In short:
The $44 billion Australian float of data centre operator Firmus appears to be in trouble.
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float → appear → trouble
The bookbuild to gather investors has now closed and there are reports its share offering will be re-priced downwards.
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offering → gather → investors
The company is scheduled to float on the ASX on October 23.
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company → schedule → October
It was touted as the biggest float since Telstra in the 1990s, but the share market float of data centre operator Firmus is in trouble before it has even hit the share market.
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it → tout → market
The bookbuild for the float closed today.
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bookbuild → close → float
That is, investment banks have stopped taking bids for the initial public offering (IPO) and will now determine at what price the company lists on the Australian Securities Exchange (ASX).
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company → stop → Exchange
Firmus was set to hit the boards of the ASX at $11 per share, but reports suggest that price may have been set too high.
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price → set → share
Market participants have been underwhelmed by the float's roadshow, eschewing the float, with some criticising it for having an "unprecedented lack of detail" and others concerned about its debt and energy needs.
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some → underwhelme → needs
The $44 billion float is reportedly having to be revalued down because of the lacklustre interest, with reports it could drop to about $8 per share.
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it → have → share
Late Wednesday the company's representatives also pulled out of an appearance before a parliamentary inquiry into artificial intelligence today, with reports the troubled IPO was the reason for the no-show.
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IPO → pull → show
Mounting concerns from investors
Firmus is a so-called neocloud technology company.
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Firmus → mount → investors
It builds, owns and operates upscale data centres or so-called "AI factories", used to run and train artificial intelligence models.
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It → build → models
The firm is raising cash from investors to build an AI factory in Launceston and plans for two more in Tasmania.
But its ambitions extend across Australia and into South-East Asian markets as well.
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ambitions → raise → markets
Reports suggest Firmus intends to raise up to $7 billion from institutional and retail investors in its IPO, which could value the company at more than $50 billion.
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which → suggest → billion
But the conclusion of a $73 billion partnership with data centre firm CDC and community backlash for proposed suburban data centres has caused concern for investors.
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conclusion → propose → investors
Firmus co-founder Oliver Curtis was also jailed for 12 months in 2016 for a 2007 insider trading scheme.
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Curtis → jail → scheme
Portfolio manager 'steering clear'
Ten Cap portfolio manager Jun Bei Liu said she was steering clear of the Firmus IPO, concerned about what she said was an "unprecedented lack of detail" being disclosed and enormous structural risks.
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she → steer → detail
"Firmus is probably one of the most polarising IPOs I have ever seen," she observed.
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she → see → IPOs
"I think Firmus is a very high-risk proposition — very high profile, but with enormous risk involved."
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risk → think → ?
She said 97 per cent of the data centre capacity they had promised had not been built.
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they → say → capacity
"They might deliver cheaper earnings in two years if they build what they promise, but that's speculative," she said.
"
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she → deliver → what
We much prefer to be in the companies that actually build those data centres — the engineers, the electrical contractors.
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that → prefer → centres
"There are a lot of those smaller businesses now benefiting from the huge build-out that Australia is about to see."
Caution over Firmus 'euphoria'
Morningstar senior market strategist Lochlan Halloway said he saw "the hallmarks of the boom phase … if not outright euphoria" because of Firmus's wild increase in valuation in such a short period of time.
The company's valuation surged from about $6.9 billion in April and was now at $15.5 billion.
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valuation → be → billion
"The neoclouds are heavily geared.
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neoclouds → gear → ?
The model is to borrow against customer contracts to buy chips, then use the rent to repay the loans," he said in an economic note.
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he → borrow → note
Once its data centres are built, Firmus expects to be carrying about US$30 billion of debt, around six times the US$5 billion of operating earnings it forecasts for 2028.
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it → build → 2028
"Borrowed money alone does not make a bubble, and plenty of infrastructure is sensibly funded with debt.
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plenty → borrow → debt
But credit is the common thread running through essentially every boom and bust cycle," he wrote.
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he → run → cycle
But he did not write the company off completely.
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he → write → company
"For investors, what matters is how that fair value compares to the float price,"Mr Halloway said.
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Halloway → matter → investors
'Ambitious' data centres plans need major local power upgrades
Accela Research published one of the first comprehensive reports on data centres in January this year.
Its lead data centre analyst Naomi Wagura described the company has having "ambitious growth plans" that could "significantly reshape electricity infrastructure" in areas where its data centres would locate.
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centres → need → areas
In Tasmania, Firmus's three planned data centres would make it the state's largest energy consumer, needing some 444 megawatts if they went ahead, and would crucially require the island state to add extra generation.
"This infrastructure investment needs binding customer commitments and realistic demand forecasts, with clear arrangements for who pays if demand arrives late or falls short,"Ms Wagura said.
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Wagura → make → arrangements
And while there were clear potential benefits to locals, she cautioned there also needed to be "clear disclosure and enforceable obligations".
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she → be → locals
The company is scheduled to float on the ASX on October 23.
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company → schedule → October
The Aporia
