GDS Holdings Limited (NASDAQ:GDS) Q2 2022 Earnings Conference Call August 23, 2022 8:00 AM ET
Company Participants
Laura Chen – Head Investor Relations
William Huang – Founder, Chairman & Chief Executive Officer
Dan Newman – Chief Financial Officer
Jamie Khoo – Chief Operating Officer
Conference Call Participants
Michael Elias – Cowen
Tina Hou – Goldman Sachs
Bora Lee – RBC Capital Markets
Yang Liu – Morgan Stanley
Frank Louthan – Raymond James
Operator
Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After managements prepared remarks, there will be a question-and-answer session. Today’s conference call is being recorded.
I’d now like to turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.
Laura Chen
Thank you. Hello, everyone. Welcome to the second quarter 2022 earnings conference call of GDS Holdings Limited. The company’s results were issued via Newswire Services earlier today and are posted online. A summary presentation, which we will refer to during this conference call can be viewed and downloaded from our IR website at investorsgdsservices.com.
Leading today’s call is Mr. William Huang, GDS Founder, Chairman and CEO, who will provide an overview of our business strategy and performance; Mr. Dan Newman, GDS CFO, will then review the financial and operating results; Ms. Jamie Khoo, our COO, is also available to answer questions.
Before we continue, please note that today’s discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company’s results may be materially different from the views expressed today.
Further information regarding these and other risks and uncertainties is included in the company’s perspective as filed with the US SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law.
Please also note that GDS earnings press release and this conference call, includes discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.
I will now turn the call over to GDS Founder, Chairman and CEO, William. Please go ahead, William.
William Huang
Thank you. Hello, everyone. This is William. Thank you for joining us on today’s call. The world is undergoing a lot of uncertainties and it’s very unpredictable right now. For the companies in China, it’s an extremely challenging year, especially the tech sector. Our customer and impacted — are impacted by this economic slowdown, the COVID lockdown and supply chain shortage. This is reflected in their weaker than normal business performance and the results.
However, GDS business is resilient and defensive. Despite the challenges, we are still delivering solid result, growing revenue by 24% and adjusted EBITDA by 18% in the second quarter. And at the same time, we continue to make significant progress in the execution our growth strategy by further developing our customer franchise as demand diversified across the cloud, internet and enterprise verticals.
Stepping up our international expansion and establishing a new data center [indiscernible] as the channel to access private capital. We have strengthened our position in absolute and relative terms for future recovery and the value equation. Even in a softer demand environment, there are still significant new business opportunities. As a result of our customer targeting and market presence, we are well placed to compete.
In the second quarter, we won three new hyperscale orders. The first came from a global car customer, who we are already serving in Mainland China. But this latest order was for our Hong Kong 1 data center. As a result of this deal, we are — we now have the largest global cloud and the largest China cloud as our anchor customers in Hong Kong 1, which is quite an achievement.
The second was from a China cloud customer for capacity at a location near Beijing where they already have significant presence. This is a typical learn and expand order. The third was from a major Chinese bank for capacity in Shanghai, continuing the trend, which we’ve highlighted for the last few quarters. Financial institutions and the large enterprises once again accounted for around 40% of new booking in 2Q ’22.
During the first half of this year, our new bookings was 31,000 square meters. For the full year, we are confident of achieving 70,000 square meters of net additional area committed. We may be able to do more, but it depends on deal timing. This is a transitional year. Going forward, we still target 80,000 square meter and — to 90,000 square meters of annual new bookings. However, within this number, we expect a change in the next week, perhaps 15% to 20% coming from our regional business.
GDS business is focused on Tier 1 markets, which were — was affected by lockdown. Nonetheless, we still achieved over 13,000 square meters of net additional area utilized in the in the second quarter. Based on feedback from our customers, we expect move-in to continue at a similar level for the next few quarters. However, in a midterm, we believe that move-in will return to historic levels.
We have the large backlog totaling 240,000 square meters which underpins our multiyear growth. Our backlog is solid. Our data centers concentrate in — concentrated in Tier 1 markets where future supply is limited. Customers have secured this resource because it is very strategic for them. We will continue to deliver the backlog. It’s just a matter of time.
