KKR and Dubai’s Gulf Data Hub to invest more than $5bn to grow region’s data centre capacity

Global private equity firm KKR and Gulf Data Hub are teaming up to invest more than $5 billion to boost the Dubai company's data centre infrastructure in the Gulf, as demand for capacity grows amid a technology boom.

It will be New York-based KKR's first such investment in the region, with the company also acquiring a stake in GDH for an undisclosed amount, the companies said in a statement on Friday.

KKR's investment will be made through its infrastructure business, which has $77 billion worth of assets under management, according to its website. The company has total AUMs of about $624 billion, as of September 2024.

The agreement was signed in the presence of Dr Thani Al Zeyoudi, Minister of State for Foreign Trade, and Omar Al Olama, Minister of State for AI, Digital Economy and Remote Work Applications, who noted that the UAE's moves to boost its technology capabilities set a "global benchmark for innovation and progress".

"Through groundbreaking initiatives and strategic investments, the UAE is shaping a future where technology enhances lives, fuels economic prosperity and unlocks boundless opportunities," Mr Al Olama said.

GDH has seven data centres across the UAE and Saudi Arabia. More are planned in Kuwait, Qatar, Bahrain and Oman to support increasing data consumption driven by growing trends in digital connectivity, cloud and AI.

The investment with KKR will help the company to "significantly" increase its presence in the Gulf, carry out a "sizeable" pipeline of projects and support its international footprint, GDH said.

“The strategic partnership with KKR will enable us to leverage their deep expertise, positioning us to achieve our pan-regional ambitions and deliver on our mandate of being a partner and provider of choice," said Tarek Al Ashram, founder and chief executive of GDH.

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Remote working trends, largely established in response to the Covid-19 pandemic, have led to increased data consumption, fuelling the adoption of cloud services. This has continued to grow in the Middle East because of technology-savvy, young consumers and an evolving digital landscape, underpinned by the efforts of governments to develop their economies.

It has also given data centre and cloud providers an incentive to tap into the potential offered by the region. Among the most notable global companies to invest in the region are Microsoft, Amazon, Oracle, IBM and Alibaba Cloud, which have all opened cloud and data centres.

The UAE has continued to strengthen its expertise and contribution to the data centre industry. Abu Dhabi's Khazna Data Centres, one of the industry's largest operators in the Middle East, is building a 100-megawatt data centre in Ajman. The site will be the company's biggest in the Emirates, and is expecting to nearly double to 850MW by 2029, chief executive Hassan Al Naqbi told The National last year.

The Khazna Data Centres stand at Gitex. The company is building a 100-megawatt data centre in Ajman. Leslie Pableo for The National

In May, G42, the UAE AI company that is the parent of Khazna, announced it would build a geothermal energy-powered data centre in Kenya, in partnership with Microsoft.

“Today's digital assets form the backbone of our data-driven society ... as business requirements evolve, strategic investments ... will be crucial to harnessing the full potential of our digital future," Waldemar Szlezak, global head of digital infrastructure at KKR, said on Friday.

KKR has operated in the Middle East for more than 15 years, with offices in Dubai and Riyadh. Previous investments in the region include a partnership to create Adnoc Oil Pipelines.

KKR also acquired a portfolio of commercial aircraft from Etihad Airways in 2020 through Altitude Aircraft Leasing.

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Strait of Hormuz

Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.

The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.

Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.

Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.

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COMPANY PROFILE

Name: N2 Technology

Founded: 2018

Based: Dubai, UAE

Sector: Startups

Size: 14

Funding: $1.7m from HNIs

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'Worse than a prison sentence'

Marie Byrne, a counsellor who volunteers at the UAE government's mental health crisis helpline, said the ordeal the crew had been through would take time to overcome.

“It was worse than a prison sentence, where at least someone can deal with a set amount of time incarcerated," she said.

“They were living in perpetual mystery as to how their futures would pan out, and what that would be.

“Because of coronavirus, the world is very different now to the one they left, that will also have an impact.

“It will not fully register until they are on dry land. Some have not seen their young children grow up while others will have to rebuild relationships.

“It will be a challenge mentally, and to find other work to support their families as they have been out of circulation for so long. Hopefully they will get the care they need when they get home.”

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”