Caixin
Dec 23, 2016 06:48 PM
BUSINESS & TECH

Chinese Companies Announce Plans to Buy 49% of Global Switch

(Beijing) — A group of companies that includes China's largest private steelmaker and a firm that stores data for Alibaba Group Holding Ltd. has agreed to buy 49% of European data center operator Global Switch for 2.4 billion pounds ($3 billion).

The deal could face political scrutiny amid growing concerns about Chinese purchases of Western assets in the high-technology field.

Jiangsu Sha Steel Group and Chinese data center operator Daily-Tech Beijing Co. Ltd. are among the firms using an investment vehicle called Elegant Jubilee Ltd. to buy the London-based company. Other investors are tied to the state-run aircraft maker AVIC and the insurance-financial services giant Ping An Group.

Daily-Tech data centers also host servers for e-commerce operator Alibaba and other companies, said Edward Tse, a corporate strategy adviser at Gao Feng Advisory. Thus the deal "could be motivated by Alibaba and other Chinese digital companies who are aggressively expanding data centers overseas," he said.

In announcing the deal, which is pending regulatory approval, Global Switch said it hopes the partnership will help it serve Chinese data-center companies seeking to expand outside their home market.

Global Switch also said it's received two preliminary commitments to sell its services in Hong Kong and Singapore to the global unit of China Telecom Corp. Ltd., one of China's three major state-run carriers.

The company's comments also targeted concerns previously raised by some British politicians, including Malcolm Rifkind, a former U.K. defense secretary and foreign secretary, when talks for the deal were first disclosed in September. But Global Switch said the concerns were unfounded.

"All Global Switch data centers will continue to comply with the guidance issued by the U.K. Centre for the Protection of National Infrastructure as part of the U.K. government's national security strategy," Global Switch said.

Similar concerns recently killed a proposed purchase of German microchip maker Aixtron by a Chinese group, and a separate group's proposal to buy part or all of U.S. memory giants Western Digital Corp. and Micron Technology Inc.

Global Switch's data centers store government data, as well as information owned by important financial and telecommunications industries, Tse said.

"While the 49% 'minority' stake was designed to potentially minimize controversy, this deal will go through extensive scrutiny and perhaps will ultimately be rejected," Tse said.

And due to "different perspectives of privacy and data protection" in EU countries and China, he said, "this type of deal could be a political 'third rail' in an era of rising populism in Europe."

Europe and the U.S. don't have specific laws banning foreign ownership of such data centers, though a sale to China will probably attract scrutiny due to the potential for cyberspying.

"The scrutiny may focus on how Global Switch complies with the protection and national security strategy to ensure there will be no chance of security risks," Tse said.

Contact reporter Yang Ge (geyang@caixin.com)

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