To adjust to the current slow — slower environment, we have scaled down our capacity delivery schedule. In the first half of 2022, we brought 16,500 square meters of capacity into service. In the second half, we plan to bring another 31,000 square meters into service. As compare that with our original plan for FY ’22, we have pushed back nearly 39,000 square meters of completions into next year and beyond.
Our home market customers are putting increased emphasis on international expansion, particularly in Southeast Asia. We’re also putting a lot of time and effort into scaling up our — and accelerating our regionalization strategy. In Hong Kong, we have accomplished the difficult task of establishing a 5-year pipeline of purpose-built data center capacity [indiscernible] in prime location. Our first data center Hong Kong 1 was comped into service in the next few months. It is almost sold out with learning Chinese and the global customers, we are now working up anchor customers orders for Hong Kong 2.
In Southeast Asia, we have secured a hyperscale capacity at campuses in [indiscernible] Indonesia. All of our campuses are now under construction. The sales pipeline for this capacity is even stronger than what we expected. The customer profile is varied across verticals and including– included both Chinese and global names. There are a few deals which we are confident of winning this year, which will demonstrate stronger proof-of-concept.
With demand from Chinese and global customers, Southeast Asia is one of the fastest growing data center market in the world. We believe that our regional business including Hong Kong will become a second growth engine for GDS, alongside Mainland China.
As part of today’s earnings release, we announced the formation of RMB6.7 billion equivalent to US$1 billion Mainland China data center fund. It is important for us to have access to capital from a [indiscernible] sources, public and private, onshore and offshore. This data center fund will significantly enhance our financing strategy and benefit all of our shareholders.
To finish up, we have been through difficult times and the cycle — cycles in the past year — in the past. The challenges that we are experiencing now are for short-term, while data center industry is for long-term. During this time of uncertainty, we continue to build up our position by expanding our customer base and enhancing our market presence both in and outside of China. We believe we will be well prepared both in terms of business operations and the financial capabilities when the recovery happen. We remain very confident about our future.
I will now pass on to Dan for financial and operating reviews as well as to explain in more detail about the fund.
Dan Newman
Thank you, William. Starting on Slide 14 where we strip out the contribution from equipment sales and the effect of FX changes. In 2Q ’22, our service revenue grew by 2.6% and underlying adjusted EBITDA grew by 0.2%. quarter-on-quarter. Our underlying adjusted EBITDA margin was 46% compared to 47.1% in the previous quarter.
Turning to Slide 15. Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 2Q ’22 was 13,659 square meters. Around 8,300 square meters was in Tier 1 markets affected by lockdowns, and the remaining 5,300 square meters was from B-O-T projects in unaffected remote areas.
In the second half of 2022, we expect a similar level of move-in as we saw during the first half. Monthly service revenue per square meter was RMB2,265, down by 1.4% compared to the previous quarter. The decrease is mainly due to dilution for move-in at B-O-T projects. This dilution effect will continue in the second half as we deliver most of the remaining B-O-T backlog. However, for FY ’22 as a whole, we still expect MSR to decline by around 4% to 5% year-on-year in line with our original expectations.
Turning to Slide 16, our underlying adjusted gross profit margin was 50.9% for 2Q ’22 compared to 52.4% in the previous quarter. The extreme hot weather this summer has resulted in a higher seasonal PUE than we normally see in the second and third quarter. Furthermore, power tariffs are now up the maximum permitted 20% across our Tier 1 markets.
In 2Q ’22, utility costs was 30% of service revenue compared with 28.3% in 1Q ’22 and 26.9% in 2Q ’21. There’s no sign yet that tariffs will come down to the near-term. Therefore, we expect the combined effect of higher power consumption and higher power tariffs to continue being a drag on our margins in the second half of the year.
Turning to Slide 17. We think about our CapEx in three parts, Mainland China organic, acquisitions and regional expansion. For Mainland China organic, we spent RMB2.7 billion in the first half of 2022 out of our full year budget of RMB6 billion. As William mentioned, we scaled back our project delivery.
However, while CapEx is generally linked to capacity expansion, there is a significant portion that has to be front ended the installation of power infrastructure at new campuses. Accordingly, it will take time for our Mainland China organic CapEx to come down. We expect Mainland China organic CapEx to be several billion lower next year.
