Insurance group Migdal (TASE: MGDL) is prominent among Israeli financial institutions for investment in data centers. The group has carried out several financing deals in this area, totaling NIS 3 billion, which represents 0.9% of the investments managed in members' portfolios and in the group's nostro account.
"Globes" has learned that within the past few days Migdal has made its first equity investment in this area, participating in the $15 billion acquisition of CyrusOne.
CyrusOne is a global REIT (real estate investment trust) specializing in the planning, construction and operation of data centers around the world, of which it has more than 50. The company provides IT infrastructure to about 1,000 customers, among them some 200 Fortune 1000 companies.
In the acquisition deal, led by KKR & Co. Inc. (Kohlberg Kravis Roberts & Co.) and Global Infrastructure Partners, Migdal's share is $75 million.
Erez Migdali, Chief Investment Officer at Migdal Insurance, explained to "Globes" that the investment in the REIT was part of a strategy of substantially expanding investment in infrastructure assets in the investment portfolios and the nostro account, and that Migdal has marked out two main types of infrastructure for investment: renewable energy, and digital infrastructure, which includes data centers and telecommunications infrastructure such as fiber optic cable.
"The development of data centers stems from the switch by enterprises and consumers from keeping data on their own premises to saving it on the cloud, and this is an area that will continue to develop in the coming years," Migdali says.
One of the great advantages of investment in data centers, he says, is that most of the customers are strong cloud services providers like Google, Microsoft and Amazon, and contracts with them are for long periods.
As mentioned, up to now Migdal has focused on credit deals in this area. For example, it financed a portfolio of data centers in Amsterdam and Dublin that were sold to Microsoft, besides data center financing deals in the US, Australia, and Singapore. It has now moved on to equity investment.
"We are linking up with two leading entities in a very large deal in a public company that is the third largest player in the world in data centers. There is a business plan for improving the management of CyrusOne, promoting growth, and enhancing the company's value. The company will be active mainly in the US, but it has plans for expansion to Europe with long-term contracts, and we can already see future growth in this company."
What is the difference from your point of view between investment in debt and investment in equity?
"A credit deal is much more stable. There's an equity partner who takes on the primary risk, and then we as financers look at the stability of the debt, examine who the leaseholder is, and rate the risk. We still think that this activity is attractive and we're not giving up on it. When we began giving credit, credit spreads were wider, and we have seen them narrowing, which means that risk in this sector has fallen.
"With equity, on the other hand, we look at the business plan, at growth, and at the company's established position as a leading player."
Published by Globes, Israel business news - en.globes.co.il - on April 26, 2022.
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