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Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020.

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

 

Commission file number: 001-39556 

 

 

 

 

 

 

Chindata Group Holdings Limited

(Exact name of Registrant as specified in its charter)

 

 

N/A

(Translation of Registrant’s name into English)

 

Cayman Islands

(Jurisdiction of incorporation or organization)

 

No. 47 Laiguangying East Road,

Chaoyang District, Beijing, 100012

The People’s Republic of China

(Address of principal executive offices)

 

Dongning Wang, Chief Financial Officer

Tel: +86 400-879-7679
E-mail: ir@chindatagroup.com

No. 47 Laiguangying East Road,

Chaoyang District, Beijing, 100012

The People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

American Depositary Shares, each representing two Class A ordinary shares, par value US$0.00001 per share Class A ordinary shares, par value US$0.00001 per share *

 

CD

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

 

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

 

 *  Not for trading, but only in connection with the listing on The Nasdaq Global Select Market of American depositary shares.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

 


Table of Contents

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

  

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

730,459,381 ordinary shares outstanding, consisting of 344,577,783 Class A ordinary shares and 385,881,598 outstanding Class B ordinary shares, par value US$0.00001 per share, as of December 31, 2020.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes      No    

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one): 

 

Large accelerated filer  

 

Accelerated filer

 

Non-accelerated filer  

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP       International Financial Reporting Standards as issued by the International Accounting Standards Board      Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17      Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes      No  

 

 


Table of Contents

 

 

table of contents

 

 

 

 

Page

 

 

 

INTRODUCTION

1

 

 

FORWARD-LOOKING STATEMENTS

2

 

 

PART I

3

 

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

3

 

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

3

 

 

ITEM 3. KEY INFORMATION

3

 

 

ITEM 4. INFORMATION ON THE COMPANY

45

 

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

74

 

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

74

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

95

 

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

106

 

 

ITEM 8. FINANCIAL INFORMATION

107

 

 

ITEM 9. THE OFFER AND LISTING

108

 

 

ITEM 10. ADDITIONAL INFORMATION

108

 

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

121

 

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

122

 

 

 

PART II

 

124

 

 

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

124

 

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

124

 

 

ITEM 15. CONTROLS AND PROCEDURES

124

 

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

125

 

 

ITEM 16B. CODE OF ETHICS

125

 

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

125

 

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

126

 

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

126

 

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

126

 

 

ITEM 16G. CORPORATE GOVERNANCE

126

 

 

ITEM 16H. MINE SAFETY DISCLOSURE

126

 

 

 

PART III

 

127

 

 

 

ITEM 17 FINANCIAL STATEMENTS

127

 

 

ITEM 18 FINANCIAL STATEMENTS

127

 

 

ITEM 19. EXHIBITS

127

 

 

 

SIGNATURES

 

129

 

 


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INTRODUCTION

Unless otherwise indicated or the context otherwise requires in this annual report on Form 20-F:

 

“Asia-Pacific emerging markets” include China, India and Southeast Asia emerging markets, which include Malaysia, Indonesia, Laos, Thailand, Brunei, Cambodia, Myanmar, Philippines and Vietnam;

 

“ADSs” refer to our American depositary shares, each of which represents two Class A ordinary shares;

 

“ByteDance” refers to Beijing ByteDance Internet Technology Co., Ltd.

 

“CAGR” refers to compound annual growth rate;

 

“capacity in service” refers to the total capacity available for utilization; this capacity does not include capacity from our retail data centers;

 

“capacity with indication of interest” or “IoI IT capacity” refers to the capacity for which clients have indicated interest in and had substantial negotiation for binding service agreements with us;

 

“contractually committed capacity” or “contracted IT capacity” refers to capacity for which clients are required to pay us colocation service or rental fees or reservation fees;

 

“China” or “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Taiwan and the special administrative regions of Hong Kong and Macau;

 

“Chindata,” “we,” “us,” “our company”, and “our” refer to Chindata Group Holdings Limited (or BCPE Bridge Stack Limited, the name of our Company prior to April 23, 2020), a Cayman Islands company and its subsidiaries and, in the context of describing our operations and consolidated financial information, its consolidated variable interest entities, or VIEs;