For acquisitions, in the first half of 2022, we paid just over RMB3 billion of consideration. We will pay another RMB1 billion by the end of the year. As of now, there is no material acquisition consideration that will be payable next year.
For regional expansion, which includes Hong Kong and Macau, as well as Southeast Asia, we spent just over RMB1 billion in the first half out of our original full year budget of RMB2 billion. Regional CapEx is likely to step up by several billion next year, given the expected new business wins. For the whole of 2022, we will most likely still hit our original CapEx guidance of RMB12 billion before taking account of any potential capital recycling through the data center fund.
Turning to how we fund this CapEx, we think it makes sense to take a different approach for our regional business and our Mainland China business. Given the differences in the capital markets, investor base and valuations. There’s a lot of money chasing digital infrastructure in the region and GDS regional is a very attractive investment opportunity.
We believe that we have already created significant value from our initiatives in Hong Kong and Southeast Asia. Accordingly, we have set up an international holding company under GDS Holdings to hold all of our projects outside of Mainland China. We will use this International Holdco as the equity capital raising vehicle for our regional business. As a first step, we intend offering a small minority stake to private equity investors who we believe can add value. We’ve started work on the process and aim to get this done in the next couple of quarters.
For our business in Mainland China, excluding acquisitions, our objective is to become self financing within a few years. With buildup in operating cash flow, as more data centers reach stabilization and substantial front end CapEx already incurred, the gap to free cash flow breakeven is narrowing down.
Turning to Slide 18. In order to enhance our access to capital, which is a competitive advantage in uncertain times, we’ve been considering structures which enable us to bring in outside equity investors at the project level in Mainland China. We find that there is strong interest, particularly among real estate investors in this kind of participation.
Further to this strategy, we recently entered into a Framework Agreement with an investor which is a sovereign wealth fund for the formation of our first offshore Mainland China data center fund. As envisaged by the Framework Agreement, the fund will have RMB6.7 billion equivalent to US$1 billion of committed capital, with 70% coming from the investor and 30% from GDS.
The investment objective of the fund is to acquire data centers in Mainland China, either from our own portfolio, or from third parties through M&A transactions. GDS will manage these data centers under long-term contracts. We’re looking to cede [ph] the fund with a few projects in which we have invested significant capital for which we’re still several years away from stabilization. This will allow us to recycle capital and accelerate monetization, while maintaining our recurring income model with management fees.
Our target is to complete the formation of the fund and inject at least one project by the end of this year. Meanwhile, we’re also in discussions with some domestic financial institutions about an onshore version of this fund structure. Although these discussions are currently at an earlier stage.
Looking at our financing position on Slide 19. At the end of 2Q ’22, we have RMB9.2 billion or US$1.4 billion of cash on our balance sheet. And our net debt to LQA adjusted EBITDA ratio was 7.2x on a consolidated basis. However, as shown on Slide 20, we should really look at our leverage in two different categories.
Our in service portfolio, which is 96% committed and 68% utilized, has a net debt LQA adjusted gross profit ratio of 4.2x. As these data centers reach full utilization, the leverage ratio will come down closer to 3x. We have another portfolio which includes area under construction and area held for future development. For this part of the portfolio, we believe that it makes more sense to look at the ratio of net debt to fixed assets, which is a reasonable 53%. Once we have completed the regional equity capital raise and some capital recycling through the fund, we expect our consolidated leverage to come down.
Turning to Slide 21. As at the end of 2Q, we had total capacity in service and under construction of 667,000 square meters. Against this, we had total area committed by customers of 588,000 square meters. Assuming that we had delivered all the backlog and fell out remaining inventory, our area utilized or revenue generating capacity would increase by around 90%.
The total cost to complete all existing projects is around RMB9.8 billion or US$1.5 billion. It is a relatively small amount of CapEx to generate a large amount of growth, because we have already made most of the investment. On top of our existing projects, we have secured another 457,000 square meters of pipeline held for future development. Its land and buildings with project approvals and energy quota predominantly in Tier 1 markets, which we believe is a very valuable asset.
