Emerging from a challenging 2022, the question of who will lead investment in the digital infrastructure space in Asia was front and centre at the TMT M&A APAC Forum held in Singapore on Wednesday, 10 May 2023. 

Niranjan Arasaratnam, partner and global co-head of Technology Sector, and senior counsel technology and data Alaister Johnson discussed the key trends and deal opportunities in digital infrastructure across Asia, including most attractive asset classes and challenges for cross-border dealmaking. 

While the current global macro-economic climate creates headwinds for deal making, the digital infrastructure sector in Asia continues to offer significant potential upside for investors.

"The Philippines has been a particular deal hotspot for towers transactions over the past couple of years; it will be interesting to see whether that trend continues or if other locations in APAC, such as India, will become more of a focus of investor attention" said Niranjan. 

In 2022, Asia TMT activity was up 17% YoY with 325 new deals announced for a total deal value of US$100bn. Strategic acquisitions were up 5% YoY with PE-backed transactions still below 50% of all announced deals but is gradually climbing over the last few years*. 

Despite economic uncertainty and some investors adopting a "wait-and-see" approach, the outlook for 2023 remains positive. 

"The recent relaxation of foreign investment rules in the region creates significant opportunities for cross-border digital infrastructure investment in Asia. However, investors looking to make the most of this more liberalized landscape will still have to navigate other regulatory, political and operational challenges to successfully develop a pan-Asian platform,” said Alaister.  

Here are our key takeaways from the session: 

Towers - a continued asset class of focus for investors? 

In the towers space, the Philippines emerged as a deal hotspot where over 13,000 towers were divested at a value of over US$3bn in 2022. More activity is expected in the Philippines this year where there have been two sale and leasebacks so far. Indonesia, Bangladesh, India, Thailand, and Malaysia have seen substantial activity. Particularly in Malaysia, the rollout of 5G networks is expected to unlock fresh opportunities.

The potential of India remains to be seen, although there is consensus that the upside could be tremendous with the roll-out of 5G networks happening at pace.

Going forward, cost of finance and the changing political climate in some countries in the region will have a knock-on effect on the towers M&A landscape. Investors will need to ramp up due diligence on investment decisions and exercise greater discipline while questioning reasonable assumptions, in particular around the impact of the current regulatory and political environment.

Data centers - untapped potential?

Data centers remains one of the most exciting areas of growth in the digital infrastructure space especially in Southeast Asia where a young and tech-savvy demographic increasingly use the Internet as a platform for sharing content and making transactions. This in turn creates a significant demand for data center capacity which far outstrips current supply. Regulatory relaxations on data center development restrictions in the region, for example in Singapore, make the space an even more attractive on for investors (both for “build to suit” projects as well as carve-outs). 

Some market players are already looking to make the most of this, and we have observed data center carve-outs in the Philippines, South Korea, Japan and Hong Kong SAR. 

Fibre - when will the market mature? 

An asset class that has been more under the radar in Asia to date is  fibre. Governments across the region have been promoting fibre network upgrades to support high-speed Internet goals but few have experienced sustained success to date. The complexities in this asset class also lie in the cost of development and shorter maintenance cycles, again adding to costs. 

Unlike Europe and the US where the fibre market is more mature, Asia is still evolving. The landscape is less developed. However, as a core connecting component of other aspects of the digital ecosystem, fibre is another area where investors can look to find value in Asia. 

*Figures from TMT M&A Global Review 2022 and Outlook 2023, TMT Finance