 

“colocation” refers to services to store and support IT equipment at data centers facilities for clients;

 

“MW” refers to megawatts;

 

“MYR” refers to Malaysian Ringgit, the legal currency of Malaysia;

 

“ODM” refers to original design manufacturer or original design manufacturing;

 

“Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.00001 per share;

 

“Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.00001 per share;

 

“our VIEs” refer to our variable interest entities, including Sitan (Beijing) Data Science and Technology Co., Ltd. and Hebei Qinshu Information Science and Technology Co., Ltd.;

 

“our WFOEs” refer to our wholly foreign-owned enterprises, including Suzhou Stack Data Technology Co., Ltd. and Hebei Stack Data Technology Investment Co., Ltd.;

 

“PUE” refers to power usage effectiveness, a ratio of the total power usage of a data center to the power usage of the IT equipment inside such data center;

 

“RMB” or “Renminbi” refers to the legal currency of China;

 

“shares” or “ordinary shares” refer to our ordinary shares, par value US$0.00001 per share, and upon and after the completion of our initial public offering, are to our Class A and Class B ordinary shares, par value US0.00001 per share;

 

“sqm” refers to square meters;

 

“US$,” “U.S. dollars,” “$” and “dollars” refer to the legal currency of the United States; and

 

“VATS” refers to value-added telecommunications services.

Our reporting currency is the Renminbi. This annual report contains translations of Renminbi and certain other foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi into U.S. dollars were made at RMB6.5250 to US$1.00, the noon buying rate on December 31, 2020 as set forth in the H.10 statistical release of the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollars amounts referred to in this annual report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On April 16, 2021, the noon buying rate for Renminbi was RMB6.5203 to US$1.00.

 

 

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FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information—D. Risk Factors”, that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

In some cases, you can identify these forward-looking statements by words or phrases such as “may,” “might,” “would,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but not limited to, statements about:

 

our goals and strategies;

 

our future business development, financial condition and results of operations;

 

the expected growth of the data center and IT market;

 

our expectations regarding demand for, and market acceptance of, our services;

 

government policies and regulations relating to our business and industry;

 

our expectations regarding keeping and strengthening our relationships with clients;

 

our expectation regarding the use of proceeds from our initial public offering;

 

general economic and business conditions in the regions where we operate and globally; and

 

assumptions underlying or related to any of the foregoing.

You should read this annual report and the documents that we refer to in this annual report thoroughly with the understanding that our actual future results may be materially different from and worse than what we expect. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

This annual report also contains statistical data and estimates that we obtained from industry publications and reports generated by government or third-party providers of market intelligence. Although we have not independently verified the data, we believe that the publications and reports are reliable. However, the statistical data and estimates in these publications and reports are based on a number of assumptions and if any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions. In addition, due to the rapidly evolving nature of the industry in which we operate, projections or estimates about our business and financial prospects involve significant risks and uncertainties.

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we refer to in this annual report and exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect.

  

2


Table of Contents

 

PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.

KEY INFORMATION

A.

Selected Financial Data

The following selected consolidated statements of operations data for the years ended December 31, 2018, 2019 and 2020, selected consolidated balance sheets data as of December 31, 2019 and 2020, and selected consolidated statements of cash flow data for the years ended December 31, 2018, 2019 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this annual report beginning on page F-1. The selected consolidated balance sheet data as of December 31, 2018 are derived from our consolidated financial statements, which are not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods. You should read this Selected Financial Data section together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” below.

3


Table of Contents

 

The following table sets forth our selected consolidated results of operations for the periods presented, both in absolute amount and as a percentage of the total revenues for the periods presented.