Turning to Slide 22. After evaluating the impact of COVID lock downs and slow economic growth, we are revising our original guidance for 2022 revenue and adjusted EBITDA. We now expect revenue of RMB9.25 billion to RMB9.4 billion and adjusted EBITDA of RMB4.2 billion to RMB4.28 billion. Our CapEx guidance at around RMB12 billion remains unchanged, but could be lower if we inject any data centers into the fund by year-end.
We’d now like to open the call to questions. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Michael Elias with Cohen. Your line is open.
Michael Elias
Great. Thanks for taking the questions. Two, if I may. So first, I just want to touch a little bit on the China data center fund and get a better sense of what the mandate is? Is this for — is this really just a capital recycling vehicle of your stabilized assets or pre-leased assets? Or is this really a vehicle for you to go and do more outside M&A? That’s my first question. And then second question is, in the U.S. we’ve seen over the years kind of decline in returns for build-to-suit type deals. Now, I’m just wondering, as we think about your B-O-T projects, how would you characterize the willingness to pursue incremental B-O-T projects, and any color you can give around the return expectations there? Thank you.
Dan Newman
Okay. Yes, thanks. Thank you, Michael. The mandate of the data center fund is actually broad. It includes acquiring data center projects from GDS at all stages of development, and also acquiring data centers from third parties through M&A transactions, which where the fund would be the direct buyer, rather than buying from GDS.
Having said that, from our perspective, for the first phase, we’re focused on injecting a small number of projects from our own portfolio in order to hit a certain level of capital recycling. We’re looking at something like US$300 million to US$500 million in terms of injection equity value in existing state either by the end of this year, or if not by the end of this year, by the end of the first quarter. Thereafter, I think we’re more open minded.
We consider further injections from our own portfolio and also to consider what opportunities there are in the market. Certainly, very welcome to have this fund to give us a reserve of capital for third-party M&A, which of course we did not have before. Second question, William about our appetite for B-O-T type projects in remote areas. Michael saying given the level of returns.
William Huang
I think we did — historically we did a lot of [indiscernible], which we think retains quite a bit, right. But in the last 2 years, I think that we rejected a couple of the deal. I mean, because the returns getting lower. So I think we are — we still [indiscernible] do the business, which we think is suitable. We have the ability to accept those kinds of deals in any time. But it depends on our option, right. So I think this is our position.
Michael Elias
Thanks for the color, guys. Appreciate it.
Operator
Our next question comes from Tina Hou with Goldman Sachs. Your line is open.
Tina Hou
Hi, management. Thanks for your time. I have also two questions, if it’s okay. The first one is regarding your overseas business in the ASEAN markets, especially with Malaysia and Indonesia. Would you characterize it more similar to Tier 1 markets in China or more like B-O-T projects type of thing? And also, I believe previously, our strategy in ASEAN is more to go out with our domestic customers. But now we see that Hong Kong data center has also secured a global number one cloud customer. So wondering in the ASEAN market, are we open more to international customers as well? And if yes, how do we compete with other global data center platforms in those markets? This is first question.
Second question is also regarding the China data center fund. So you mentioned that you’re looking at injecting some like ramping up projects. So wondering, how do you choose from all of these different locations in Tier 1 [indiscernible] downtown and also like B-O-T projects? Thanks.
William Huang
Okay. I will answer the first question about regularization. I think the number one — how we look at it as being [indiscernible], we still maintain our strategy in the Tier 1 markets, right. So Southeast Asia is big, right. But we know — we understand that Singapore market is the most attractive market in Southeast Asia, in the world. If I remember, I mean, the simple data center market is represented almost 50% of total Southeast Asia. But the situation is in last 2 years Singapore government stopped to allocate power, right. So that means if you look at it Singapore market, the demand is very strong from the global multinational, even from China.
So I think this is a very attractive market for us. So if you look at next 3 years, in Singapore there’s very, very limited supply, almost zero in next 3 years, but demand still there. So our strategy is build our data center [indiscernible] Singapore. So I think we see this as a clear market and a very clear certain demand in next 3 or 5 years. So that’s our strategy. So we think the — our data center strategy still works in this region. And Hong Kong obviously is another top market in Asia, right? So I think we are in last 5 years [indiscernible] a couple of years with [indiscernible] it’s very difficult to build the land bank in a very good location in Hong Kong. We are successful to achieve that. So — and we see the demands continue to [indiscernible] in Hong Kong. It’s from — it’s just like what happened in Singapore. It’s not only from China, it’s also from the global. So we are well-positioned to catch up this trend deal. So these two markets we are very confident and I think location is good.
