Data Centres in Malaysia Estimated to Need US$20 Billion Funding Over Next 3 Years

Data centres in Malaysia are estimated to require over US$20 billion in funding for powered shells and equipment over the next three years, based on the estimated capacity addition of around two gigawatts, according to S&P Global Ratings. Powered shells and equipment include the facility shell, power and cooling infrastructure, and networking and storage equipment .

S&P Global Ratings said the funding quantum runs higher when chips are included – possibly one to four times the cost of the powered shell, depending on the type of chips used . "We expect such funding needs to exceed domestic banks' concentration limits per sector, which we assume to be at an aggregate of about US$30 billion. Even if there were a fresh US$30 billion limit, it might not be sufficient to fund data centre projects and the chips over the next three years," it said .

S&P Global Ratings said data centre projects in Malaysia are therefore reaching an inflection point. "While they were able to depend mostly on bank loans and equity in the past, they will need to explore alternative capital sources soon," it said .

The Changing Financial Landscape

The sheer scale of the required investment is pushing the boundaries of what the domestic banking system can accommodate. According to S&P Global Ratings, the total financing needs for data centre projects, including chips, could exceed the banking system's sector concentration limits. This means that developers will increasingly need to turn to alternative funding sources such as project financing, private credit, and structured financing to bridge the gap .

Project financing could help support large-scale developments by managing construction risks, while private credit may provide more flexible financing options. Structured financing, such as asset-backed securitisation, could also gain traction as more data centres are completed and investor familiarity with the sector improves .

Cost Competitiveness and Strategic Advantage

S&P Global Ratings also said Malaysia's cost competitiveness has eroded, with power costs now slightly above average versus Southeast Asian peers. Construction costs remain average against other key data centre markets in this region . "Despite this, we believe demand is unlikely to shift from Malaysia to neighbouring countries on cost alone. Malaysia's strategic location remains its largest advantage," it said .

It said similar resource scarcity and reliability challenges across the region suggest that any large-scale expansion in neighbouring markets will likely be met with rising infrastructure and associated costs as well . S&P Global Ratings expects Malaysia to overcome the execution challenges to become one of Southeast Asia's largest data centre hubs, nearly tripling capacity by 2030 . Proximity to Singapore, strong connectivity and growing power and water capacity should keep Malaysia competitive despite rising costs and tighter approvals, it said .

Infrastructure and Regulatory Shifts

Malaysia's data centre sector is undergoing a significant "reset mode" to ensure sustainable growth . This shift is driven by the need to address growing resource challenges and implement stricter regulatory oversight.

The Johor state, the epicentre of Malaysia's data centre boom, is leading this transformation. Regulators are implementing stricter utility rates and tighter usage thresholds to prevent speculative over-allocation of limited resources . Johor has halted approvals for Tier 1 and Tier 2 data centres, which are significantly less water- and power-efficient. The state has also mandated strict sustainability thresholds, including a Power Usage Effectiveness (PUE) of 1.8 or lower and a Water Usage Effectiveness (WUE) threshold of 1.4 or lower .

To curb speculative applications, Malaysia has introduced penalties under its new regulatory framework. Operators must declare annual electricity usage and face fines if they fail to meet a usage threshold . These measures are designed to prioritise quality over quantity and ensure that resources are allocated to the most efficient projects.

S&P Global Ratings expects that these changes will buy the country time as it expands the necessary power and water resources to sustainably grow into one of Southeast Asia's largest data centre hubs .

Malaysia's data centre sector is at a critical juncture. With an estimated US$20 billion in funding needed over the next three years for powered shells and equipment alone, the industry is fast outgrowing traditional financing sources. The inclusion of chips, which could cost one to four times the powered shell, further amplifies the funding challenge.

While Malaysia's cost competitiveness has eroded slightly, its strategic location, proximity to Singapore, and growing infrastructure capacity continue to make it a preferred destination for data centre investments. The country is expected to nearly triple its capacity by 2030, positioning itself as one of Southeast Asia's largest data centre hubs.

However, the sector's ability to secure alternative capital sources will be critical to sustaining this growth. With domestic banks' concentration limits likely insufficient to meet the funding needs, exploring new financing avenues such as private equity, infrastructure funds, and international capital markets will be essential. As the data centre boom continues, Malaysia's ability to navigate these challenges will determine whether it can maintain its competitive edge in the region. The next few years will be pivotal in shaping the future of the country's digital infrastructure landscape.