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Nextdc (ASX:NXT) shares halted on huge $1.3 billion capital raising

Nextdc Ltd (ASX: NXT) shares have gone into a trading halt as the data centre owner and developer looks to raise $1.3 billion.

The business is building data centres, the infrastructure platform for the digital economy, delivering the “critical power, security and connectivity for global cloud computing providers, enterprise and government. It says it has a strong focus on sustainability and operational excellence through renewable energy sources and delivering “world-class operational efficiency”.

Nextdc capital raising

The company has announced it’s raising $1.321 billion with a fully underwritten 1 for 6 pro-rata accelerated non-renounceable entitlement offer for new Nextdc shares.

Nextdc is going to use the money to accelerate the development and fit-out in the core markets of Sydney and Melbourne to meet “unprecedented growth in customer demand and position itself to take advantage of ongoing market expansion over the medium-term.”

The company reminded investors that for the 12 months to 31 December 2023, Nextdc’s contracted utilisation increased 64.8MW, or 77%, to 149MW.

It said it has a record forward order book of 68.8MW, which the company thinks will convert into billings across FY25 to FY29, which will drive future growth in revenue and profit.

It’s going to spend $400 million on accelerating the built capacity of the data centre S3, $350 million in developing the S4 data centre, $300 million in the development of the S5 data centre, $330 million on accelerating the built capacity of M2 and $500 million on identified land acquisition opportunities in Asia Pacific which are at various stages of evaluation.

Raising details

The new shares are going to priced at A$15.40, which represents an approximate 8% discount to yesterday’s closing Nextdc share price.

Eligible shareholders will be able to subscribe for 1 new share for every six shares held at 7pm on Monday 15 April 2024.

FY24 guidance reaffirmed

Nextdc reaffirmed for FY24 it’s expecting total revenue to be in the range of $400 million to $415 million.

Underlying EBITDA is expected to come between $190 million to $200 million.

Management commentary

The Nextdc CEO and Managing Director Craig Scroggie said:

NEXTDC continues to see significant growth in demand for its data centre services underpinned by powerful structural tailwinds. Amid this backdrop, we have decided to bring forward the development and fitout of key assets in Sydney and Melbourne to ensure we are able to meet this growth in demand, continue to support our customers, and ensure the Company is well positioned to take advantage of the diverse range of opportunities expected to present over the medium term.

Final thoughts on the Nextdc share price

The company is doing the right things to tap into the huge demand, I’m just not sure what a good price is for the business.

It’s an advanced piece of real estate, but I don’t know how easy it will be for other data centre operators to challenge Nextdc and reduce future returns if there’s a larger supply of more data centres.

With the Nextdc share price up 50% in a year, it’s the right time for the company to raise capital, but I’d be uncertain about buying shares at this high price.

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