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spk06: Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.
spk10: Thank you. Hello, everyone. Welcome to the second quarter 2022 earnings conference call of GDS Holdings Limited. The company's results were issued to their Newswire services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investorsgdsservices.com. Leading today's call is Mr. William Huang, GDS founder, chairman, and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, will then review the financial and operating results. Ms. Jamie Koo, our COO, is also available to answer questions. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. private security Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the US SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. I will now turn the call over to GDS founder, chairman, and CEO, William. Please go ahead, William.
spk05: Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. The world is undergoing a lot of uncertainties and it's very unpredictable right now. For the companies in China, it's an extremely challenging year. especially the tech sector. Our customers are impacted by the economic slowdown, the COVID lockdown, and the supply chain shortage. This is reflected in their weaker than normal business performance and the results. However, GDS business is resilient and defensive. Despite the challenges, we are still delivering solid results, growing revenue by 24% and adjusted EBITDA by 18% in the second quarter. At the same time, we continue to make significant progress in the execution of our growth strategy by further developing our customer franchise, as demand diversifies across the cloud, internet, and enterprise verticals. Setting up our international expansion and establishing a new data center fund as the channel to access private capital. We have strengthened our position in absolute and relative terms for future recovery and the value equation. Even in a softer demand environment, there are still significant new business opportunities. As a result of our customer targeting and market presence, we are well-placed to compete. In the second quarter, we won three new high-scale orders. The first came from a global cloud customer who we are already serving in mainland China. But this latest order was for our Hong Kong One data center. As a result of this deal, we now have the largest global cloud and the largest China cloud as our anchor customers in Hong Kong One. which is quite an achievement. The second was from a China cloud customer for capacity at a location near Beijing where they already have significant presence. This is a typical land and expand order. The third was from a major Chinese bank for capacity in Shanghai. Continuing the trend which we highlighted for the last few quarters, financial institutions and the large enterprises once again accounted for around 40% of new bookings in 2022. During the first half of this year, our new bookings were 31,000 square meters. For the full year, we are confident of achieving 70,000 square meters of net additional area committed. We may be able to do more, but it depends on view timing. This is a transitional year. Going forward, we still target 80,000 square meters to 90,000 square meters of annual new bookings. Within this number, we expect a change in the mixed width, perhaps 15 to 20% coming from our regional business. GDS business is focused on chairman market, which was affected by lockdowns. Nonetheless, we still achieved over 13,000 square meters of net additional area utilized in the second quarter. Based on feedback from our customers, we expect moving to continue at a similar level for the next few quarters. However, in the middle term, we believe that moving will return to historic levels. We have a large backlog totaling 240,000 square meters, which in the piece, our multi-year growth. Our backlog is solid. Our data centers are concentrated in tier one market where future supply is limited. Customers have secured this resource because it is very strategic for them. We will continue to deliver the backlog It is just a matter of time. To adjust to the current slower environment, we have scaled down our capacity delivery schedule. In the first half of 2022, we brought 16,500 square meters of capacity into service. In the second half, we plan to bring another 31,000 square meters into service. As compared with our original plan for FY22, we have pushed back nearly 39,000 square meters of completions into next year and beyond. Our whole market customers are putting increased emphasis on international expansion. particularly in Southeast Asia. We are also putting a lot of time and effort into scaling up and accelerating our regionalization strategy. In Hong Kong, we have accomplished the difficult task of establishing a five-year pipeline of purpose-built data center capacity, clustered in a prime location. Our first data center, Hong Kong 1, will come into service in the next few months. It is almost sold out with Chinese and global customers. We are now working on anchored customer orders for Hong Kong 2. In Southeast Asia, we have secured a high-scale capacity at campuses in Johor, Malaysia, and Batam, Indonesia. All of our campuses are now under construction. The sales pipeline for this capacity is even stronger than what we expected. The customer profile is varied across verticals, and it included both Chinese and global names. There are a few deals which we are confident of winning this year, which will demonstrate strong proof of concept. With demand from Chinese and global customers, Southeast Asia is one of the fastest growing data center market in the world. We believe that our regional business, including Hong Kong, will become a second growth engine for GDS, alongside mainland China. As part of today's earnings release, we announced the formation of an RMB 6.7 billion equivalent to US dollar 1 billion mainland China data center fund. It is important for us to have access to capital from a variety of sources, public and private, onshore and offshore. This data center fund will significantly enhance our financing strategy and benefit all of our shareholders. To finish up, we have been through difficult times and cycles in the past. The challenges that we are experiencing now are for short-term, while data center industry is for long-term. During this time of uncertainty, we continue to build up our position by expanding our customer base and enhancing our market presence both in and outside China. We believe we will be well prepared both in terms of business operations and the financial capabilities when the recovery happens. We remain very confident about our future. I will now pass on to Dan for financial and operating reviews, as well as to explain in more detail about the fund.
