STOCKS | S&P Warns South Korean Data Center Buildout Will Pressure Corporate Credit

S&P Global warned that South Korean companies participating in large-scale data center construction under the country's "three major super projects" are likely to face a much heavier investment burden, which could further pressure corporate credit ratings. According to Sina Finance, S&P said in a report on the 21st that South Korea's data center investment over the next 10 years is expected to reach about $900 billion, or 1,200 trillion won, and telecom operators and other participating companies will expand their data center businesses sharply. S&P said companies will likely use structures such as asset securitization and project finance, as they have in overseas data center projects, to minimize the impact on credit quality. However, it said the sharp rise in capital spending would still be unavoidable. According to market research firm 451 Research, South Korea currently accounts for only 2.5% of the Asia-Pacific data center market. South Korea plans to add an average of about 1.9 gigawatts of data center capacity annually by 2035, with SK Telecom, KT, GS Group, Naver and others taking part in related projects. S&P said that if the large-scale investment is carried out smoothly, South Korea would become the second-largest data center market in Asia-Pacific based on leasable IT load capacity. It also said the participating companies would struggle to cover the required investment costs using only internal cash reserves and cash flow from operations. By the end of last year, SK Telecom, KT and GS Group, including GS Construction and GS Holdings, held a combined 177 trillion won in cash and generated 147 trillion won in cash flow from operations, while building a 1-gigawatt data center facility was expected to cost up to 70 trillion won. S&P added that data center construction costs are usually shared by customers and operators, and customers directly purchase chips and servers, so the actual burden on South Korean companies may be lower than the figures above.