Prospectus Summary
Prospectus Summary The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information, financial statements and related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under “Risk Factors,” “Business,” and information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to buy the ADSs.Our Business
We are the leading carrier-neutral hyperscale data center solution provider in Asia-Pacific emerging markets, focusing on the China, India and Southeast Asia markets. Our data centers are highly integrated, specialized and mission-critical infrastructure used by our clients to analyze, manage and store their most important data, business systems and processes. According to Frost & Sullivan, as of December 31, 2019, we ranked first in the carrier-neutral hyperscale data center market in Asia-Pacific emerging markets in terms of capacity in service, with 21.5% market share out of a total market size of 829 MW. We are a first mover in building next-generation hyperscale data centers in the markets we serve. Our clients benefit from our integrated platform to support and grow their business internationally. Led by a highly experienced and international management team, we are the only hyperscale data center solution provider with presence in China, India and Southeast Asia, according to Frost & Sullivan. We operate six hyperscale data centers in China and one hyperscale data center in Malaysia, and are constructing five data centers in China and one data center in India as of the date of this prospectus.
Our modern world is powered by data collection, analysis and storage. Data serves as the foundation for modern-day technologies and services, including artificial intelligence, cloud computing, smart cities and homes, online entertainment and other on-demand services. Mass application and continuous development of these new technologies require a new generation of hyperscale data center—one that can provide fast delivery of scalable, cost-effective and flexible infrastructure.
Our next-generation hyperscale data centers are large, centralized, standardized and modular, capable of supporting a variety of IT infrastructure for leading technology companies. They also represent a new approach to designing and operating data centers to handle complex and high-volume data processing and analytics. Compared to traditional data centers, our next-generation hyperscale data centers provide many advantages and offer unique value propositions to clients. They are generally located on the outskirts of major cities with supply and cost advantages in land, power and other core elements to provide scalability and cost efficiency, as well as proximity advantages for low latency. As a result, our hyperscale data center solutions can achieve fast delivery, lower costs and better performance. Our successful track record demonstrates that our hyperscale data center solutions effectively fulfill the elastic and scaling demand of our clients, many of whom are in stages of rapid growth. As of June 30, 2020, hyperscale data centers accounted for 92% of our 196 MW capacity in service.
Our clients choose us as a long-term partner because we provide them with excellent and cost-effective data center solutions that meet or exceed world-class standards. Our data centers in service and under construction are strategically located in and around tier 1 cities in China, such as Beijing, Shanghai and Shenzhen, and Mumbai and Kuala Lumpur. We are able to deliver a data center with 36 MW of capacity in China within six months of breaking ground for the site. In contrast, the global industry average delivery time using best practices for a data center with capacity of 20 MW or more is approximately nine to ten months according to Uptime Institute. In addition, our sophisticated design architecture and operations have helped us to achieve an average annual PUE for our data centers in service of 1.21 in 2019, approximately 27.5% lower than the global industry average annual PUE of 1.67 during the same period, according to Uptime Institute. Our solutions help our clients grow their businesses quickly and sustainably. Our hyperscale data center clients typically sign with us contracts of five to ten years with irrevocable commitments on price and contract term, offering us high business visibility and certainty.
We offer end-to-end project management and operations by leveraging our in-house planning, design, construction, and maintenance capabilities. Together with our strong research and development and design expertise and highly efficient supply chain management capabilities, we promptly respond to client needs to construct and operate high-quality and cost-efficient next-generation hyperscale data centers. We rely on our 180 approved and pending patents to rapidly design and construct modules meeting a variety of demand from clients in different industries. Our proprietary modular design solutions and the application of original design manufacturing, or ODM, through which we engage vendors to manufacture our licensed modules, provide us with a significant cost advantage. Our construction cost per MW of data center capacity in service in 2019 was US$3.6 million per MW, which was approximately half of the global industry average using best practices for a data center with capacity of 20 MW or more of US$7.0 million to US$8.0 million, according to Uptime Institute.