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMB

 

 

RMB

 

 

 

 

 

RMB

 

 

US$

 

 

 

(in thousands, except for number of shares and per share data)

 

Selected Consolidated Statements of Operations Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Colocation services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Third parties

 

 

 

 

583,277

 

 

 

 

 

 

 

1,618,857

 

 

 

248,100

 

Related party

 

 

 

 

95,071

 

 

 

 

 

 

 

83,054

 

 

 

12,729

 

Sub-total

 

 

 

 

678,348

 

 

 

 

 

 

 

1,701,911

 

 

 

260,829

 

Colocation rental

 

 

93,423

 

 

 

128,870

 

 

 

 

 

 

 

124,991

 

 

 

19,156

 

Others

 

 

5,061

 

 

 

45,792

 

 

 

 

 

 

 

4,175

 

 

 

640

 

Total revenues

 

 

98,484

 

 

 

853,010

 

 

 

 

 

 

 

1,831,077

 

 

 

280,625

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Colocation services

 

 

 

 

(422,254

)

 

 

 

 

 

 

(960,586

)

 

 

(147,216

)

Colocation rental

 

 

(132,766

)

 

 

(152,961

)

 

 

 

 

 

 

(135,160

)

 

 

(20,714

)

Others

 

 

(2,494

)

 

 

(35,006

)

 

 

 

 

 

 

(2,550

)

 

 

(391

)

Total cost of revenues(1)

 

 

(135,260

)

 

 

(610,221

)

 

 

 

 

 

 

(1,098,296

)

 

 

(168,321

)

Gross (loss) profit

 

 

(36,776

)

 

 

242,789

 

 

 

 

 

 

 

732,781

 

 

 

112,304

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing expenses(1)

 

 

(5,092

)

 

 

(47,496

)

 

 

 

 

 

 

(99,092

)

 

 

(15,187

)

General and administrative expenses(1)

 

 

(57,980

)

 

 

(232,837

)

 

 

 

 

 

 

(564,286

)

 

 

(86,481

)

Research and development expenses

 

 

 

 

(24,510

)

 

 

 

 

 

 

(41,175

)

 

 

(6,310

)

Impairment of goodwill

 

 

(21,598

)

 

 

 

 

 

 

 

 

 

Total operating expenses

 

 

(84,670

)

 

 

(304,843

)

 

 

 

 

 

 

(704,553

)

 

 

(107,978

)

Operating (loss) income

 

 

(121,446

)

 

 

(62,054

)

 

 

 

 

 

 

28,228

 

 

 

4,326

 

Interest income

 

 

97

 

 

 

7,161

 

 

 

 

 

 

 

27,616

 

 

 

4,232

 

Interest expense

 

 

(24,344

)

 

 

(102,290

)

 

 

 

 

 

 

(238,384

)

 

 

(36,534

)

Foreign exchange gain (loss)

 

 

808

 

 

 

(2,438

)

 

 

 

 

 

 

(3,548

)

 

 

(544

)

Changes in fair value of financial instruments

 

 

2,643

 

 

 

(11,189

)

 

 

 

 

 

 

(12,717

)

 

 

(1,949

)

Others, net

 

 

1,322

 

 

 

(633

)

 

 

 

 

 

 

(17,201

)

 

 

(2,636

)

Loss before income taxes

 

 

(140,920

)

 

 

(171,443

)

 

 

 

 

 

 

(216,006

)

 

 

(33,105

)

Income tax benefit (expense)

 

 

2,759

 

 

 

1,742

 

 

 

 

 

 

 

(67,339

)

 

 

(10,320

)

Net loss

 

 

(138,161

)

 

 

(169,701

)

 

 

 

 

 

 

(283,345

)

 

 

(43,425

)

Less: Net income attributable to non-controlling interests

 

 

 

 

4,742

 

 

 

 

 

 

 

 

 

Net loss attributable to Chindata Group Holdings Limited

 

 

(138,161

)

 

 

(174,443

)

 

 

 

 

 

 

(283,345

)

 

 

(43,425

)

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

(1.42

)

 

 

(0.44

)

 

 

 

 

 

 

(0.46

)

 

 

(0.07

)

Other comprehensive loss, net of tax of nil:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

18,032

 

 

 

21,967

 

 

 

 

 

 

 

(212,597

)

 

 

(32,582

)

Comprehensive loss

 

 

(120,129

)

 

 

(147,734

)

 

 

 

 

 

 

(495,942

)

 

 

(76,007

)

Less: Comprehensive income attributable to non-controlling interests

 

 

 

 

