-based partner at law firm Clifford Chance, said this “basically allows borrowers to stretch their credit, and they can go to potentially a different pool of investors, particularly the credit funds.”
Tom Capel, a counsel at Clifford Chance, added:
“One of the reasons it’s such an attractive asset class is the returns are there to enable developers to maximize leverage through multiple layers of debts, which we are not seeing to the same extent in other asset classes in the region.”
Borrowing more to increase leverage is a way for data center operators and their private equity backers to amplify returns. But that could leave them stranded if the music stops, since lenders get paid ahead of equity investors in a restructuring.
Aggressive financing strategies also work for data centers with private equity investors because these financial sponsors tend to look for returns in the short to medium term. As a result, the developers will pay higher interest rates for their borrowings “as long as they complete the project within a designated time frame,” said Tanky Yun, executive director for corporate development and strategy at OneAsia Network, a Hong Kong-headquartered data center operator.
“At the end of the day, if the cost is getting much higher while the return is getting less, new capital will diminish,” he said. “But this will only happen when there is excessive supply.”
In the Malaysian state of Johor, overbuilding is a painfully familiar subject. Not far from the state capital of Johor Bahru is Forest City, a USD 100 billion residential development by China’s Country Garden that is now largely deserted. It was constructed as part of an effort by the Johor government to develop a special financial zone modeled on China’s Shenzhen.
Johor now has 15 operational data centers, with another 11 under construction and 25 approved projects, for a combined capacity of 5.3 GW, state officials have told Nikkei Asia. Whether all these projects will meet the expectations of prospective tenants remains to be seen.
“The critical question is not how many data center projects are being announced, but whether their design and operations can meet long-term reliability requirements,” said Zul Azhan Abu Bakar, a facilities management consultant based in Johor.
“It’s not just about how fast the construction can be done, or how much land is available,” he said. “Data centers are growing fast in Johor. It’s important that future operations can keep up.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.