Talk about the — how to compare with a multinational company in this region. I think GDS has become a — we have it after 20 years, we build up our very, very [indiscernible] capability to do the data center business. Number one, I think we are more familiar with the customer. We are more familiar with the region. So, in terms of the — to build our market presence, I think we are always — we have to maintain the first mover in this region. So this is number one. We always take first mover advantage, which I think this is our strength.
On the other hand, we have [indiscernible] we build large scale in the last couple of years. So we do have, we can build more cheaper, more faster, and we deploy our operating capability more faster, more cheaper than anyone else. So that’s our strength. So I think we are — we think we have all kinds of the capability to compete with any competitor in this — in those regions. We are confident.
Dan Newman
Okay. Tina asked how do we select projects for the fund. So as I responded to Michael earlier, the mandate of the fund is very broad. But for the [indiscernible] projects, we selected and propose, it still has to go through a process with the investor. We selected and proposed projects in a category which we call pre-core. These are all — these are projects which are under construction, maybe a small part is in service partly pre-committed. And at least save 3 years away from being complete and fully stabilized, at least based on our current projections.
So from a financial perspective, these are projects where we’ve already invested considerable sums of money. And we believe created value because the value creation comes to forming these projects and getting the customer commitments and so on. But where we are going to be years away from having revenue EBITDA or certainly fully stabilized EBITDA. And it feels like maybe the public equity markets or value these situations, they probably don’t value our Southeast Asian business either.
So, for our perspective, it was kind of getting, hopefully the biggest bang for our buck. Taking these projects and recycling the most capital with the least EBITDA in the next few years and maybe that will help to highlight the value. While you’re still having a kind of recurring income model going forward. After the [indiscernible] projects, as I said before out there, we’re open minded we may do other kinds of projects, but that was our thinking for the first phase.
William Huang
Yes. I think [indiscernible] as in a position to very practical to access the different capital and [indiscernible] as can more flexible, do more valuable business and acquisition as well.
Tina Hou
Understood. Thanks, William and Dan.
Operator
Our next question comes from Jonathan Atkin with RBC Capital Markets. Your line is open.
Bora Lee
Yes. Hi. This is Bora on for Jon. Thanks for taking the questions. First on M&A. Can you comment on what you’ve been seeing in terms of multiples if you’ve been seeing any movement up or down? And how target rich is the M&A environment in edge of town versus say, municipal sites? And then secondly, on your progress in Indonesia and Malaysia, when could we — when could that start to become a bit of a needle mover generating revenues? And are there any other markets in the region that you will consider or instead of for now? Thank you.
Dan Newman
Yes, okay. Hi, Bora. I will first touch old target rich, I think that’s a good way of putting it. There’s — so highly fragmented market were much bigger than any other player. But there’s a long tail. And there’s a lot of companies with small portfolios. There’s a lot of companies who are kind of like single project companies. So in theory, at least, there’s a lot of potential targets, but then it comes to what is the driver for doing the M&A and what is the strategic rationale? Yes, we — in the past, we were very focused on building up our resource pipeline. We also valued situations which enhanced the customer franchise. And in the past, also will give us scale. Now, we don’t see that any particular acquisitions missed — its obvious to us whether they make — whether there’ll be a very strong strategic rationale, but therefore there has to be a strong financial rationale. I can’t say really where market multiples are. We have our own view about what makes sense. It has to be highly accretive to [indiscernible] so much about what is the market multiple, it’s what makes financial sense to us. And that’s why we take a disciplined approach and wait to see those opportunities, which do satisfy our financial natural criteria.
