Chinese State-Backed Data Center Builder Claims Record Investment, Led by Morgan Stanley

A Chinese data center operator claimed in November that it struck the world's largest venture capital deal, with billions of dollars put up by Morgan Stanley and a government-owned industrial conglomerate.

Tenglong Holding Group, also known as Tamron Holding Group, said its $3.7 billion was the largest private investment in history of the internet data center industry, and among the largest such deals ever made at all. As a risky "series A" capital investment – when a young firm makes its first attempt to get private backers – it was extraordinarily large.

The deal was so large that Glen Walker, a managing director of early-stage venture capital at the accounting services giant PwC, could not believe it. "It's unheard of," he said. Most series-A deals in the US and UK go up to about $20 million. "It's not typical in any way," he said. Deal-watching websites have been excited about recent, frequent $100 million "supergiant" series-A deals. Lately, they've marveled at the arrival of "hypergiant" deals worth $250 million. But companies didn't raise sums as large as the one Tenglong announced until they had proved their worth to other investors.

Morgan Stanley, a core investor in the Tamron round, said it was not prepared to comment about the deal and refused to confirm details.

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Ren Shaolong, founder and chairman of Tamron Holdings Group, told a press conference in November that data centers had become an important part of China's national economic plan.

Cloud computing has become as essential as water, electricity, or coal for all industries to practice “Internet+,” he said in a statement. The data center industry, he said, has entered a golden period of development.

Tenglong has portrayed its strategy as part of a national effort to build an "industrial internet" that would "deeply integrate" information technology with China’s formidable manufacturing industry. It would become part of Internet+, a network infrastructure that "fully interconnects people, machines, and things." It would be a foundation for a "well-off, well-rounded society, in a strong, socialist modern country."

Bombast

Tenglong Holding Group's financing, with a contract value of up to 26 billion yuan ($3.7 billion), “breaks the highest financing record” in the internet data center industry, the data center operator said in a statement.

Along with Morgan Stanley, the other core investor was Nanshan Group, a Chinese industrial conglomerate, said Tenglong's statement. Other investors included Kaiyuan Urban Development Fund, Haitong Hengxin International Leasing Co., Huaneng Invesco and Ross. Tenglong said "several other investment institutions" had clear intent to stake capital with the Morgan Stanley group. It was not clear whether these others counted toward the $3.7 billion and whether their contribution was expected as part of the series A.

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Ian Zhu, head of China Outbound Investment for accountants Grant Thornton, said the deal's extraordinary size might be explained by the involvement of land.

Nanshan reserved 5 million square meters of warehouses that belonged to its subsidiary Baowan Logistics Holdings and could house Tenglong data centers. "Nanshan Group will strongly support Tenglong's future high-speed development," said Tenglong's statement. It "will help Tenglong accelerate the nationwide layout."

First-tier Chinese cities own Baowan, according to the announcement. Tamron said its “rapid development” was “inseparable” from local governments’ strong support. The company indicated an expectation of further “injection of state-owned enterprise shares” after the recent financing.

"Tenglong actively cooperates with the local government's industrial planning," and it built data centers with this aim, the company said. Its plan was to build industrial and corporate resources "upstream" of the local data economy. Since it was founded in 2015, Tenglong built strategic partnerships with China's three major telecommunications operators: China Unicom, China Mobile, and China Telecom. It has 10 data centers under construction, building and operating them for internet giants Alibaba, Tencent, and Baidu, the company said.

Footprint

By September this year Tenglong said it had won contracts to supply 76,000 square meters of data center space. Its construction amounted to 0.2 million square meters, a fraction of the space reserved by its early-stage backers. Tenglong said it aimed to have 1.5 million square meters under construction in four years, and to have contracted 1.13 million square meters – about fifteen times the space it has under contract today.

In October, it formed a strategic partnership to build data centers with Shanghai Lingang Science and Technology Innovation City Economic Development Co., a municipal construction firm with ventures in San Francisco and Glasgow.

Initially building a data center in Shanghai, the partners billed their Industrial Internet Tamron Data Center Project as "a new blueprint for the data economy." It would involve artificial intelligence, industrial internet, intelligent connected cars, civil aviation, intelligent manufacturing, integrated circuits, and other industries.

Their Industrial Internet Tenglong Data Center would serve as the Internet+ infrastructure for a Shanghai district billed as China's Silicon Valley, the Lingang Science and Technology City. The data center would digitalize regional industries, Tenglong said. Those include life sciences and semiconductors.