VNET Group (formerly 21Vianet Group), the second largest carrier-neutral data center operator in China, today announced that Blackstone Tactical Opportunities, a flagship private equity fund managed by Blackstone, has agreed to make an investment in VNET by purchasing $250m of convertible notes. Notably, in Q4 2021, VNET Group cancelled a U.S. dollar bond issuance – as such, Blackstone’s funding may be a higher-cost replacement of this funding need.

Finally, closing of the transaction is expected to take place in early February 2022.

Convertible Notes – Blackstone Tactical Opportunities Funds VNET Group

Blackstone Tactical Opportunities will purchase from VNET Group convertible notes carrying interest at 2% per annum, which are due in 2027 (i.e., five-year term).

Importantly, the notes are convertible into VNET Group’s American depositary shares (ADSs), each representing six Class A ordinary shares, at $11.00 per ADS. Indeed, this represents a premium of 35% to the latest closing price of $8.14 per ADS.

Use of Proceeds

Blackstone’s investment provides VNET Group with capital to take advantage of its pipeline of development projects that support hyperscale and enterprise customers. As a reference point, during 2021, VNET targeted adding 25.0k cabinets, equivalent to 180 megawatts of power capacity, to its portfolio.

VNET Group is in the process of diversifying its data center business from primarily retail colocation, towards wholesale offerings for China’s largest cloud service providers. For example, these hyperscale companies include Alibaba Cloud, Tencent Cloud, Huawei Cloud, Kingsoft Cloud, and JD Cloud. Additionally, VNET Group is Microsoft’s partner in China for all of its four major cloud offerings: Microsoft Azure, Office 365, Dynamics 365, and Power Platform services.

Portfolio

VNET Group operates 36 self-built data centers and 59 partnered data centers in more than 30 cities throughout China. Presently the company has 65.3k cabinets of power capacity under management. Geographically, VNET’s self-built cabinets are 42% in Beijing, 16% in Shanghai & Hangzhou, and 15% in the Greater Bay Area.

Financials

For full-year 2021, VNET projects revenue of RMB6,190m to RMB6,210m ($961m to $964m). Additionally, the company forecasts adjusted EBITDA of RMB1,740m to RMB1,760m ($270m to $273m). Finally, the mid-point of the company’s guidance implies a year-over-year increase of 28.5% and 32% in revenue and EBITDA, respectively.

Transaction Advisor – Blackstone

Blackstone’s legal advisor was Kirkland & Ellis.

Blackstone Tactical Opportunities Fund – Overview

Blackstone Tactical Opportunities is a private equity fund with an opportunistic investment mandate that invests globally across asset classes, industries, and geographies. As of Q3 2021, Blackstone Tactical Opportunities managed $35.2bn of committed capital, of which $12.5bn was available capital to invest. To-date the fund’s realized investments have generated a 19% net IRR and 1.9x multiple of invested capital (MOIC).

VNET Group – Investing Entities

Blackstone Tactical Opportunities is purchasing $250m of convertible notes in VNET Group through the following entities:

  • Vector Holdco Pte. Ltd.
  • BTO Vector Fund FD (CYM) L.P.
  • Blackstone Tactical Opportunities Fund – FD (Cayman) – NQ L.P.

Collectively, Blackstone-affiliated entities control 20.2% of the voting power in VNET Group per the firm’s latest Schedule 13D.

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