spk04: Thank you, William. Starting on slide 14, where we strip out the contribution from equipment sales and the effect of FX changes, in 2Q22, our service revenue grew by 2.6%. and underlying adjusted EBITDA grew by 0.2% quarter on quarter. Our underlying adjusted EBITDA margin was 46% compared to 47.1% in the previous quarter. Turning to slide 15, service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 2Q22 was 13,659 square meters. Around 8,300 square meters was in Tier 1 markets affected by lockdowns. And the remaining 5,300 square meters was from BOT projects in unaffected remote areas. In the second half of 2022, we expect a similar level of move-in as we saw during the first half. Monthly service revenue per square meter was 2,265 RMB, down by 1.4% compared to the previous quarter. The decrease is mainly due to dilution from move-in at BOT projects. This dilution effect will continue in the second half as we deliver most of the remaining BOT backlog. However, for FY22 as a whole, we still expect MSR to decline by around 4% to 5% year on year, in line with our original expectations. Turning to slide 16, our underlying adjusted gross profit margin was 15.9% for 2Q22, compared to 52.4% in the previous quarter. The extreme hot weather this summer has resulted in a higher seasonal PUE than we normally see in the second and third quarter. Furthermore, power tariffs are now up the maximum permitted 20% across our Tier 1 markets. In 2Q22, utility cost was 30% of service revenue, compared with 28.3% in 1Q22, and 26.9% in 2Q21. There's no sign yet that tariffs will come down in the near term. Therefore, we expect the combined effect of higher power consumption and higher power tariffs to continue being a drag on our margins in the second half of the year. Turning to slide 17, we think about our capex in three parts. Mainland China Organic, acquisitions, and regional expansion. For Mainland China Organic, we spent 2.7 billion RMB in the first half of 2022 out of our full year budget of 6 billion RMB. As William mentioned, we've scaled back our project delivery. However, while CapEx is generally linked to capacity expansion, there is a significant portion that has to be front-ended for installation of power infrastructure at new campuses. Accordingly, it will take time for our mainland China organic capex to come down. We expect mainland China organic capex to be several billion lower next year. For acquisitions, in the first half of 2022, we paid just over 3 billion RMB of consideration, we will pay another 1 billion RMB by the end of the year. As of now, there is no material acquisition consideration that will be payable next year. For regional expansion, which includes Hong Kong and Macau, as well as Southeast Asia, we spent just over 1 billion RMB in the first half out of our original full-year budget of 2 billion. Regional CAPEX is likely to step up by several billion next year, given the expected new business wins. For the whole of 2022, we will most likely still hit our original CapEx guidance of 12 billion RMB before taking account of any potential capital recycling through the data center fund. Turning to how we fund this CapEx, we think it makes sense to take a different approach for our regional business and our mainland China business, given the differences in the capital markets, investor base, and valuations. There's a lot of money chasing digital infrastructure in the region, and GDS Regional is a very attractive investment opportunity. We believe that we have already created significant value from our initiatives in Hong Kong and Southeast Asia. We've set up an international holding company under GDS Holdings to hold all of our projects outside of mainland China. We will use this international hold code as the equity capital raising vehicle for our regional business. As a first step, we intend offering a small minority stake to private equity investors who we believe can add value. We've started work on the process and aim to get this done in the next couple of quarters. For our business in mainland China, excluding acquisitions, our objective is to become self-financing within a few years. With build-up in operating cash flow, as more data centers reach stabilization, and substantial front-end capex already incurred, the gap to free cash flow break-even is narrowing down. Turning to slide 18, in order to enhance our access to capital, which is a competitive advantage in uncertain times, we've been considering structures which enable us to bring in outside equity investors at the project level in mainland China. We find that there is strong interest, particularly among real estate investors, in this kind of participation. Further to this strategy, we recently entered into a framework agreement with an investor which is a sovereign wealth fund for the formation of our first offshore mainland China data center fund. As envisaged by the framework agreement, the fund will have 6.7 billion RMB, equivalent to US dollars 1 billion of committed capital, with 70% coming from the investor and 30% from GDS. The investment objective of the fund is to acquire data centers in mainland China, either from our own portfolio or from third parties through M&A transactions. GDS will manage these data centers under long-term contracts. We are looking to seed the fund with a few projects in which we have invested significant