From Singapore to Seoul: Supporting South Korea’s digital drive
No other country has embraced digitalisation more than South Korea. It has topped the Bloomberg Innovation Index for seven of the last nine years1.
Digitalisation continues to sweep across all facets of the South Korean economy at a rapid pace. Digital native businesses like e-commerce platforms, media and gaming companies are leading the way, with more traditional industries following closely2. As demand for digital services soars from businesses and consumers alike, so does the need for data storage and processing. The country’s public cloud market is expected to double in size from USD1.5 billion in 2018 to USD3.1 billion in 20233 – helping to generate USD45 billion in national GDP and some 50,000 jobs4.
Key to the country’s digital drive are governmental policies. South Korea’s Ministry of Science and ICT has plans to build a leading digital economy based on data innovation. One noteworthy initiative is the Digital New Deal5, launched in 2020 to accelerate the transition to a digital economy by digitalising national infrastructure, and fostering the data, network and artificial intelligence (DNA) ecosystem. Such policies have created noteworthy opportunities for Singapore technology companies with the ambition to expand overseas.
“Data innovation in South Korea has been a driving force behind the nation’s digital growth agenda,” enthuses Jonathan King, Group Chief Operating & Strategy Officer at ST Telemedia Global Data Centres (STT GDC). “The country leads the world in ICT adoption and 5G network roll-out, and tops Asian countries with an internet penetration rate of 96 per cent as of January 20206, while its number of mobile connections was equivalent to 118 per cent of its population7.”
Global capabilities, local know-how
Amid South Korea’s digital push, needs for data centres are also growing. As a global data centre business with a presence in eight countries and operating in more than 110 facilities, Singapore-headquartered STT GDC is well-positioned to support South Korea’s digital growth story. Much of the market supply is either owner-operated data centres or data centres developed by local telcos, leaving untapped opportunities for carrier-neutral operators like STT GDC.
“Currently, there are very few international colocation operators in the country,” explains King. “Our new hyperscale data centre can serve the requirements for both cloud service providers as well as other domestic enterprises.”
STT GDC is hoping to achieve the same levels of success in South Korea as it has attained in the UK, India, China, Thailand and Indonesia. The company’s success in the UK market is significant. The company entered the country in 2015 through a minority stake in VIRTUS Data Centres. Two years later, STT GDC acquired the company in full. The business has grown from one small data centre to a portfolio of 11 facilities. All VIRTUS data centres run on zero-carbon electricity8, and its facility in Hayes ranks among the top 10 per cent of commercial buildings in the UK in terms of energy efficiency9.
“Our strategy is to always seek a high-quality joint venture partner for all new market entries,” adds King. “We firmly believe in the power of combining global best practice data centre expertise with local business and cultural know-how, coupled with developing a world-class management team on the ground.”
Banks that are less familiar with the cash flow or credit profiles of data centre will require more restrictive covenants that may hamper the ability to optimise the capital structure of these investments. Standard Chartered clearly understands all these and has been very flexible in curating covenants that are more aligned to our business models.
Strong relationships needed
To enter the South Korean market, STT GDC formed a strategic partnership with Hyosung Heavy Industries (HHI) on a 60:40 basis to jointly develop and operate their first carrier-neutral data centre in Greater Seoul10. HHI is one of the country’s leading manufacturers of heavy electrical equipment with construction capabilities, and is part of the Hyosung Group, a leading conglomerate in South Korea.
Both companies bring complementary strengths to the partnership. HHI’s experience in property development, as well as its understanding of local regulations are essential to the success of this venture. As is STT GDC’s global track record in designing, constructing and operating state-of-the-art, carrier-neutral data centres.
The venture is not without risks, however. The COVID-19 pandemic has brought numerous challenges to data centre development. In particular, construction activities can be impacted by snap lockdown measures, and potential supply chain disruptions could also lead to project delays or an increase in construction costs. To overcome these uncertainties, key equipment and components used in data centre construction need to be pre-ordered and delivered ahead of time. But few lenders understand the unique monetary needs of data centres.
“Banks that are less familiar with the cash flow or credit profiles of data centre investments tend to be less comfortable to provide financing, or will require more restrictive covenants that may hamper the ability to optimise the capital structure of these investments,” says King. “This is more pronounced when we expand into new markets where existing, strong banking relationships are even more critical for the growth of our business.”
Facilitating ambition
With bank support essential for the success of the project, STT GCD turned to its long-term banking partner, Standard Chartered, to finance key equipment and components in advance. The bank has been supporting ST Telemedia Group for many years, and since 2016 it has financed 18 projects across multiple markets globally. For the project in South Korea, Standard Chartered acted as mandated lead arranger, account bank, original lender and coordinating bank for the facilities to finance the land acquisition, as well as the construction of the data centre.
Impressed with the bank’s capabilities in both Singapore and South Korea, as well as how the two teams combine to create a seamless “one bank” experience across both markets, Standard Chartered was chosen for many reasons. “Standard Chartered clearly understands the cash flow profile of a data centre, and has been very flexible in curating covenants that are more aligned to our business models,” attests King. “In the course of working with Standard Chartered, we have extended our banking relationship to include a full suite of banking services. This is a result of mutual trust built through open engagement, innovative solutions and service delivery the bank provided.”
At the local level, Standard Chartered Bank Korea has a proud heritage dating back to 1929. The bank knows the Korean market well: its strong on-the-ground presence coupled with a deep understanding of client requirements puts it in good stead to help international businesses like STT GDC expand to a vibrant new market.
“South Korea’s rapidly growing digital economy presents Southeast Asian companies like STT GDC with overseas opportunities to grow their businesses. With a presence in 21 different markets across Asia, including all 10 ASEAN countries, Standard Chartered is well-positioned to help facilitate these expansion plans,” says Freddy Ong, Head of Client Coverage, Singapore, Corporate, Commercial and Institutional Banking, Standard Chartered. “We’ve been supporting STT GDC since its inception and we’re immensely proud of their achievements. This landmark data centre financing deal underscores our commitment to support new technologies and industries, and help facilitate the international ambitions of our clients – wherever they are and want to be in the world.”
2 https://www.bcg.com/publications/2019/economic-impact-public-cloud-apac/south-korea
3 https://www.bcg.com/publications/2019/economic-impact-public-cloud-apac/south-korea
4 https://www.bcg.com/publications/2019/economic-impact-public-cloud-apac/south-korea
5 https://english1.president.go.kr/Briefingspeeches/Speeches/833
6 https://datareportal.com/reports/digital-2020-south-korea
7 https://datareportal.com/reports/digital-2020-south-korea
8 https://virtusdatacentres.com/
9 https://virtusdatacentres.com/
10 https://www.sttelemediagdc.com/media/st-telemedia-global-data-centres-expands-south-korea-joint-venture-hyosung-heavy-industries-0