For Indonesia and Malaysia, I don’t think we have to wait for revenue to move the needle. Needle in terms of valuation. Bora, I think the — I think probably apparent to many investors that we’ve already created value with what we’ve done, maybe when we do the regional equity capital raising and put a value on the business that will illuminate a number for investors. Also, when we have some — when we’re able to announce some significant business wins, which is not very long now before we’re able to do that. So two business wins and regional capital raising, I think, yes, I would hope that moves the needle in the next few months or a couple of quarters at the most.
Bora Lee
And on the targets [indiscernible] more on the edge of town or net for municipal sites, or both?
Dan Newman
Yes, I think our business target …
William Huang
Yes, Bora, I think — yes. I think we are — we have the ambition to do more business globally, right. So because we are — we absolutely maintain the strongest position in China already, right. So now we are seeking to build a business outside of China as well in the same time. So I think our step is to, number one, is Hong Kong, which we did, and we are well-positioned. Number two is Southeast Asia, which we think the — it’s good timing to step in. But we — in the meanwhile, we’re also looking at other Asia market. So I think we will look at more market if we think timing is ready.
Bora Lee
Thank you.
Dan Newman
[Indiscernible] in China, M&A targets?
William Huang
In China M&A target, I think that the effect is that in China M&A target is getting more I think. But the question is with your [indiscernible] we are — we have a lot of patience, because we tried to create value for our shareholders. So now I think they are still in the transition that the seller along with the data center owner, this started to lower their expectation which we think is not — still not meet our expectation. So I think we still wait for that, right.
Bora Lee
Thanks for the color, William and Dan. Appreciate it.
Operator
Our next question comes from Yang Liu with Morgan Stanley. Your line is open.
Yang Liu
Thanks for the opportunity. I have two questions here. The first one is on the demand in China. Because we recently observed that Chinese telcos, their public cloud, or their cloud revenue is growing rapidly. While the previous [indiscernible] companies, their cloud business is slowing down. So do — I would like to ask what the management view in terms of the future demand from the cloud vendors in China? Whether the strong telco cloud means that demand will shift to their own data center as well? And the second question is regarding the kind of data center fund. As GDS is also an investor in this fund, could you please update us in terms of what is expected return of the fund? Thank you.
Dan Newman
Okay. I think China market demand obviously in this year has slowed down, right. So I think the — but another angle is the USC, the [indiscernible] active and the demand is shifting. It’s shifting from the traditional cloud service providers to I think the big, very clear Chinese [indiscernible], it’s happened in the last couple of quarters already. I mean, from the traditional cloud service provider to the [indiscernible] internet company. So I think this is shifted — this is Chinese very clear. I mean that.
So I think the — so that’s why we — if you look at in the last two or three quarter, even this quarter, our internet [indiscernible] order from the internet and enterprise is getting bigger and bigger, right. So this is a very clear trend. We are well-positioned on that, because we have a very broad customer base build on that for 20 years. So this is number one. In terms of the three tentacles cloud up very rapidly, I think we noticed on that. But I think this is not a takeover or the like Alibaba, Tencent’s market share. I think the — a lot of the cloud service provided, they have a different way to calculate it, the cloud revenue. So this is what my understanding. So I think they may be take a little bit, but not that much.
Okay, yes, yes. Literally on the expected return to the fund actually, the fund will look at projects on a individual project basis. And so the expected return is not for the fund as a whole, it’s for individual project investments. And there of course, it will depend on the stage of development. I can’t be specific, because it will vary from investment project to project. But I would just highlight that, from our point of view, structuring the fund, it was critical importance that we maintained our management role. I didn’t mean just as fund manager, I mean as data center manager. And so, the projects that go into the fund will carry with them our long-term management contract from which we will generate fee income, which is — which if it works out as we expect, it will give us a profit share of the project. So, the fund investor, we will sell to the fund at a — at an equity valuation and then reinvest best in the fund at that valuation alongside the investment. So that the cost basis for our investment in the fund will be the same as the cost basis of another LP. But our economics from the investment in the fund could be enhanced by our management fee. There [indiscernible] how things work out, but they’ve worked out well. Of course, we would get an enhanced return from our participation in the fund plus the management fee profits.
