Proximo Weekly: Changing places

The US and Europe are beginning to change places as prospective markets for fibre-to-the-home (FTTH) and data centre project finance – with the US looking the most promising for FTTH as primary activity in Europe tails off, and data centre deals in Europe picking up in line with the more established US market.

Those were just two of the communications trends noted by speakers at Proximo Europe 2023 in Lisbon last week.

FTTH project volume is likely to have peaked this year in Europe according to speakers on the FTTH panel: Oliver Bradley, managing director, Digital Infrastructure Investing, Macquarie Capital; Alberto Faraco, director, Fitch; and Nico Grove, managing director, Kawikani.

All the panellists noted deal flow has been particularly strong in Germany – as borne out by Proximo Data: of the 30 pure project financings for FTTH in Europe since start of 2022, 10 have been in Germany, followed by four in the UK and three in France. And although all agreed there is not much European primary activity left to do, the European market still looks set to be busy for the next 12 months, with the UK rural market looking attractive given the lower threat from incumbents according to Bradley.

Speakers were also relatively bullish about the US FTTH market, which has been long on promise for a very long time, but short on delivery given there is little incentive for cable providers to invest in FTTH despite it being the better technology.

But the first strong signals that US FTTH will begin delivering on its project finance promise are in place. Gigapower – a joint venture between Blackrock and AT&T – is in retail syndication with a $1.6 billion five-year term loan to fund its planned FTTH network for selected metro areas across the US. And Altice is also out to the bank market for financing of a US FTTH network.

Speakers on the data centre panel – Aurelien Roelens, investment director and ESG coordinator, Cube Infrastructure; Michael Scales, director, Infrastructure, MUFG; and David Watson, senior underwriter, AXA XL – also noted that this year will be “the year of fiber” in the US. But they also foresee continuing data center business in the US and significant volume growth in Europe.

There is no homogenous data centre asset class. At the wholesale end of the market there are the hyperscalers, followed by the retail sector and specific applications – Edge data centres and the hybrid IT space (outsourcing desktop IT needs to the cloud).

Given the asset diversity, data centres have not been defined by one specific type of financing or investor. Private equity investors often approach data centre investments as traditional cash flow deals; real estate investors as real estate deals; and infrastructure investors as infrastructure deals. The sector has components of each, but as the industry has evolved, infrastructure investors have gotten most comfortable in the space, especially where a long-term contract with a credit grade tenant is present.

In the US, project finance lenders have also become more active in the space. For example, Vantage Data Centers has been tapping the bank market for some time and in March had no trouble finding bank appetite for two more construction financings of $300 million and $400 million for data centre projects in Phoenix, Arizona and Qunicy, Washington respectively.

Further hyperscale deals that have been a long time in planning are now coming to the market in both the US and Europe, although the hyperscalers are firmly in the driving seat according to speakers in Lisbon. Portfolio sales and some colocation deals are also in the pipeline, although there is some ‘wait and see’ on valuations holding back certain sales.

Either way, there will likely be significantly more data centre financing in Europe over the next year – probably a mix of hybrid corporate deals with five to seven year tenors, and longer term facilities for single offtake/single asset hyperscalers, with tenors of 10 to 15 years possible for very good credits.

To access all the videos from Proximo Europe 2023 click here.

 

Selected news articles from Proximo last week 

NORTH AMERICA

Pine Gate signs debt for Glover Creek Solar

Pine Gate Renewables added another renewables project financing to its expanding portfolio last month, signing a $118 million facility for its 75.6MWac Glover Creek greenfield solar project in Metcalfe County, Kentucky. 

 

EUROPE

Freja Offshore submits application for 2GW Swedish project

Hexicon and Mainstream Renewable Power joint venture Freja Offshore has submitted an application for an offshore wind farm in the Baltic Sea.

 

ASIA-PACIFIC

Northern Star approves A$1.5bn KCGM expansion

Northern Star Resources has approved a A$1.5 billion ($1.015 billion) investment into the Kalgoorlie Consolidated Gold Mines mill expansion project, in Western Australia.

 

MIDDLE EAST & AFRICA

Oman sees signing of two new green hydrogen project agreements

Hydrom, a subsidiary of Energy Development Oman, has entered two new agreements awarding green hydrogen projects in Oman.

SOUTH AMERICA 

SBM Offshore seals $1.62bn ECA-backed FPSO financing

SBM Offshore has completed the project financing of an FPSO vessel for a total of nearly $1.62 billion, secured by a consortium of 12 international banks and cover from three ECAs.

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