capital, but which are still several years away from stabilization. This will allow us to recycle capital and accelerate monetization while maintaining our recurring income model with management fees. Our target is to complete the formation of the fund and inject at least one project by the end of this year. Meanwhile, we are also in discussions with some domestic financial institutions about an onshore version of this fund structure, although these discussions are currently at an earlier stage. Looking at our financing position on slide 19, at the end of 2Q22, we had 9.2 billion RMB or US dollars 1.4 billion of cash on our balance sheet. And our net debt to LQA adjusted EBITDA ratio was 7.2 times on a consolidated basis. As shown on slide 20, we should really look at our leverage in two different categories. Our in-service portfolio, which is 96% committed and 68% utilized, has a net debt to LQA adjusted gross profit ratio of 4.2 times. As these data centers reach full utilization, the leverage ratio will come down closer to three times. We have another portfolio, which includes area under construction and area held for future development. For this part of the portfolio, we believe that it makes more sense to look at the ratio of net debt to fixed assets, which is a reasonable 53%. Once we have completed the regional equity capital raise, and some capital recycling through the fund, we expect our consolidated leverage to come down. Turning to slide 21, as at the end of 2Q, we had total capacity in service and under construction of 667,000 square meters. Against this, we had total area committed by customers of 588,000 square meters. Assuming that we deliver all the backlog and sell out remaining inventory, our area utilized or revenue generating capacity would increase by around 90%. The total cost to complete all existing projects is around 9.8 billion RMB or 1.5 billion US dollars. It is a relatively small amount of capex to generate a large amount of growth because we have already made most of the investment. On top of our existing projects, we have secured another 457,000 square meters of pipeline held for future development. It's land and buildings with project approvals and energy quota, predominantly in Tier 1 markets. which we believe is a very valuable asset. Turning to slide 22, after evaluating the impact of COVID lockdowns and slower economic growth, we are revising our original guidance for 2022 revenue and adjusted EBITDA. We now expect revenue of 9.25 to 9.4 billion RMB and adjusted EBITDA of 4.2 to 4.28 billion RMB. Our CapEx guidance of around 12 billion RMB remains unchanged, but could be lower if we inject any data centers into the fund by year end. We'd now like to open the call to questions, operators.
spk06: As a reminder, to ask a question, please press star 1-1. For the benefit of all participants on today's call, please limit yourself to one question. If you have more questions, please re-enter the queue. Our first question comes from Michael Elias with Cohen. Your line is open.
spk01: Great. Thanks for taking the questions, too, if I may. So first, you know, I just want to touch a little bit on the China Data Center Fund and get a better sense of what the mandate is. You know, is this really just a capital recycling vehicle of your stabilized assets or pre-leased assets, or is this really a vehicle for you to go and do more outside M&A? That's my first question. And then second question is, You know, in the U.S., we've seen over the years kind of a decline in returns for build-to-suit type deals. Now, I'm just wondering, as we think about your BOT projects, how would you characterize the willingness to pursue incremental BOT, you know, projects and any color you can give around the return expectations there? Thank you.
spk04: Okay. Yeah, thank you, Michael. The mandate of the data center fund is actually broad. It includes acquiring data center projects from GDS at all stages of development and also acquiring data centers from third parties through M&A transactions where the fund would be the direct buyer rather than buying from GDS. Having said that, from Our perspective for the first phase, we're focused on injecting a small number of projects from our own portfolio in order to hit a certain level of capital recycling. We're looking at something like 300 to 500 million US dollars in terms of injection equity value in an existing state. either by the end of this year or if not by the end of this year, by the end of the first quarter. Thereafter, I think we're more open-minded. We consider further injections from our own portfolio and also to consider what opportunities there are in the market. Certainly, it's very welcome to have this fund to give us a reserve of capital for third-party M&A. which, of course, we did not have before. Second question, William, about our appetite for BOP-type projects in remote areas, Michael, saying given the level of returns.
spk05: I think historically we did a lot of the B2C, which we think the return is quite good, right? But in the last two years, I think that we rejected a couple of the deal, I mean, because the returns getting lower. So I think we still will discipline to do the business which we think is suitable. We have the ability to accept those kinds of deal in any time, but it depends on our option, right? So I think this is our position.
