China’s Data Centers Are Plugging Into REIT-Style Financing Wave

China’s data center operators are tapping a fast-growing asset-backed security market, raising more than a billion dollars from investors hungry for higher yields.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — China’s data center operators are tapping a fast-growing asset-backed security market, raising more than a billion dollars from investors hungry for higher yields.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The niche funding tool — known as holding-type real asset-backed securities — has seen rapid uptake since it was introduced less than three years ago. Almost 70% of total issuance has come in just the past six months, and volumes so far in 2026 have jumped more than tenfold from a year earlier, according to cn-abs.com, which tracks the local ABS market.Major data center operators including GDS Holdings Ltd., VNET Group Inc. and Shanghai Yovole Networks Inc. have joined the wave, selling about 9 billion yuan ($1.3 billion) of the privately-placed products over the past year, the data show.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The unrated securities sit somewhere between traditional ABS and real-estate investment trusts, giving issuers more leeway in payments and fewer regulatory hurdles. Returns are more like dividends — instead of fixed coupons — linked to the performance of underlying assets such as data centers, logistics parks or shopping malls. China has been pushing to diversify funding channels beyond traditional borrowing and public listings.“This asset class has taken off largely because regulators see it as an effective way for companies to raise money,” said Yao Yu, founder of credit-rating startup RatingDog (Shenzhen) Information Technology Co. Investors such as insurers and securities firms like the product’s relatively stable, higher long-term yields — especially in China’s current low interest-rate environment, he added.These products typically generate annual distribution rates of around 4% to 8%, backed by rental income that can extend for several decades, according to people familiar with the matter, who asked not to be identified discussing private information.In many cases, the potential returns can be more than double the average yield on China’s onshore junk-rated corporate bonds, the people said.The Shanghai Stock Exchange, where about 90% of these securities are listed, didn’t immediately respond to questions about its outlook for these products or what it’s doing to support investors and drive further growth.Many of the firms tapping this market have never sold public bonds in the nation’s domestic market. Private-sector companies and those in newer sectors have struggled to issue debt onshore, where investors tend to favor state-backed borrowers. Data-center operators are drawn to it because building facilities to support artificial intelligence and cloud computing requires huge upfront investment, but the returns are generated slowly over time. That creates a mismatch between funding needs and cash flows.The appeal extends beyond the tech sector. Utilities, including toll-road operators and power producers, remain the largest issuers, reflecting their outsized role in the economy. They are followed by commercial property owners and data-center operators. Local government financing vehicles — investment arms that fund public infrastructure — have also been active as they’re seeking new funding channels after Beijing tightened scrutiny of local borrowing.Wuhan Weineng Battery Asset Management Co., an electric-vehicle battery recycling and energy storage firm backed by NIO Inc. and Contemporary Amperex Technology Co., was among the latest borrowers to tap the market, raising 501 million yuan earlier this year. A unit of distressed builder Seazen Holdings Co. priced 616 million yuan of such notes late last year and is applying to issue more. The company told investors it aims to raise as much as 8 billion yuan through these securities in 2026. “Fixed-income investors in China have long been struggling in a low interest-rate environment, while issuers have been actively exploring diverse financing channels, so it’s a perfect match,” said Jerry Fang, managing director for structured finance ratings with S&P Global Ratings. Holding-type ABS offers an alternative as it allows issuers to borrow against tangible assets rather than relying purely on their corporate credit profiles.

China Securities Co. estimates that total sales may reach 700 billion yuan in the medium to long term.Despite the rapid growth, some investors remain cautious as the market is still in its early stages, with limited liquidity and few clear exit options. “Investors should be prepared for a long-holding period and it’s unclear how sustainable the rental income from these assets will be over time,” said Li Gen, founder of Beijing G Capital Private Fund Management Center.Still, analysts expect demand to continue growing, especially as China’s digital infrastructure expands. Project financing and ABS have been important funding channels for data centers globally, according to S&P’s Fang. With their capital spending set to increase sharply, operators will seek more convenient financing options.“The market will most likely continue to boom going forward,” he added.—With assistance from Janice Huang and Amanda Wang.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.