4,742

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to Chindata Group Holdings Limited

 

 

(120,129

)

 

 

(152,476

)

 

 

 

 

 

 

(495,942

)

 

 

(76,007

)

 

Notes:

 

(1)

Share-based compensation expenses were allocated as follows:

 

4


Table of Contents

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

2019

 

 

2020

 

 

 

RMB

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands)

 

Cost of revenues

 

 

 

 

 

32,990

 

 

 

5,056

 

Selling and marketing expenses

 

 

 

 

 

21,691

 

 

 

3,324

 

General and administrative expenses

 

 

 

63,746

 

 

 

295,165

 

 

 

45,236

 

Total share-based compensation expenses

 

 

 

63,746

 

 

 

349,846

 

 

 

53,616

 

 

In addition, the Company capitalized RMB nil, RMB nil and RMB20,127 (US$3,085) the cost of the share options granted to these construction employees as construction in progress for the years ended December 31, 2018, 2019 and 2020, respectively.

 

The following table presents our selected consolidated balance sheets data as of the dates indicated:

 

 

 

As of December 31,

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands)

 

Summary Consolidated Balance Sheets Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

104,207

 

 

 

1,038,897

 

 

 

6,705,612

 

 

 

1,027,680

 

Accounts receivable, net of allowance of RMB98, RMB4,770 and RMB12,496 (US$1,915) as of December 31, 2018, 2019 and 2020, respectively

 

 

14,760

 

 

 

304,695

 

 

 

422,224

 

 

 

64,709

 

Total current assets

 

 

188,338

 

 

 

1,573,131

 

 

 

7,589,976

 

 

 

1,163,213

 

Property and equipment, net

 

 

989,645

 

 

 

4,404,587

 

 

 

6,423,830

 

 

 

984,495

 

Operating lease right-of-use assets

 

 

2,939

 

 

 

430,288

 

 

 

635,683

 

 

 

97,423

 

Finance lease right-of-use assets

 

 

156,205

 

 

 

155,347

 

 

 

144,615

 

 

 

22,163

 

Intangible assets

 

 

21,035

 

 

 

360,749

 

 

 

320,299

 

 

 

49,088

 

Goodwill

 

 

 

 

466,320

 

 

 

472,883

 

 

 

72,472

 

Total assets

 

 

1,399,022

 

 

 

7,771,183

 

 

 

16,259,598

 

 

 

2,491,890

 

Total current liabilities

 

 

159,344

 

 

 

1,266,779

 

 

 

1,832,940

 

 

 

280,910

 

Total liabilities

 

 

723,131

 

 

 

4,534,010

 

 

 

6,520,130

 

 

 

999,252

 

Total shareholders’ equity

 

 

675,891

 

 

3,237,173(1)

 

 

 

9,739,468

 

 

 

1,492,638

 

 

The following table presents our selected consolidated cash flow data for the periods indicated.

 

 

 

For the Year Ended December 31,

 

 

 

2018

 

 

2019

 

 

2020

 

 

 

RMB

 

 

RMB

 

 

RMB

 

 

US$

 

 

 

(in thousands)

 

Summary Consolidated Cash Flow Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) generated from operating activities

 

 

(25,601

)

 

 

40,167

 

 

 

664,910

 

 

 

101,902

 

Net cash used in investing activities

 

 

(1,052,317

)

 

 

(3,520,639

)

 

 

(2,769,269

)

 

 

(424,409

)

Net cash generated from financing activities

 

 

1,177,372

 

 

 

4,456,328

 

 

 

8,188,802

 

 

 

1,254,989

 

Exchange rate effect on cash, cash equivalents and restricted cash

 

 

19,891

 

 

 

(719

)

 

 

(292,820

)

 

 

(44,877

)

Net increase in cash, cash equivalents, and restricted cash

 

 

119,345

 

 

 

975,137

 

 

 

5,791,623

 

 

 

887,605

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

25,358

 

 

 

144,703

 

 

 

1,119,840

 

 

 

171,623

 

Cash, cash equivalents and restricted cash at end of year

 

 

144,703

 

 

 

1,119,840

 

 

 

6,911,463

 

 

 

1,059,228

 

 

B.

