NTT DC REIT’s IPO Debuts with Caution on Singapore Exchange

Singapore’s largest initial public offering (IPO) since 2017, the NTT DC REIT, experienced a cautious debut on the Singapore Exchange (SGX) on July 14, 2023. Although the listing was oversubscribed, the market reaction on its first trading day was muted. The REIT opened at US$1.02, slightly above its offer price of US$1. Throughout the trading session, the share price peaked at US$1.03 before closing back at US$1.

The NTT DC REIT raised US$773 million, backed by Singapore’s sovereign wealth fund GIC and Japan’s telecommunications giant NTT Group. This marks the most significant listing on the SGX since the NetLink NBN Trust raised S$2.3 billion (approximately US$1.8 billion) in 2017. Notably, NTT Group is recognized as the world’s third-largest data centre provider, as outlined in the IPO’s prospectus.

Investor Sentiment and Market Conditions

Despite the positive launch, analysts expressed concerns regarding the trading performance. Mr. Jonathan Koh, a director of research at UOB Kay Hian, noted that he had anticipated the unit price to rise to US$1.10, but the market response fell short of expectations. He attributed this hesitation to ongoing trade tensions and potential tariff increases, which have created an environment of uncertainty for investors.

Mr. Oriano Lizza, a sales trader at CMC Markets, characterized the share price movements as “notably measured rather than exuberant.” He viewed the cautious response as a sign of mature investor behavior, highlighting that while the IPO was oversubscribed by 4.6 times overall, the public offer was oversubscribed by 9.8 times. Lizza emphasized that the price dynamics reflect institutional discipline rather than retail speculation, particularly given GIC’s significant stake of 9.8 percent in the REIT.

The current elevated interest rate environment also plays a role in affecting REIT valuations, according to Lizza. He pointed out that investors are “appropriately pricing in execution risk,” considering that the NTT DC REIT’s portfolio spans three continents.

Significance for Singapore’s Capital Markets

The successful listing of NTT DC REIT is particularly significant due to its size and focus on data centre operations. Koh remarked that the IPO signifies a resurgence of large-cap companies choosing to go public on the SGX. The high level of interest in the listing indicates that investors are eager to invest in REITs backed by reputable sponsors and that data centres remain an attractive asset class.

Mr. Jayden Vantarakis, head of ASEAN equity research at Macquarie Capital, described the NTT DC REIT as bringing a “breath of fresh air” to the Singapore REIT landscape, marking the largest REIT listing on the SGX mainboard in a decade. He believes that a successful performance will enhance the appeal of Singapore REITs and the SGX, especially as there are few pure data centre-focused REITs available in Asia.

Lizza characterized the listing as a “watershed moment” for Singapore’s capital markets, suggesting that it strategically positions the city-state as a hub for investments related to artificial intelligence (AI) and technology infrastructure. The NTT DC REIT offers investors direct exposure to essential digital infrastructure that supports the growth of AI and cloud computing.

Pol de Win, head of global sales and origination at SGX Group, noted that the listing taps into the immense growth potential of data centres, which are attracting strong global investor interest. He stated that being the first REIT launched by a global tech powerhouse like NTT underscores Singapore’s status as Asia’s leading REIT hub.

Looking forward, the outlook for the company appears fundamentally positive. Lizza highlighted the exceptional growth projected in the global data centre market, with local government plans to increase capacity by an additional 300 megawatts, reinforcing a robust structural demand environment.

The IPO is seen as sending a “strong positive signal” about renewed confidence in Singapore’s capital markets. Lizza noted that the successful transaction illustrates Singapore’s ability to attract premium international assets and may inspire confidence in future listings on the SGX. He anticipates a range of potential REIT IPOs on the horizon, including those focused on data centre, industrial, logistics, hospitality, commercial, and retail assets, which could collectively raise between S$600 million and S$1 billion.

In summary, while the debut of NTT DC REIT was characterized by a cautious market response, the implications for Singapore’s capital markets are significant, potentially paving the way for future large-scale listings in the evolving landscape of investment opportunities.