The data centre IPO debacle that sparked a market meltdown

{"text":[[{"start":6.819,"text":"The tremors rippling through global stock markets this week amid rising concern about the valuations of AI-related companies and the huge sums they are spending can be traced back to the decision to abandon an Australian blockbuster IPO."}],[{"start":20.5,"text":"Firmus, a data centre operator backed by Nvidia and Blackstone, last Friday pulled a planned listing that would have been Australia’s second-largest initial public offering and would have valued the company at A$44bn ($30.5bn)."}],[{"start":35.5,"text":"Days later, another Australian data centre company — AirTrunk — cancelled the Singapore listing of a real estate investment trust vehicle, blaming market conditions."}],[{"start":45.805,"text":"The issues have arisen against a backdrop of a sharp downturn in chip and AI-related stocks driven by rising inflation and concerns about the huge levels of debt needed to meet the investment pledges."}],[{"start":57.647,"text":"On Thursday Mike Intrator, chief executive of CoreWeave, pointed to the difficulties in Australia as he defended his US “neocloud” company after its share price tumbled."}],[{"start":67.61,"text":"“Factors like the weakness and delays surrounding the attempted IPOs and debt financings of Firmus, AirTrunk, Lambda Labs and Nscale, etc, are bleeding into the narrative around CoreWeave,” he said in a memo seen by the FT. Those companies were trying to raise “enormous amounts of capital without the execution, revenue, scale” of his business, Intrator said."}],[{"start":89.88,"text":"Investors have been dumping debt issued by some neocloud companies, with CoreWeave bonds sinking below 80 cents on the dollar — prices typically considered distressed, the FT reported on Thursday, pushing yields close to 15 per cent."}],[{"start":102.24,"text":"Firmus and AirTrunk’s travails could undermine Australian attempts to refashion itself as a natural home for artificial intelligence and data centre investment. Australia has courted investment from global groups including Anthropic and OpenAI, highlighting the government’s rapid transition to renewable energy sources to establish a foothold in the global AI market."}],[{"start":123.14,"text":"Andrew Charlton, Australia’s assistant minister for science, technology and digital economy, said in a speech in Sydney in June that AI investors were choosing Australia over other countries due to its stable political environment, the Five Eyes security agreement and its renewable power potential."}],[{"start":null,"text":"

"}],[{"start":139.48,"text":"“Australia has quietly become one of the most attractive destinations in the world, ranked second globally in 2024, behind only the United States,” he told the Sydney Institute."}],[{"start":150.269,"text":"Australian investors, including Macquarie and domestic superannuation funds, have long been active in digital infrastructure — including data centre companies such as AirTrunk and Vantage Data Centres in Europe — as a way to back early-stage companies looking to provide the plumbing for an AI-led data boom."}],[{"start":168.688,"text":"It was against that backdrop that the Firmus IPO campaign kicked off. Co-founders Oliver Curtis and Tim Rosenfield, his cousin, were among a new generation of Australian AI entrepreneurs that includes the founders of Nscale, Iren and SharonAI that have listed in the US."}],[{"start":186.058,"text":"Firmus was founded in 2019 as a bitcoin miner in Tasmania before pivoting to AI infrastructure and securing the backing of Nvidia. Curtis is the son of former Macquarie banker Nick Curtis, who led rare earths company Lynas earlier in his career and remains a Firmus investor."}],[{"start":203.713,"text":"Oliver Curtis garnered attention due to his 2016 conviction and 12-month stint in jail for insider trading when he was 30."}],[{"start":null,"text":""}],[{"start":211.534,"text":"The investor said that the “tall poppy” syndrome had also played a part, with Curtis seen by some potential shareholders as “an ex-criminal with his shirt open, flying around in private jets”."}],[{"start":222.96,"text":"Billionaire investor James Packer, meanwhile, said this week that “Australia tends to tear down aggressive entrepreneurs and America builds them up”."}],[{"start":223.46,"text":"The $30bn valuation Firmus was seeking — double that set during a fundraising just three months ago — also looked stratospheric compared with more established data centre players including NextDC, Goodman Group and CDC Data Centres."