We have experienced rapid growth in recent years. We operated two, six and six hyperscale data centers in China as of December 31, 2018 and 2019 and June 30, 2020, respectively, and one hyperscale data center in Malaysia as of each such date. Our data center capacity in service reached 82 MW as of December 31, 2018, 193 MW as of December 31, 2019 and 196 MW as of June 30, 2020, 76%, 87% and 90% of which was contractually committed capacity, respectively. We have an additional 234 MW of capacity under construction. In addition, we have entered into agreements to reserve an additional planned capacity of 65 MW for certain of our clients. In aggregate, we expect our total data center capacity to reach at least 495 MW by the end of 2021.
Our total revenues increased from RMB98.5 million in 2018 to RMB853.0 million (US$120.7 million) in 2019, and increased from RMB221.5 million for the six months ended June 30, 2019, to RMB810.6 million (US$114.7 million) for the six months ended June 30, 2020. Our net loss increased from RMB138.2 million in 2018 to RMB169.7 million (US$24.0 million) in 2019, and decreased from RMB94.9 million for the six months ended June 30, 2019 to RMB59.4 million (US$8.4 million) for the six months ended June 30, 2020. Our adjusted EBITDA was RMB297.5 million (US$42.1 million) in 2019, compared to adjusted loss before interest, tax, depreciation and amortization of RMB20.2 million in 2018, and our adjusted EBITDA increased from RMB64.6 million for the six months ended June 30, 2019 to RMB384.8 million (US$54.5 million) for the six months ended June 30, 2020. Our pro forma total revenues (reflecting the combined historical results of operations of us and Chindata Xiamen as if the combination had occurred as of January 1, 2019) for the six months ended June 30, 2019 and in 2019 were RMB466.9 million and RMB1,098.4 million (US$155.5 million), respectively. Our pro forma net loss for the six months ended June 30, 2019 and in 2019 was RMB58.1 million and RMB132.9 million (US$18.8 million), respectively. Our pro forma adjusted EBITDA for the six months ended June 30, 2019 and in 2019 was RMB171.1 million and RMB404.0 million (US$57.2 million), respectively. See “Prospectus Summary—Non-GAAP Financial Measures” for further explanation. We derive a significant portion of revenues from two clients, ByteDance and Wangsu, a related party. In 2019 and for the six months ended June 30, 2020, revenues from ByteDance accounted for 68.2% and 81.6% of our total revenues, respectively, and Wangsu accounted for 11.1% and 7.1% of our total revenues, respectively.
Our Industry
The rapid growth of Internet services and digitalization across industries has led to tremendous data traffic and fast growing demand for data storage and computation. In particular, the digital economy in Asia-Pacific emerging markets (namely, China, India and Southeast Asia emerging markets, including Malaysia, Indonesia, Thailand, Myanmar, Philippines, Vietnam, Brunei, Cambodia and Laos) has grown rapidly, spurring enterprise investment in data technology and cloud computing, which serves as a key growth driver for the data center industry.
Leading technology companies have been increasingly relying on hyperscale data center solution providers to deploy their hyperscale digital infrastructure globally. The global carrier-neutral hyperscale data center market in terms of total capacity grew from 3,518 MW in 2015 to 5,867 MW in 2019 at a CAGR of 13.6%, and is expected to grow further to 11,811 MW by 2024 at a CAGR of 15.0%, according to Frost & Sullivan. The hyperscale data center market in Asia-Pacific emerging markets is still at an initial stage of development, with a relatively small supply of high-quality hyperscale data center facilities. According to Frost & Sullivan, the market size of carrier-neutral hyperscale data centers in terms of total capacity in Asia-Pacific emerging markets grew at a CAGR of 31.5% from 374 MW in 2015 to 1,120 MW in 2019, and is expected to grow further to 3,937 MW in 2024 at a CAGR of 28.6%. Key growth drivers for hyperscale data center demand in Asia-Pacific emerging markets include the increase of the public cloud service market and the emergence of a new wave of technology companies in need of hyperscale infrastructure.