spk01: Thanks for the call, guys.
spk03: Appreciate it. Our next question comes from Tina Ho with Goldman Sachs.
spk06: Your line is open.
spk11: Hi, management. Thanks for your time. I have also two questions, if it's OK. The first one is regarding your overseas business in the Asian markets. especially with Malaysia and Indonesia, would you characterize it more similar to tier one markets in China or more like BOT projects type of thing? And also, I believe previously our strategy in Aji is more to go out with our domestic customers, but now we see that Hong Kong data center has also secured a global number one cloud customer. So wondering in the ASEAN market, are we open more to international customers as well? And if yes, how do we compete with other global data center platforms in those markets? This is first question. Second question is also regarding the China Data Center Fund. So you mentioned that you are looking at injecting some like ramping up projects. So wondering how do you, choose from all of these different locations in tier one, Egypt town, downtown, and also like BOT projects? Thanks.
spk05: Okay, I answered the first question about the regularization. I think the number one, how we look at the regularization, we still maintain our strategy in the tier one market, right? So Southeast Asia is big, right? But we understand The Singapore market is the most attractive market in Southeast Asia, even in the world. If I remember, the Singapore data center market represents almost 50% of the total Southeast Asia. The situation is in less than two years, Singapore government stopped to allocate the power. So that means if you look at the Singapore market, the demand is very strong from the global multinational, even from China. So I think this is a very attractive market for us. So if you look at the next three years, in Singapore, there's very, very limited supply. almost zero in the next three years. But the demand is still there. So our strategy is to build our data center close to Singapore. So I think that we still treat this as a general market and a very clear, certain demand in the next three or five years. So that's our strategy. So we think our data center strategy still works in this region. And Hong Kong, obviously, is another top market in Asia. So I think in the last five years, a couple of years, it's very difficult to build a land bank in a very, very good location in Hong Kong. We're successful to achieve that. And we see the demand continues to fry in Hong Kong. It's just like what happened in Singapore. It's not only from China, it's also from the global. So we are well positioned to catch up this trend still. So these two markets, we are very confident and I think the location is good. Talk about how to compare with a multinational company in this region. I think GDS has become, after 20 years, we built up our very, very world-class capability to do the data center business. Number one, I think we are more familiar with the customer. We are more familiar with the regions. So in terms of to build our market presence, I think we are still maintaining the first mover in this region. So this is number one. We always take first mover advantage, which I think this is our strength. On the other hand, because we built a large scale in the last couple of years, So we do have, we can build more cheaper, more faster, and we deploy our operation capability more faster, more cheaper than anyone else. So that's our strength. So I think we are, we think we have all kind of the capability to compete with any competitor in those regions. We are confident.
spk04: Okay, Tina asked, how do we select projects for the fund? So, as I responded to Michael earlier, the mandated fund is very broad. But for the seed projects, we selected and proposed, it still has to go through a process with the investor, but we selected and proposed projects in a category which we call pre-core. These are projects which are under construction, maybe a small part is in service, partly pre-committed, and at least, say, three years away from being complete and fully stabilized, at least based on current projections. So from a financial perspective, these are projects where we've already invested considerable sums of money and we believe created value because the value creation comes through forming these projects and getting the customer commitments and so on. But where we are going to be years away from having revenue EBITDA or certainly fully stabilized EBITDA. And it feels like maybe the public equity market doesn't value these situations. They probably don't value our Southeast Asian business either. So from our perspective, it was kind of getting hopefully the biggest bang for our buck, taking these projects and recycling the most capital with the least in the next few years. And maybe that will help to highlight the value whilst still having a recurring income model going forward. After these seed projects, as I said before, we're open-minded. We may do other kinds of projects, but that was our thinking for the first phase.
spk05: I think this fund will let GDS in a position to very flexible to access the different capital. And let GDS can more flexible do more valuable business and acquisition as well.
spk11: I understand. Thanks, William and Dan.
spk06: Our next question comes from Jonathan Atkin with RBC Capital Markets. Your line is open.
spk08: Yes, hi. This is Bora on for John. Thanks for taking the questions. First, on M&A, can you comment on what you've been seeing in terms of multiples, if you've been seeing any movement up or down, and how target-rich is the M&A environment in edge of town versus, say, municipal sites? And then secondly, on your progress in Indonesia and Malaysia, when could that start to become a bit of a needle mover generating revenues? And are there any other markets in the region that you would consider, or is that it for now? Thank you.