William Huang
Yes, Yang Liu, I will try to add a more comment on your first question. I think that a lot of the investors [indiscernible] and more focus on the Alibaba Tencent cloud capacity cloud growth. But I think the — they missed one thing. I think they [indiscernible] they slowed down, not means the market slowed down in the same way, right. So what I tried to imagine against this, channel already happened in the last couple of quarters is a switch to the internet and enterprise. They build it back by their own private [indiscernible] is already happening in a few quarters, maybe in a few years, in 1 or 2 years. But historically, before people didn’t pay more attention on that. But I remember, I mentioned that in the last couple of days earnings call already.
Yang Liu
Thanks for the color.
Operator
Our next question comes from Frank Louthan with Raymond James. Your line is open.
Frank Louthan
Great, thank you. A clarification, then a question. Just to clarify, will your capital ingestion at B-O-T deals be in cash or the donation of facilities? And then the question how many of your data centers fit the profile, of what you might donate into that to be recycled? And then secondly, can you quantify the impact of the power on your margins either in absolute levels EBITDA or just the margins for the year? Thanks.
Dan Newman
Yes, so Frank, we will sell to the fund 100% of the equity, which we own in each project. So that’s a sale transaction, we will realize again, we will, we will book again. Although instruction as we are trading off the front end games against the level of future recurring management fee income because there is — it is a trade-off. Having executed the sale of 100% to the fund, we will take 30% of the sale proceeds and reinvest that into the fund. So in effect, this is releasing 70% of our equity in the projects at a valuation plus having a continuing 30% investment with the management fee income.
How many of our projects fit there? So for a $1 billion fund, which is what we’ve been sized at and for fund one. I mean, we would have no difficulty allocating just from our own portfolio if that’s what we chose to do. And indeed the investor at this point in time has expressed appetite in scaling up this venture, but that remains to be seen. But it really does depend for now, we’re just focused on this initial batch of [indiscernible] projects that these — hopeful of establishing this mechanism and recycle a certain amount of capital. So our shareholders, what value there is there and how we can manage our capital in this environment. So we’re not — we don’t have any definite plans beyond this initial [indiscernible] projects. It remains to be seen.
Frank Louthan
Okay. And the EBITDA impact?
Dan Newman
EBITDA impact will be minimal next year and even the year after. We’ve selected projects that, I mean, if we go ahead with these projects that won’t be stabilized based on our existing projections until the fourth quarter of 2025 or the first quarter of 2026. That means over the next 3 years, there is a ramp up of EBITDA. In 2023 and even 2024, it’s not that much.
William Huang
Yes. [indiscernible] I don’t think it — [indiscernible] will impact our future EBITDA, because based on our strengthening of financial position. We can do more deal, right. Yes. So maybe can bring more revenue modularly? I mean, it’s mitigated by the management.
William Huang
Yes, yes. And there’s the question of what we do with the capital, right?
Operator
Our next question comes from Sara Wang with UBS. Your line is open.
Sara Wang
Hi. Thank you for the opportunity to ask questions. So my question is still on the ASEAN projects. So notice that those projects in [indiscernible] will be ready for service by 2024? And then, so what’s our expectation on the say, regional [indiscernible] for maybe next year or NGO like 2024 or even further? And then also, would you please share with us what’s our expected IRR over pricing? These, say Singapore plus projects. Thank you.
William Huang
Yes, Sara, I gave some numbers in the prepared remarks. And these are — just emphasize, and it is all based on existing business plans is not like a guidance, right. But I said was that our China organic CapEx, which is around RMB6 billion this year, probably come down by 1 billion or 2 billion next year. And our regional CapEx, which will be about RMB2 billion this year. Could be RMB4 billion RMB. next year. When we talked about raising capital, it’s true the international Holdco for the regional expansion. What we have in mind at this stage is to raise around US$300 million. But it does depend on the proposals we received, valuations and so on. We may choose to take it in smaller bites, break it down into a series of transactions. But you’ll see with that level of CapEx RMB4 billion, we’re going to need around US$200 to US$300 million of equity to see us through the next 18 months also.
Operator
As there are no further questions, I would like to now turn the call back over to the company for closing remarks.
Laura Chen
Thank you all once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations with the contact information GDS investor relations with the context from investor relations. See you next time.
Operator
This concludes this conference call. You may now disconnect your lines. Thank you.
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