ING pursues data center loan sales
As vast sums flow into the construction of artificial intelligence (AI) data centers, global financial institutions are showing signs of seeking to reduce investment risk by transferring related loans to other investors. With data center electricity consumption and construction regulations becoming major issues in the US midterm elections, concerns are also growing over the profitability of large-scale AI infrastructure investments and the risk of failing to recover funds.
According to Bloomberg, major Dutch bank ING is pursuing the sale of 12 data center loans worth about $500 million, or approximately 700 billion won. The proposed sale includes $25 million in loans related to a data center in New Mexico that is part of Stargate, the large-scale AI infrastructure project being pursued by OpenAI, Oracle and SoftBank. Loans related to US data center operators Vantage Data Centers and CyrusOne are also included. ING plans to accept purchase offers of at least $10 million per loan through November 19.
The proposed sale is attracting attention because it comes as the prospect of tighter regulation of data center construction grows in the United States. In the US midterm elections on November 3, the enormous electricity consumption of data centers and resulting increases in electricity bills emerged as issues. Some areas are also seeing moves to restrict new data center construction in response to opposition from residents.
Data centers require substantial funding from the start of construction through completion, as well as a stable electricity supply. Delays in grid expansion or permitting inevitably push back the point at which data center operations can generate revenue. That also creates a burden for the financial institutions that provided construction loans.
Stargate faces power supply difficulties
Stargate, which is included in ING's proposed sale, is a prominent large-scale project launched to expand US AI infrastructure. Construction of its data center in New Mexico, in particular, has faced difficulties with electricity supply. In September, Oracle sent the developer a notice concerning a force majeure clause intended to reduce its cost burden if completion of the data center is delayed.
However, ING's specific reasons for seeking to sell the loans have not been confirmed. Observers also note that selling loans is a routine asset management practice used by banks to diversify investment risk, so the sale alone does not establish that the project is distressed.
Other banks review risk-sharing options
Other global financial institutions are also showing signs of seeking to diversify AI data center investment risk. According to the Financial Times, JPMorgan Chase, Morgan Stanley and others are reportedly reviewing options to transfer data center loans to private equity firms or insurers, or to share the risks. The aim is to manage the risk of lending becoming concentrated in a particular industry as AI infrastructure investment rises rapidly.
When banks sell loans, the new investors receive interest income from the loans but also assume risks such as default. Banks can thereby free up lending capacity or reduce exposure concentrated in a particular industry.
“If securing funding for data center construction becomes more difficult or borrowing costs rise, AI server installation schedules could also be delayed,” a semiconductor industry representative said. “This is a factor that could also affect demand for NVIDIA's AI chips and high-bandwidth memory (HBM) from Samsung Electronics and SK hynix.”
Original Korean article: Chosun Ilbo
English brief by Korea Wind Intelligence, koreawindintel.com