spk04: Yeah, okay. Hi, Bora. First of all, target rich. I think that's a good way of putting it. There's a highly fragmented market. We're much bigger than any other player, but there's a long tail. There's a lot of companies with small portfolios. There's a lot of companies who are kind of like single project companies. And so in theory, at least, there's a lot of potential targets. But then it comes to what is the driver for doing the M&A, and what is the strategic rationale? In the past, we were very focused on building up our resource pipeline. We also valued situations which enhanced the customer franchise and in the past also would give us scale. Now we don't see that any particular acquisitions, it's obvious to us whether they make, whether there'd be a very strong strategic rationale but therefore there has to be a strong financial rationale. I can't say really where market multiples are, we have our own view about what makes sense. It has to be highly accretive to us. So it's not so much about what is the market multiple, it's what makes financial sense to us. And that's why we take a disciplined approach and wait to see those opportunities which do satisfy our financial needs. natural criteria. For Indonesia and Malaysia, I don't think you have to wait for revenue to move the needle in terms of valuation. I think it's probably apparent to many investors that we've already created value with what we've done. Maybe when we do the regional equity capital raising and put a value on the business, That will illuminate a number for investors. Also, when we're able to announce some significant business wins, which is not very long now before we're able to do that. So I think, yeah, business wins and regional capital raising, I would hope that moves the needle in the next few months or couple of quarters at the most.
spk08: And on the targets, was that more on the edge of town or municipal sites or both?
spk05: Our business target, right? Yeah, yeah. But I think, yeah, I think we have the ambition to do more business globally, right? So because we absolutely maintain strongest position in China already, right? So now we are seeking to build a business outside of China as well in the same time. So I think our step is the number one is Hong Kong, which we did, and we will position. Number two is Southeast Asia, which we think it's good timing to step in. But in the meanwhile, we also look at the other Asia market, So, I think we will look at more market if we think timing is ready.
spk04: Thank you. In China, M&A targets?
spk05: In China, M&A target, I think the fact is that in China, M&A target is getting more, I think. But the question is, We still wait. We have a lot of patience because we try to create value for our shareholders. So now I think still in the transition, the seller, a lot of the data center owners, they started to lower their expectation, which we think is still not meet our expectation. So I think we still wait.
spk08: Thanks for the call, William and Dan. Appreciate it.
spk06: Our next question comes from Yang Lau with Morgan Stanley. Your line is open.
spk00: Thanks for the opportunity. I have two questions here. The first one is on the demand in China. because we recently observed that Chinese telcos, their public cloud, or their cloud revenue is growing rapidly, while the previous internet companies, their cloud business is slowing down. So I would like to ask what the management view observed that Chinese telcos, their public cloud, or their cloud revenue is growing rapidly, while the previous internet companies, their cloud business is slowing down. So I would like to ask what the management view in terms of the future demand from the cloud vendors in China, whether the strong telco cloud means that demand will shift to their own data center as well. And the second question is regarding the China Data Center Fund. GDS is also an investor in this fund. could please update us in terms of what is the expected return of the fund. Thank you.
spk05: Okay, I think China market demand obviously in this year slowed down, right? So I think, but another angle is that you will see the market is still very active and the demand is shifting. It's shifting from the traditional cloud service provider to, I think, the big, very clear trend is it's happening in the last couple of quarters already. I mean, from the traditional cloud service provider to a lot of the Internet companies. So I think this is shifted. This trend is very clear. So I think that's why if you look at it in the last two or three quarters, even this quarter, our internet order from the internet and enterprise is getting bigger and bigger, right? So this is a very clear trend. We are well positioned on that because we have a very broad customer base built on the last 20 years. So This is number one. In terms of the three telcos cloud jump up very rapidly, I think we know this on that, but I think this is not the takeover or the like Alibaba Tencent's market share. I think a lot of the cloud service providers, they have a different way to calculate the cloud revenue. So this is what I... What am I understanding? So I think they maybe take a little bit, but not that much.
spk04: Kim? Yeah. Yeah. Yeah. Yeah. Liu Yang, the expected return to the fund, actually, the fund will look at projects on an individual project basis. And so the expected return is not for the fund as a whole, it's for individual project And there, of course, it will depend on the stage of development. I can't be specific because it will vary from investment project to project. But I would just highlight that from our point of view, structuring the fund, it was of critical importance that we maintained our management role. I don't mean just as fund manager, I mean as data center manager. And so the projects that go into the fund will carry with them our long-term management contract from which we will generate fee income, which if it works out as we expect, will give us a profit share of the project. So the fund investor, we will sell to the fund at an equity valuation. and then reinvest best in the fund at that valuation alongside the investor so that the cost basis for our investment in the fund will be the same as the cost basis of another LP. But our economics from the investment in the fund could be enhanced by our management fee. It really depends how things work out, but if it works out well, of course, we would get an enhanced return from our participation in the fund plus the management fee profits.
