Morgan Stanley Injects CNY 26 Billion into Chinese Data Center Provider Tenglong
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Tenglong Holding Group (腾龙数据), the Chinese leading Internet Data Center (IDC) service provider, has completed a record-breaking CNY 26 billion (USD 3.7 billion) Series A funding. This financing event, led by Morgan Stanley and NanshanCapital (南山资本), saw the highest funding amount ever recorded in the IDC sector.

Founded in 2015, the Beijing-based IDC provider focuses on deeply customized value-added services. Driven by big data, its product mix includes cloud security and cloud computing solutions and the Internet of Things (loT)-related services, to name a few.

Tenglong is a fast-growing player in China's IDC field, though it is a late entry in the market. Only four years after its startup, the IDC provider has established branches in Beijing, Shenzhen, Chongqing and Wuhan.

Reason for Tenglong to land this staggering amount of financing lies in the following four aspects:

Breakthroughs in the traditional business model in the IDC sector through deep customization

Tenglong is among the first group of Chinese companies to cut into the customized IDC market. According to this model, the service starts from signing the contract with the client; afterward, the data center will be planned, designed, constructed and delivered to customers.

On the one hand, customized services eliminate the limitation of the traditional data centers – the construction of which always comes before finding customers – and thus significantly reduces the cost. On the other hand, it allows the needs of clients to be maximized, which contributes to higher usability.

Emphasizing on independence

Throughout the construction, operations and maintenance process, Tenglong always emphasizes a certain agenda: ‘own one’s own property, self-develop construction, maintain independent operations.’ Therefore, the company has great value from both in terms of value-added, fixed assets and future cash flows on IDC service.

Top clients

The company has close strategic partnerships with all the three of China's major telecommunications operators, namely China Unicom (中国联通, CHU:NYSE), China Mobile (中国移动, CHL:NYSE) and China Telecommunications (中国电信, CHA:NYSE).

Meanwhile, Tenglong has also undertaken data center construction, operations, and maintenance management services for China's dominant Internet juggernauts, including Alibaba (BABA:NYSE), Tencent (0700:HK) and Baidu (BADU:Nasdaq).

Relying on heavy assets is an intrinsic characteristic of the IDC industry

Running an IDC business needs big money. According to Tenglong, the investment of a single data center tends to exceed CNY 1 billion. This year, the total investment of the 5G City project which the company signed with the Chongqing government is expected to be more than CNY 10 billion.

At present, Tenglong has more than 10 larger-scale data centers under planning and construction. As of Q3 2019, the IDC provider has contracted an area of 76,000 square meters, and the area under construction has reached 241,000 square meters. By the end of 2024, its overall construction scale is expected to reach 1.47 million square meters, and the contracted area will be 1.13 million square meters.

Here are some firms whose businesses lie in a somewhat similar area as that of Tenglong: illumio – a data center and cloud security company headquartered in Silicon Valley, historically raised a total of USD 332.5 million – and Evocative Data Centers, another American IDC provider based in Emeryville, which freshly secured USD 30 million in its first funding round in November 2019.

China's IDC industry is currently in a broad window of opportunities, witnessing high growth of more than 30% on an annual basis, according to market insiders.

*Contributor: Ivan Platonov | Editor: Luke Sheehan

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