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NEXTDC to raise $672 million to meet rising data centre demand

The NEXTDC Ltd (ASX: NXT) share price won’t be going anywhere today after the data centre operator requested a trading halt.

Why is the NEXTDC share price in a trading halt?

This morning NEXTDC requested a trading halt whilst it undertakes a fully underwritten institutional placement to raise $672 million. The company also intends to launch a non-underwritten uncapped share purchase plan.

According to the release, NEXTDC is raising the funds to support its growth agenda. This includes the proposed development of a new data centre in Sydney, together with the balance sheet flexibility required to accelerate and expand a range of growth initiatives in line with recent and expected material customer contract wins.

The company intends to put $350 million towards its initial investment in a third Sydney data centre, named S3. This includes 12MW of upfront capacity.

A further $307 million will go towards growth driven initiatives, including capacity requirements and development opportunities. The remaining $15 million will be used for transaction costs.

The capital raising is being conducted at $7.80 per new shares. This represents a 15% discount to the company’s last close price.

Sydney S3.

Management notes that its New South Wales facilities have reached contracted utilisation of approximately 70%, with further contract wins expected in the near term.

Given the strong demand it is experiencing, the company believes now is an opportune time to commence the development of the first tower of its third data centre in Sydney.

The S3 data centre is located in Gore Hill, which is 10km from the Sydney CBD. It will start with capacity of 12MW, before expanding to a total target capacity of 80MW. Phase 1 is expected to complete during the first half of FY 2022.

NEXTDC CEO, Craig Scroggie commented: “Based on the strong level of orders already received for S2 and our growing confidence in the forward sales pipeline, NEXTDC is confident that the projected demand in Sydney, together with our return expectations, warrants the next phase of investment in Sydney’s third generation of data centres.”

The company’s chief executive also revealed that demand has been increasing significantly during the COVID-19 crisis.

He added: “NEXTDC continues to see significant demand for its data centre services during a turbulent market environment due to COVID-19. We have decided to prudently equity fund near-term growth opportunities in this period of market volatility to continue to support customer demand and ensure there is no loss in the momentum of the Company’s development.”

Finally, management took this opportunity to reiterate that it remains on track to achieve its guidance in FY 2020.

Revenue is expected in the range of $200 million to $206 million. Whereas underlying EBITDA is forecast to be in the range of $100 million to $105 million. And lastly, capital expenditure on existing facilities remains on track to be between $320 million and $340 million.

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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.