Capitalization and Indebtedness

Not applicable.

C.

Reasons for the Offer and Use of Proceeds

Not applicable.

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D.

Risk Factors

Risks Relating to Our Business and Industry

We may not be able to effectively manage our growth of our business as we expand our operations, which could negatively impact our business and financial performance.

We have experienced significant growth in recent years. Our revenues grew from RMB853.0 million in 2019 to RMB1,831.1 million (US$280.6 million) in 2020. We derive revenues primarily from our data center colocation services and, to a lesser extent, data center colocation rental. We plan to further increase our service capacities through increasing the number and size of the data center campuses and facilities that we operate, and thus will be required to commit a substantial amount of operating and financial resources. If we are not able to generate sufficient operating cash flows or obtain third-party financing, our ability to fund our expansion plans may be limited. See “— Development of data centers is capital intensive. We may not be able to generate sufficient capital or obtain additional capital to meet our future capital needs, on favorable terms or at all, which may lead to significant disruption to our business and adversely affect our financial position.”

Our rapid growth has placed, and will continue to place, significant demands on our management and our administrative, operational and financial systems. Continued expansion exposes us to additional challenges, including:

 

identifying and obtaining suitable land resources to build new data centers;

 

delays and cost overruns as a result of a number of factors, many of which are beyond our control, including delays in regulatory approvals, construction, power grid connection, and network connectivity;

 

establishing new operations at additional data centers and maintaining efficient operations of data center facilities;

 

managing the operations of our expanding number of data centers to maintain high quality service for our clients;

 

adapting to clients’ changing needs and managing a large and growing client base with increasingly diverse requirements;

 

creating and capitalizing on economies of scale;

 

the uncertainty of being able to sell our services, receive full payment by our clients for them or receive payment in a timely manner;

 

obtaining additional capital to meet our future capital needs, which we may be unable to obtain on commercially reasonable terms or at all;

 

meeting the evolving government regulations governing data center operations;

 

delays or denial of required regulatory approvals by relevant government authorities;

 

expanding our service portfolio to cover a wider range of services, including managed cloud services;

 

recruiting, training and retaining a sufficient number of skilled technical, sales and management personnel;

 

coordinating work among sites and project teams;

 

maintaining and enhancing internal controls and operational structure;

 

failure to execute our project pipeline expansion plan effectively.

Moreover, we may not have sufficient client demand in the markets where our data centers are located. We may overestimate the demand for our services and as a result may increase our data center capacity or expand our network more aggressively than needed, resulting in a negative impact to our results of operations.

We may expand into geographic areas where we do not have experience with local regulations or regulators or where local market conditions are unfavorable for our business. We may not be able to effectively attract clients in the new markets to generate sufficient revenues and offset the costs incurred by the expansion, which could negatively impact our financial performance and prospects.

If we fail to manage the growth of our operations effectively, our businesses and results of operations may be materially and adversely affected.

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Development of data centers is capital intensive. We may not be able to generate sufficient capital or obtain additional capital to meet our future capital needs, on favorable terms or at all, which may lead to significant disruption to our business expansion and adversely affect our financial position.

Constructing and developing data centers are capital intensive. We are required to fund the costs of constructing and developing our data centers with cash deriving from operations, as well as from financing from banks, other borrowings and capital markets. Moreover, such costs have increased in recent years, and may further increase in the future, which may make it more difficult for us to expand our business and to remain profitable. There can be no assurance that our future revenues would be sufficient to offset increases in these costs, or that our business operations will generate capital sufficient to meet our anticipated capital requirements. If increase in our future revenues would not be sufficient to offset the increased costs, or we cannot generate sufficient capital to meet our anticipated capital requirements, our financial condition, business expansion and future prospects could be materially and adversely affected.

To fund our future growth, we may need to raise additional funds through equity or debt financing in the future in order to meet our operating and capital needs, which may not be available on favorable terms, or at all. If we raise additional funds through issuances of equity or equity-linked securities, our existing shareholders could suffer significant dilution in their ownership percentage of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our ordinary shares. In addition, any debt financing that we may obtain in the future could have restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Our inability to obtain additional debt and/or equity financing or to generate sufficient cash from operations may require us to prioritize projects or curtail capital expenditures and could adversely affect our results of operations.