Within Asia-Pacific emerging markets, China shows the most promise for future growth. China’s carrier-neutral hyperscale data center market size in terms of total capacity has grown at a CAGR of 32.6% from 288 MW in 2015 to 891 MW in 2019, according to Frost & Sullivan. It is expected to grow further to 3,212 MW in 2024 at a CAGR of 29.2%, driven by an increase in data generated from various technology verticals, the adoption of 5G networks, the continued development of Internet of Things and artificial intelligence and the increasing reliance on cloud service providers. In addition, India and Southeast Asia emerging markets also have potential for rapid development of the hyperscale data center industry as a result of factors such as increases in Internet penetration, new entertainment formats such as live streaming and short video that drive data usage, favorable government policies, migration to cloud-based business operations and localized data storage requirements.
Our Strengths
We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:
Our Strategies
We plan to pursue the following strategies to achieve our goals:
Our Challenges
Investing in our ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties summarized below, the risks described under the “Risk Factors” section and the other information contained in this prospectus before you decide whether to purchase our ADSs.
We face risks and uncertainties in realizing our business objectives and executing our strategies, including:
Corporate History and Structure
In 2015, our China data center business was founded by Mr. Jing Ju, our chief executive officer. Starting in July 2016, we started to construct proprietary next-generation hyperscale data centers in China. In December 2017, Chindata (Xiamen) Science and Technology Co., Ltd., or Chindata Xiamen, was established as the holding company of our China data center business by Mr. Ju and Beijing Wangsu Science and Technology Co., Ltd., a subsidiary of Wangsu Science and Technology Co., Ltd., or Wangsu, a listed company on Shenzhen Stock Exchange in China (SZSE: 300017).
In 2016, Bain Capital established Integral Investments South Asia III. In 2017 Integral Investments South Asia III established Bridge Data Centres, or Bridge, a data center company focusing on the India and Southeast Asia markets. Bain Capital controlled Bridge through BCPE Bridge Cayman, L.P., or BCPE Bridge.
In December 2018, we were incorporated by Bain Capital under our prior name, BCPE Bridge Stack Limited, as an exempted company under the laws of the Cayman Islands to acquire our China business and combine it with the overseas operations of Bridge. We underwent a series of transactions to complete Bain Capital’s acquisition of our China business and the combination with Bridge’s overseas operations, which we refer to as the “Reorganization”.
In 2018, Bain Capital established BCPE Stack Holdings, L.P., or Stack Holdings, to hold our China business. Stack Holdings owns 100% of the shares of Stack Midco Limited, which indirectly owns 100% of the equity interest in Suzhou Stack Data Technology Co., Ltd, or Suzhou Stack. Through Suzhou Stack, Stack Holdings indirectly owns 100% of the equity interest in Suzhou Sidake Data Science and Technology Co., Ltd., or Suzhou Sidake, the subsidiary of the WFOE. Suzhou Sidake entered into an equity transfer agreement dated December 31, 2018 with Wangsu and Mr. Ju to acquire all of the equity interest of Chindata Xiamen. On April 26, 2019, Suzhou Sidake completed the acquisition of all of the equity interest of Chindata Xiamen.
In 2019, we (i) acquired 100% equity interest in Stack Midco Limited from Stack Holdings, through which it controlled our China business; (ii) acquired 100% equity interest in Integral Investments South Asia III from BCPE Bridge, through which it controlled the business of Bridge Data Centres in India and Southeast Asia; and (iii) issued shares to BCPE Bridge, Stack Holdings and the respective offshore shareholding entities of Mr. Ju, Mr. Liu and Ms. Xiao. On July 15, 2019, we completed the combination of Chindata’s China business and the business of Bridge Data Centres.
In September 2019, we established BCPE Bridge Stack Holdco Limited as its intermediary holding company to hold the shares of Stack Midco Limited and Integral Investments South Asia III.
On April 23, 2020, we changed our name from BCPE Bridge Stack Limited to Chindata Group Holdings Limited.