}],[{"start":246,"text":"The Firmus listing would have raised more than the A$6.7bn market capitalisation of NextDC — a company that reported revenue of nearly A$500mn and net profit of A$82mn in the year to June. Some super funds, notably UniSuper, declined to participate in the IPO due to the high valuation ascribed to Firmus."}],[{"start":267.978,"text":"The revelation a week out from the listing that a multibillion-dollar deal between CDC and Firmus called Project Southgate had collapsed also spooked some potential shareholders, according to a person with direct knowledge of the situation."}],[{"start":282.213,"text":"Firmus has said it will pursue new funding avenues, both private and public, to expand into Asia and has moved to cool concerns that its domestic investments could be at risk. “Nothing has fundamentally changed about the business. Firmus remains well positioned to execute on its plans, invest in its projects and serve its customers and communities, including those in Tasmania,” the company said."}],[{"start":305.295,"text":"Firmus had net debt of almost $1bn at the end of June, but a $2bn capital increase backed by Blackstone and Coatue in August put it in a net cash position. However, investors expected the company to raise up to $30bn in debt after the float to fund construction of data centres in Australia and Asia."}],[{"start":326.64,"text":"Some investors grew concerned at that planned debt load, which would represent a debt-to-earnings ratio of six times Firmus’ projected earnings in 2028. It will now turn to private markets to borrow and may have to pay a high price to secure debt in the current market, according to investors."}],[{"start":343.64,"text":"The appetite for “neocloud” stocks on the Australian stock exchange could soon be tested again. SharonAI, which is based in Sydney but listed on Nasdaq under the ticker SHAZ, remains committed to pursuing a secondary listing in Sydney despite the Firmus failure."}],[{"start":358.121,"text":"SharonAI’s shares have fallen close to a fifth in the past five days, valuing the business at $1.1bn. The company, which also has a partnership with Nvidia, said it has 212 megawatts of capacity built and 120 megawatts contracted."}],[{"start":375,"text":"Morgans, the stockbroker and wealth manager that had raised funds for Firmus and was an adviser on the IPO, held its annual investment conference in Noosa, north of Brisbane, this week."}],[{"start":384.316,"text":"“The mood is not great at the moment,” said Jun Bei Liu, founder and lead portfolio manager of investment firm Ten Cap, who attended the event. She said Firmus and its advisers should have managed the float better. “They got greedy. They should have been more realistic.”"}],[{"start":398.12,"text":"The banks underwriting the Firmus IPO, which included Morgan Stanley, JPMorgan and Bank of America, have not publicly commented on the decision to pull the listing, which the company said reflected “recent market volatility and prevailing market conditions”."}],[{"start":414.36,"text":"Wes Maas, the former rugby league player and founder of real estate Maas Group, pulled out of hosting a lunch at the Morgans conference. Maas sold a construction materials business earlier this year and invested in Firmus in a deal brokered by Morgans. Shares in Maas have sunk by almost a third over the past month, leaving it worth about A$1.4bn."}],[{"start":434.929,"text":"It may be too soon to dismiss Australia’s chances of winning a significant share of the global AI market over time. Established companies such as Goodman and AirTrunk have well established financial backing and have struck long-term agreements that continue to grow."}],[{"start":450.995,"text":"Lucinda Jerogin, an economist with Commonwealth Bank of Australia, said that the country’s data centre pipeline was expanding “at a rapid pace” and offered a range of attractive characteristics for overseas investors."}],[{"start":463.011,"text":"Commonwealth Bank said that Australia’s data centre pipeline stood at 23 gigawatts based on public announcements, up from about 6 gigawatts in February, although only a quarter of that has been approved or is under construction."}],[{"start":477.24,"text":"For some investors, that points to an opportunity to invest in “real gems” in AI and data centre-related companies including construction and engineering companies with confirmed contracts."}],[{"start":488.44,"text":"“They will continue to take advantage of this intergenerational growth, but it will get harder for the ‘get rich quick’ players,” Liu said."}],[{"start":495.16,"text":"Additional reporting by Ryan McMorrow in San Francisco"}],[{"start":503.48,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1792217255_8418.mp3"}