Rationale

The assigned rating for NTT Global Data Centers Del2 Private Limited (NTT GDC Del2) factors in the strong parentage, being a wholly owned subsidiary of NTT Global Data Centers Holding Asia Pte limited which is a step-down subsidiary of Nippon Telegraph and Telephone Corporation (NTT), rated by Moody’s at A1 (Negative). NTT is a leading integrated Japanese telecom operator with the Government of Japan holding about 34.7% (as on December 31, 2023) stake in the company. NTT Limited (UK), a wholly owned step-down subsidiary of NTT, is expected to extend corporate guarantee for NTT GDC Del2’s borrowings by May 2024. ICRA expects NTT Limited (UK) to provide timely funding support to NTT GDC Del2, given the close business linkages and NTT’s reputation sensitivity to default. NTT GDC Del 2’s data center campus in Greater Noida is spread across 6 acres with expected capacity of 52.8 MW across two phases – DC 1 with capacity of 22.4 MW and DC 2 with capacity of 30.4 MW. Earlier, the DC 1 was being developed under NTT Global Data Centers & Cloud Infrastructure India Private Limited (NTT GDC India, rated at [ICRA]AA+(Stable)/[ICRA]A1+), under which the building structure was completed and subsequently transferred to NTT GDC Del2 in February 2024 for a consideration of Rs. 700 crore. The total project cost of Phase 1 for NTT GDC Del2 stands at Rs. 1,470 crore (including the consideration paid to NTT GDC India) which is funded through debt-to-equity ratio of 70:30. As of April 2024, ~44% of equity has been infused and ~51% of the project cost has been incurred. NTT Del2 has leased ~20% of area in DC 1 as of April 2024. The ratings also consider the strong long-term demand prospects for DCs, backed by digital data explosion in India and favourable regulatory support. The rating, however, is constrained by the exposure of the first phase of NTT GDC Del2 to residual execution risks. The project remains exposed to market risks, given leasing is in nascent stages. Any delay in tying-up of leases at adequate rates would adversely impact the debt protection metrics and would remain a key monitorable. However, comfort can be drawn from the sponsors’ operational track record and commitment to infuse additional contribution to support any funding requirements. ICRA derives strong comfort from the company’s parentage, which provides high financial flexibility and refinancing ability. Further, phase 2 of data center park is planned to add capacity of 30.4 MW (DC 2) post completion of leasing for DC 1, with additional capex starting from H1 CY2027 funded by debt-to-equity ratio of 70:30. NTT GDC Del 2 also faces stiff competition from large DC additions from established players. The competition is likely to further intensify with entry of new players in the segment. The Stable outlook on the long-term rating reflects ICRA’s expectation that the company would be able to achieve adequate leasing progress by FY2026 benefitting from the healthy demand prospects for the sector and strong sponsor profile who are expected to provide operational and financial support.