Teraco Data Environments, Africa’s largest data centre provider, is building a R2bn power plant locally to secure stable, reliable backup energy for its systems that can ill afford Eskom’s continued load-shedding.
Teraco CEO Jan Hnizdo spoke to Business Day about the investment case for digital infrastructure, the company’s business model and investor interest in the space.
Have you seen a change in how investors relate to digital infrastructure businesses?
Infrastructure in general is a hugely topical thesis for private equity and public investors worldwide. It’s not just data centres, it’s [also about] power, subsea cable systems, everything that revolves around data. Over the past two or three years [that interest] has increased.
In the context of the US you see the likes of Black Rock and Blackstone, huge big global asset managers, starting to invest serious money, tens-of-billions of dollar into key infrastructure.
There’s also electrical grids, which they can see are maxed out and going to need a lot of investment. Individual companies and governments can’t do it themselves, so we’re going to have a lot of private capital coming into these infrastructure developments.
Worldwide a lot of money has gone into data centre infrastructure. We can see it even here in SA. The industry has grown from 15 years ago when it was a couple of [telecom companies] and ourselves. There are several data centre providers in SA, so definitely a growing space.
How has Teraco’s relations with funders evolved over the years?
Funding wise, financial institutions such as banks are more aware of critical digital infrastructure [than before]. Previously it was seen as a risk. When we started Teraco, it was originally very much family and friends [investing], then came the Development Bank of SA, which is great as this is what development banks should be doing — providing seed funding.
Then we started a journey with the banks. At first thy were a bit sceptical about the business model, but now we’ve got Absa, which has been fantastic for us. They’ve put together a big funding package with various financial institutions that they’ve syndicated to.
If it wasn’t for them, we wouldn’t have been able to grow the way we have. They have confidence in our business model and have been great backers for us.
Our shareholders are amazingly supportive. We don’t have pressure to pay dividends. As a result of that we’ve been able to invest all our cashflows back into the business.
Would Teraco be open to a listing on the stock exchange?
Access to capital would be our primary reason for listing. However, thanks to our shareholders and the financial institutions that support us, we don’t need to access shareholder capital.
What does the ownership of Teraco look like?
We’re 55% owned by Digital Realty, a large global data centre company. And then we’ve got three private equity companies that have been with us over the past eight years. These include Primera and Berkshire Partners, who have been super supportive. Their focus has been [on] trying to optimise what we’re doing and carry on investing and that has allowed us to build out the portfolio the way we have.
As a digital infrastructure provider, what does Teraco invest its capital in?
Critical infrastructure, which includes real estate, telecommunications and IT.
Our big focus is on security and access to sites and then it’s about space, power and cooling. The power and the cooling are the two critical aspects. Our service-level agreement with our clients is actually 99.99% uptime. We just can’t go down because if we do we’re going to land up taking our cloud clients’ infrastructure down.
Another big focus is on making sure we have electricity all the time. We invest heavily in generators and our own energy modules, so if Eskom goes down we’re able to replace that power.
Cooling is huge because in each [server] rack you’ve got 10-30 servers. Each server has a small chip inside it spewing out a huge amount of heat and that needs to be dissipated. In a data hall, if you had to turn the cooling systems off, ambient temperatures would go from 25°C to about 50°C-60°C and that would cause huge issues.
What makes Teraco’s business model different?
We are unique in that our business model is our open access environment in which all our clients are able to actually connect to one another. And because we don’t charge for connectivity, there are just interconnect fees. We don’t monitor throughput or capacity.
The costs of communicating with other parties, connecting to the cloud, and connecting to your telecom provider have come down hugely in an environment such as ours. Our interconnect fees are about R1,000 a month irrespective of how much bandwidth is used.
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