Due to PRC regulations that limit foreign equity ownership of entities providing value-added telecommunications services at 50%, and the inclusion of data center services within the scope of value-added telecommunications services, we conduct a substantial part of our operations in China through contractual arrangements with Sitan (Beijing) Data Science and Technology Co., Ltd., or Sitan (Beijing) and Hebei Qinshu Information Science and Technology Co., Ltd., or Hebei Qinshu, which are our VIEs whose subsidiaries hold licenses required to operate our business in China.
We gained control over Sitan (Beijing) through Suzhou Stack, our wholly-owned subsidiary in China, by entering into a series of contractual arrangements with Sitan (Beijing) and its shareholders. In addition, we gained control over Hebei Qinshu through Hebei Stack Data Technology Investment Co., Ltd., or Hebei Stack, our wholly-owned subsidiary in China, by entering into a series of contractual arrangements with Hebei Qinshu and its shareholders.
As a result of our direct ownership in Suzhou Stack and Hebei Stack and the aforementioned contractual arrangements, we are regarded as the primary beneficiary of each of Sitan (Beijing) and Hebei Qinshu, and we treat them as our consolidated affiliated entities under U.S. GAAP. We have consolidated the financial results of our VIEs and their respective subsidiaries in our consolidated financial statements in accordance with U.S. GAAP. We refer to Suzhou Stack and Hebei Stack as our WFOEs, and to Sitan (Beijing) and Hebei Qinshu as our variable interest entities, or our VIEs, in this prospectus. For more details and risks related to our VIE structure, please see “Corporate History and Structure—Contractual Arrangements with Our VIEs and Their Respective Shareholders” and “Risk Factors—Risks Relating to Our Corporate Structure.”
The following diagram illustrates our corporate structure, including our significant subsidiaries, significant VIEs and VIEs’ principal subsidiaries, immediately upon the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional ADSs.
Notes:
Corporate Information
Our principal executive office is located at No. 47 Laiguangying East Road, Chaoyang District, Beijing, the People’s Republic of China. Our telephone number at this address is +86 400-879-7679. Our registered office in the Cayman Islands is located at Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Cogency Global Inc., located at 122 East 42nd Street, 18th Floor, New York, NY 10168.
Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our corporate website is https://chindatagroup.com. The information contained on our website is not a part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than US$1.07 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to take advantage of such exemptions.
We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we have total annual gross revenue of at least US$1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the preceding three-year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of the ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.
Implications of Being a Controlled Company
Upon the completion of this offering, BCPE Bridge Cayman, L.P., BCPE Stack Holdings, L.P. and BCPE Stack ESOP Holdco Limited, or Bain Capital Entities, will together beneficially own % of our total issued and outstanding Class B ordinary shares, representing % of the total voting power, assuming that the underwriters do not exercise their option to purchase additional ADSs, or % of our total issued and Class B outstanding ordinary shares, representing % of the total voting power, assuming that the option to purchase additional ADSs is exercised in full. As a result, we will be a “controlled company” as defined under the Nasdaq Stock Market Rules because Bain Capital Entities will hold more than 50% of the voting power for the election of directors. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements.
Conventions Which Apply to This Prospectus
Unless we indicate otherwise, all information in this prospectus reflects no exercise by the underwriters of their option to purchase up to additional ADSs representing Class A ordinary shares from us.
Except where the context otherwise requires, and for purposes of this prospectus only:
Our reporting currency is the Renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi into U.S. dollars were made at RMB7.0651 to US$1.00, the noon buying rate on June 30, 2020 as set forth in the H.10 statistical release of the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollars amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On August 28, 2020, the noon buying rate for Renminbi was RMB6.8647 to US$1.00.
This prospectus contains information derived from various public sources and certain information from an industry report dated July 2020 commissioned by us and prepared by Frost & Sullivan, a third-party industry research firm, to provide information regarding our industry and market position in China, India and emerging markets in Southeast Asia and other regions, and an industry report dated March 2020 commissioned by us and prepared by a third-party data center certification and research company, to provide information regarding information on global data center industry. Such information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in these publications and reports.
The Offering
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the option granted to the underwriters to purchase up to additional ADSs, if any, in connection with the offering.