GDS Holdings, an independent data centre service provider, is joining a bandwagon of US-listed Chinese companies to raise funds in Hong Kong where hot money inflows have helped fuel a stock rally for three weeks.

The firm is seeking to raise up to HK$13.8 billion (US$1.8 billion) from a secondary offering of 160 million shares at a maximum of HK$86 each, according to a term sheet seen by South China Morning Post. That works out to a premium of 10 per cent to its American depositary shares on Tuesday.

The shares last traded at US$80.67, having risen 56 per cent of twice the gain in the Nasdaq Composite Index. Each ADS represents eight ordinary shares.

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There is an option to sell an additional 24 million shares to meet any excess demand. The local share offering is expected to close next Tuesday and start trading on November 2, according to its timetable. JPMorgan, Bank of America, China International Capital Corporation (CICC), Haitong International are joint sponsors for the deal.

Since Alibaba Group's secondary listing in Hong Kong last November, at least 10 other Chinese companies have taken the same route for additional capital this year. Including the largest involving JD.com and NetEase, they have cumulatively raised more than US$15.4 billion in proceeds, according to data from Refinitiv.

SCMP Graphics alt=SCMP Graphics

Hong Kong has seen almost HK$100 billion of funds flowing into the local financial system since mid-September, the monetary authority said last week, an influx that has driven up the exchange rate of the local dollar, prompting it to intervene to weaken the local currency. The Hang Seng Index has risen more than 5 per cent over the past three weeks, with Ant Group's impending IPO luring hot money.

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The decision by the Shanghai-based GDS to list closer to home has come amid increasing threats of decoupling between the world's two biggest economies, and measures by the Trump administration to tighten rules on Chinese companies raising funds in the US capital markets.

GDS claims to be the largest carrier-neutral data centre service provider in China in revenue terms with about 22 per cent market share, it said in the prospectus citing iResearch. Revenue in China's cloud services market is expected to quadruple to 645.2 billion yuan (US$91 billion) by 2024, from 149 billion yuan in 2019, it added.

As a "carrier-neutral" data centre operator, GDS offers services that are not tied to any telecom network operator or internet service providers. Singapore Technologies Telemedia, a Temasek Holdings unit, is an investor with a controlling 34 per cent stake. Private equity manager Hillhouse Capital owns about 4 per cent stake.

One of GDS Holdings's data centre facilities in China. Photo: Handout alt=One of GDS Holdings's data centre facilities in China. Photo: Handout

China's increasingly digitalised economy is generating high data usage from internet consumer services such as online games, e-commerce, live streaming. Work-from-home practices, digitalisation process, and other data backup solutions are fuelling demand, according to DBS Group.

GDS plans to use the net proceeds raised to develop new technologies related to data centre design, and on building new centres, according to the term sheet.

For the six months ended June, GDS recorded a net loss of 193.1 million yuan, according to its prospectus. It incurred a 442.1 million yuan loss in 2019. Its debt stood at 21.9 billion yuan.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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