NextDC, an ASX-listed data centre developer and operator, is approaching the local fixed income market seeking $500 million through a subordinated bond issue. The company is marketing four-year and seven-year bonds to credit investors across Australia. NextDC provides data centre solutions, offering colocation services and infrastructure management. The company essentially provides secure and reliable facilities for businesses to house their critical IT equipment and data.
The bond issue comes as NextDC experiences significant growth, driven by the increasing demand for data centre capacity in the artificial intelligence era. The company has supplied more capacity in the past half-year than in the previous decade, and analysts forecast revenues to triple to $1.5 billion by 2030. This growth necessitates substantial capital expenditure, with NextDC planning to spend an estimated $6.5 billion over the next three years to build new facilities.
Despite the growth narrative, concerns exist regarding NextDC’s funding strategy. While all covering analysts have a buy rating on the stock, short interest has surged, indicating bets against NextDC’s ability to finance its expansion without straining its balance sheet or issuing more equity. The company’s rapid spending, with monthly expenditures equalling annual earnings, raises questions about its available credit and projected funding needs. The proposed bond issue is subordinated, meaning it is not secured against any of the company’s assets and will rank behind senior lenders in the creditor queue.
NextDC maintains that its banks are willing to provide funding at attractive rates due to the profitability and value of its existing data centres. The company also suggests it is exploring equity partnerships for major projects. The success of this bond issue, and any subsequent financing moves, will determine whether NextDC can sustain its ambitious growth plans and satisfy both its shareholders and creditors.
