Rationale

 The assigned rating for NTT Global Data Centers NAV2 Private Limited (NTT GDC NAV2) factors in the strong parentage, being a wholly-owned subsidiary of NTT Global Data Centers Holding Asia NAV2 Pte. Ltd, which is 70% held by NTT Global Data Centers Holding Asia Pte. Ltd., with the ultimate parent being Nippon Telegraph and Telephone Corporation (NTT), rated by Moody’s at A1 (Negative), and the remaining 30% held by Japan ICT Fund (JICT). NTT is a leading integrated Japanese telecom operator with the Government of Japan holding about 34.7% (as on June 30, 2024) stake in the company. NTT GDC NAV2 has an established track record of funding support from NTT and has strong synergies with NTT’s global data centre (DC) business and has senior representatives from NTT on its board of directors highlighting its importance for the Group. ICRA expects NTT to continue to provide timely funding support to NTT GDC NAV2, given the close business linkages and NTT’s reputation. NTT GDC NAV2’s DC campus in Navi Mumbai is coming up with a capacity of 107 MW in phase 1. The total project cost for phase 1 stands at ~Rs. 5,500 crore, which is to be funded through debt-to-equity ratio of 55:45. The debt is fully tied up and as of June 2024, ~58% of equity has been infused and ~52% of the project cost has been incurred. NTT GDC NAV2 has leased ~78% of phase 1 capacity as of June 2024. Of the 83-MW leased capacity, 21 MW is operational and the balance area is expected to generate revenues in a phased manner over the next 12-18 months. The rating considers the strong long-term demand prospects for DCs, backed by digital data explosion in India and favourable regulatory support. The rating, however, is constrained by the exposure of the first phase of NTT GDC NAV2 to moderate execution risk and market risk as 24 MW under-construction project is yet to be tied up. However, comfort can be drawn from the NTT operational track record and commitment to infuse additional contribution to support any funding requirements. While NTT GDC NAV2 could reach an ultimate capacity of ~315 MW to be developed over the next seven to ten years in multiple phases, the company’s ability to ramp-up utilisation of DCs for the upcoming phases, along with healthy profitability and RoCE remains to be key factors to be considered. NTT GDC NAV2 is estimated to incur a capex of ~Rs. 2,600 – 2,700 crore during FY2025-FY2026, which will be funded by undrawn debt of Rs. 1,630 crore and the balance through equity infusion. The interest during construction is funded through equity contribution from the parent and internal accruals. While its DSCR remains comfortable in FY2025-FY2027 as there are no principal repayments, the coverage metrics are expected to moderate from FY2028 due to high principal repayments. However, ICRA derives strong comfort from the company’s parentage, which provides high financial flexibility and refinancing ability. The rating is constrained by the stiff competition from large DC additions with the entry of many new players in the segment and expansion plans of the existing players. However, the long-term relationship with reputed clients provides the NTT GDC Group a competitive advantage to some extent.