DigiCo Infrastructure REIT, a data center operator, experienced a disappointing debut on the Australian Securities Exchange (ASX) on Friday. The company’s shares, offered in Australia’s largest initial public offering (IPO) in over six years, fell 9%, closing at A$4.55, below the initial offer price of A$5. The A$2 billion (US$1.3 billion) IPO raised concerns among market observers regarding the company’s valuation.
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Valuation Concerns Cloud DigiCo’s IPO
Bloomberg Intelligence analysts pointed out that the IPO valued DigiCo’s data center portfolio up to 70% higher than its Australian counterparts. Morningstar Inc. echoed these concerns prior to the listing, valuing DigiCo’s shares at A$3.40, a significant 32% discount to the offer price. Despite the burgeoning demand for data centers fueled by the artificial intelligence boom, the high valuation appeared to deter investors.
DigiCo aims to leverage the surging investor interest in data centers, driven by the global need for expanded data storage and processing capabilities. McKinsey & Co. projects a 19% to 22% annual growth rate in global demand for data center infrastructure from 2023 to 2030. DigiCo’s portfolio is expected to eventually encompass 13 properties across Australia and North America, although it currently holds only three.
Market Reaction and Broader IPO Landscape
Jun Bei Liu, portfolio manager at Tribeca Investment Partners, commented on the lackluster debut, suggesting investors were primarily seeking short-term gains amidst uncertainty surrounding DigiCo’s underlying assets. The IPO, Australia’s largest since Viva Energy Group Ltd.’s listing in 2018, boosted the country’s total IPO proceeds for the year to A$2.4 billion, surpassing the combined amount raised in 2022 and 2023.
While Australian IPOs this year have averaged an 11% gain on their first day of trading, DigiCo’s performance bucked the trend. Aequitas Research Pvt. noted that poor initial performance often correlates with lower liquidity in subsequent trading. Sumeet Singh, Aequitas’s head of equity research, downplayed the impact of DigiCo’s performance on the broader Australian IPO market, citing its relatively small size compared to regional peers and the lack of immediately upcoming listings.
Blackstone’s AirTrunk Acquisition and HMC Capital’s Role
DigiCo’s IPO follows Blackstone Inc. and the Canada Pension Plan Investment Board’s acquisition of AirTrunk, another Australian data center company, for A$24 billion. This deal, Blackstone’s largest ever in the Asia Pacific region, underscores the growing investment in the sector.
HMC Capital Ltd., an alternative asset manager led by former UBS Group AG dealmaker David Di Pilla, spearheaded DigiCo’s listing and retains an 18% stake in the company. HMC Capital’s shares also experienced a significant drop of 7.2% following DigiCo’s debut, marking its largest decline in two years. The S&P/ASX 200 Index fell 0.4% on Friday.
Conclusion: DigiCo’s Challenging Start and Future Outlook
DigiCo Infrastructure REIT’s underwhelming IPO debut highlights the importance of realistic valuations in a competitive market. Despite the long-term growth potential of the data center sector, investor concerns regarding DigiCo’s pricing overshadowed the positive industry outlook. The company’s future performance will depend on its ability to demonstrate the value of its assets and capitalize on the increasing demand for data center infrastructure.
