Data centre boom reshapes Asia Pacific loan markets

The Asia Pacific Loan Market Association has published a whitepaper on how data centre investment is changing financing structures and risk considerations across the region's loan markets.

Titled Network effects: How data centre financing is reshaping loan markets in Asia Pacific, the paper is sponsored by Fitch Ratings and Latham & Watkins. It is the industry body's first thematic whitepaper and examines market structure, regional constraints, and emerging approaches to funding digital infrastructure.

Data centres have moved from a niche real estate and infrastructure segment to a mainstream credit topic in parts of the Asia Pacific. The sector's growth has coincided with a wider search for yield, an expanding private credit footprint, and greater use of structured financing in some markets. The paper presents this expansion as a driver of broader loan market development in the region.

Philip Kam, Chief Executive Officer of the APLMA, linked the work to rising interest among member institutions.

"As data centres become established as critical infrastructure in Asia Pacific, the asset class is quickly becoming an essential part of the APAC loan markets, and we are seeing high demand from APLMA members for insights in this area," said Kam.

He described the paper as part of a wider programme of research, events, and training, aimed at supporting market understanding as activity increases.

Changing structures

The paper argues that larger deal sizes and evolving capital structures are becoming more common as operators scale up and portfolios expand across multiple jurisdictions. This shift is bringing new lenders and investors into the market, including those experienced in structured products and infrastructure-style underwriting.

Fitch described it as a change in both the mix of participants and the instruments used to fund projects and platforms.

"The rapid growth of data centre financing is bringing new financing structures and new investors into the Asia Pacific credit markets," said Ben McCarthy, Managing Director & Head of Asia-Pacific, Structured Finance and Covered Bonds at Fitch Ratings.

Fitch also highlighted its analytical work on digital infrastructure credit risks.

"Fitch has developed credit ratings, analysis and risks assessments to enhance the understanding of digital infrastructure projects. We are pleased to support this initiative to raise awareness of the opportunities and challenges that may lie ahead," said Sajal Kishore, Managing Director & Head of Europe, Middle East, Africa and Asia-Pacific, Infrastructure & Project Finance at Fitch Ratings.

Broader funding mix

The paper says financing solutions are diversifying across the region, with growing activity in project finance, asset-backed financing, mezzanine loans, and holding company debt. It adds that, as they mature, larger data centre platforms are expected to consider asset-backed structures and capital markets funding.

The shift has implications for documentation standards and creditor protections. As more layers of debt are added to capital structures, lenders and arrangers are placing greater emphasis on security packages and payment waterfalls in stressed scenarios.

Latham & Watkins said it is already seeing sharper focus on intercreditor dynamics.

"We applaud the APLMA's efforts to share knowledge and promote best practices in the fast-growing data centre sector. As debt comes in across the capital structure, we are already seeing a sharper focus on collateral and intercreditor agreements," said Chuan Wei Kong, Finance Partner at Latham & Watkins.

The firm also pointed to rapid innovation in deal structures.

"The pace of innovation in financing digital infra build-out in Asia is unprecedented, and we are excited to see how it evolves," said Don Stokes, Infrastructure Partner at Latham & Watkins.

Regional constraints

The paper highlights differences between the Asia Pacific markets and more established data centre financing regions. Regulation is a key variable, particularly rules on data sovereignty and power usage. It also notes that these frameworks can change quickly, affecting underwriting, covenants, and project execution risk.

Local market depth is another factor. Some jurisdictions have limited domestic liquidity for long-dated loans or large single-asset exposures. Ownership structures can add complexity, particularly where land tenure, operating licences, or cross-border cash movements affect security and enforcement analysis.

Project-level risks remain central to underwriting. These can include site selection, grid connection, construction delivery, customer concentration, lease tenor and renewal behaviour, and counterparty strength. The paper also points to competitive pressures as supply expands in some hubs.

Sustainability focus

Energy demand and resource use are recurring themes in the region's data centre build-out. The paper says recent industry discussions have focused on sustainability-linked approaches, while noting continuing challenges in sustainable financing.

Developers are adjusting design and operating assumptions as expectations rise from regulators, customers, and financiers. The paper links reducing future operating risks to broader investor interest, particularly where financing terms reflect sustainability metrics and disclosure practices.

Risk concentration

The whitepaper says sector growth is expected to create opportunities for capital providers across a range of structures, while identifying areas drawing greater scrutiny. These include credit risk concentration, the pace of new supply, uncertainty driven by technological change, and social pressure related to energy use.

The APLMA said its membership includes more than 400 institutions across banking, non-bank finance, law firms, insurers, government bodies, rating agencies, and service providers. The association is headquartered in Hong Kong, with a legal branch in Australia and Singapore, and committees in China, India, Malaysia, New Zealand, and Taiwan.

Kam said the association plans further research and member engagement as the data centre financing market develops across the Asia Pacific.