Contract succession and investment criteria
Jang Kyung-soo, co-head of law firm Shin & Kim's AIDC Infrastructure Center, identified contract succession as a major legal risk in data center investment in an interview with ChosunBiz on October 29. When project rights are transferred during artificial intelligence data center (AIDC) development, an issue is whether the electricity supply agreement with Korea Electric Power Corporation can be transferred. Jang explained that, when a facility is sold after completion, operators' and customers' consent rights or restrictions on buyers can affect the transaction.
As growth in the artificial intelligence (AI) industry expands data center investment, the criteria for assessing commercial viability are becoming more demanding. In the early days of data center development, financing could be secured on the basis of a contractor's completion commitment and the appointment of an operator. More recently, greater importance has been placed on securing creditworthy customers that will actually use the facility and on whether invested capital can be recovered through a future sale.
Shin & Kim launched its AIDC Infrastructure Center in September to provide legal advice across data center development, investment, operation and sale. A representative advisory project is the Hanam data center in Gyeonggi Province. The project secured 40 megawatts (MW) of incoming power capacity, and Macquarie Infrastructure signed an agreement in 2024 to acquire it for 734 billion won. Shin & Kim advised on the project from early development through its sale.
The interview was attended by co-head Jang, co-head and adviser Yoo Jung-yeol, and lawyers Kim Jang-sik and Lee Sang-hyun. The following is a question-and-answer account.
Why is contract succession important in data center transactions?
Jang: "When project rights are transferred to another company during development, an issue is whether the electricity supply agreement signed with Korea Electric Power Corporation can be taken over. Operators and end customers assess a new owner's creditworthiness, so they sometimes require consent rights over ownership changes. Accepting provisions that prevent competitors from acquiring the data center could make it difficult to find a buyer later."
How do you resolve problems with contract succession?
Kim: "Under KEPCO's internal guidelines, taking over an electricity supply agreement is not particularly difficult, but some regional offices request additional conditions. If a condition is unnecessary, we review its legal basis and present our opinion. If it must be accepted, we put safeguards in the contract to reduce risk. During permitting, we also examine whether local government regulations and ordinances conform to higher-level laws."
Have the conditions that data center investors consider important also changed?
Jang: "In the Seoul metropolitan area, securing electricity and permits is difficult, while in other regions it is not easy to secure customers that will actually use a data center. Previously, a project could proceed with only a contractor's completion commitment and an operator in place. Now, securing creditworthy customers is considered important in light of a future sale and recovery of invested capital."
Lee: "Generally, land becomes cheaper farther from urban centers, but if a project fails, selling the site alone may not recover the loan. That is why financial institutions are scrutinizing cash flows generated by customer contracts more closely."
Technology and permitting
Are new legal issues emerging as AI data centers increase?
Jang: "As power demand grows and technologies such as liquid cooling advance, demands concerning contractors' performance guarantees and landlords' responsibilities are increasing. 'GPU financing,' which raises funds using expensive graphics processing units (GPUs), is also emerging as a new field. Financial structures developed overseas need to be adapted to domestic laws and contractual conditions."
Will projects become easier to pursue when the special AIDC law takes effect in March 2027?
Yoo: "Once the special AIDC law takes effect, permitting procedures could become faster. But actually securing electricity, obtaining water for cooling and meeting environmental requirements will remain the developer's responsibility. Location and technology need to be assessed comprehensively from the start of a project."
Advisory experience and capabilities
What is the significance of your experience advising on the Hanam data center?
Kim: "Hanam was a first-generation project from the early days of domestic data center development. At the time, we reviewed it in much the same way as a conventional real estate development project, and it proceeded through completion and sale without any particularly significant legal obstacles. Its significance lies in our experience of the entire process from development to sale."
Yoo: "What matters is that experiencing the whole project process gave us a model that can inform subsequent data center developments."
What are the distinctive strengths of Shin & Kim's AIDC Infrastructure Center?
Jang: "Our experience advising on investment, operation and sale structures across various data center projects, including Hanam. The center heads and heads of specialist groups regularly share information on major projects and current policy issues. From a project's early stages, we can advise with not only the investment structure but also outsourced operation and a future sale in mind."
Yoo: "AI data centers now involve more variables that need to be examined from the outset, including location, project purpose and the technologies to be used. The role of examining law and policy together to establish a project's direction is becoming more important."
Original Korean article: ChosunBiz
English brief by Korea Wind Intelligence, koreawindintel.com