spk05: Yeah, I tried to add more comment on your first question. I think that a lot of the investors currently have more focus on the Alibaba Tencent cloud capacity, cloud growth. But I think they missed one thing. I think this cloud, they slowed down, not means the market slowed down in the same way, right? So what I tried to mention again is that this trend already happened in the last couple of quarters. It's a switch to the internet and enterprises. They build their own private cloud. This trend is already happening in a few quarter, maybe in a few years, in one or two years. But before, people didn't pay more attention on that. But I remember, I mentioned it in the last couple of the earliest call already.
spk00: Thanks for the comment.
spk06: Our next question comes from Frank Luthen with Raymond James. Your line is open.
spk07: Great. Thank you. So a clarification and then a question. Just to clarify, will your capital ingestion in the DOT deals be in cash or the donation of facilities? And then the question, how many of your data centers fit the profile of what you might donate into that to be recycled? And then secondly, can you quantify the impact of the power on your margins, either in absolute levels or just the margins for the year to come? Thanks.
spk04: Yeah. So, Frank, we will sell to the fund 100% of the equity which we own in each project. So that's a sale transaction. We will realize, again, we will We will book again, although in structuring this, we are trading off the front end gains against the level of future recurring management fee income because it is a trade-off. Having executed the sale of 100% to the fund, we will take 30% of the sale proceeds and reinvest that into the fund. So, in effect, this is releasing 70% of our equity in the projects at a valuation plus having a continuing 30% investment with the management fee income. How many of our projects fit this? For a billion dollar fund, which is what this has been sized at for fund one, I mean we would have no difficulty allocating just from our own portfolio if that's what we chose to do. And indeed, the investor at this point in time has expressed appetite in scaling up this venture, but that remains to be seen. But it really does depend. For now, we're just focused on this initial batch of seed projects that we hope will establish this mechanism and recycle a certain amount of capital, show our shareholders what value there is there and how we can manage our capital in this environment. So we don't have any definite plans beyond the initial seed projects. It remains to be seen.
spk07: Okay, and the EBITDA impact?
spk04: EBITDA impact will be minimal next year and even the year after. We've selected projects that, I mean, if we go ahead with these projects, that won't be stabilized based on our existing projections until the fourth quarter of 2025 or the first quarter of 2026. That means over the next three years, there is a ramp-up of EBITDA. In 2023 and even 2024, it's not that much.
spk05: Yeah, but I try to add on. I don't think it absolutely will impact our future EBITDA because based on our standing financial position, we can do more deals. Right? Yeah. So maybe it can bring more revenue more early.
spk04: Yeah. I mean, it's mitigated by the management fees. Yeah. Yeah. Yeah. And there's the question of what we do with the capital, right? Yeah.
spk06: Our next question comes from Sarah Wang with UBS. Your line is open.
spk09: Hi, thank you for the opportunity to ask a question. So my question is still on the Ajin project. So notice that those projects in Johor will be ready for service by 2024. And then, so what's our expectation on the say regional tapas for maybe next year or until 2024 or even further? Also, would you please share with us what's our expected IRR pricing on these, say, Singapore Plus projects? Thank you.
spk04: Yeah, so I gave some numbers and prepared remarks, and these are just emphasising this is all based on existing business plans. It's not like a guidance, right? What I said was that China organic capex which is about six billion RMB this year probably come down by one or two billion next year and our regional capex which will be about two billion RMB this year could be could be four billion RMB next year We talked about raising capital through the international holdco for the regional expansion. What we have in mind at this stage is to raise around 300 million US dollars, but it does depend on the proposals we receive, the valuations and so on. We may choose to take it in in smaller bytes, break it down into a series of transactions. But you can see with that level of capex, 4 billion RMB, we're going to need around 200, 300 million US dollars of equity to see us through the next 18 months or so.
spk06: As there are no further questions, I can now turn the call back over to the company for closing remarks.
spk10: Thank you all once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information GDS Investor Relations through the contact information Investor Relations. See you next time.
spk06: This concludes this conference call. You may now disconnect your line. Thank you.
spk10: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
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