The market in which we participate is competitive. Failure to compete effectively may result in loss of our market share and a decrease in our revenues and profitability.

We compete with a wide range of data center solution providers in the markets we participate. Some of our current and future competitors may have advantages over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential clients, significantly greater financial, marketing and other resources and more ready access to capital, all of which allow them to offer competitive prices and respond more quickly to new or changing opportunities. Many of these competitors own properties similar to ours in the same markets in which our properties are located, or in markets where the cost to operate a data center is less than the costs to operate our data centers. Many of our competitors and new entrants to the data center market are developing additional data center space in the markets that we serve.

We face pricing pressure for our services. Prices for our services are affected by a variety of factors, including supply and demand conditions and pricing pressures from our competitors. A buildup of new data centers or reduced demand for data center services could result in an oversupply of data center space in the markets where we operate. Excess data center capacity could cause downward pricing pressure and limit the number of economically attractive markets that are available to us for expansion, which could negatively impact our business and results of operations. In addition, our competitors may offer services that are more competitively priced compared to ours. We may be required to lower our prices to remain competitive, which may decrease our margins and adversely affect our business prospects, financial condition and results of operations.

We will also face increased competition as we expand our operations, and our competitors in new markets we expand into may have more experience than us in operating in those markets. If we fail to compete effectively, our business, financial performance and prospects will be materially and adversely affected.

Our revenues are highly dependent on a limited number of major clients, and the loss of any such client or any other significant client, or the inability of any such client or any other significant client to make payments to us as due, could have a material adverse effect on our business, results of operations and financial condition.

We have in the past derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of clients. Revenues from ByteDance accounted for 68.2% and 81.7% of our total revenues in 2019 and 2020. Revenues from Wangsu, which has ceased to be a related party of our Company since the completion of the initial public offering on October 2, 2020, accounted for 11.1% and 5.9% of our total revenues in 2019 and 2020. No other client accounted for 10% or more of our total revenues in 2019 or 2020. As a hyperscale data center solution provider, we expect our revenues will continue to be highly dependent on a limited number of clients who account for a large percentage of our contractually committed capacity. Moreover, for several of our data centers, a limited number of clients accounted for substantial majority of our contractually committed capacity. If one or more of our significant clients fail to make payments to us or does not honor their contractual commitments, our revenues and results of operations would be materially and adversely affected. In addition, the contracts we enter into with our significant clients typically provide that they have early termination options, subject to payment of specified early termination fees that equal to a substantial amount of the total services fees. The amount of such early termination fee depends on the length of the duration of the contract that has expired, and is usually less than the revenues we would expect to receive under a given contract. If any of our significant clients exercises any applicable early termination options or we are unable to renew our existing contracts with them on similar terms or at all, and we are unable to find new clients to utilize the space to be vacated in a timely manner or at the same fee levels, our results of operations will be adversely affected. For example, certain of our agreements with Wangsu will expire in 2021, and we may not be able to renew them at favorable terms to us, or at all. As of the date of this annual report, none of our clients have exercised their early termination options which we believe would have a material adverse effect on our business, results of operations and financial condition. However, we cannot provide any assurance that they will not do so in the future.

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There are a number of factors that could cause us to lose major clients. Because many of our contracts involve services that are mission-critical to our clients, any failure by us to meet a client’s expectations could result in cancellation or non-renewal of the contract. Our contracts usually allow our clients to terminate their contracts with us before the end of the contract period under certain specified circumstances, including our failure to deliver services as required under such agreements, and in some cases without cause as long as sufficient notice and early termination fee is given. In addition, our clients may decide to reduce spending on our services in response to a challenging economic environment or other factors, both internal and external, relating to their business such as corporate restructuring or changing their outsourcing strategy by moving more facilities in-house or outsourcing to other service providers. Some of our clients may choose to develop or expand their own data center facilities in the future, which may result in a decline in our existing or potential clients.

In addition, our reliance on any individual significant client may give that client a degree of pricing leverage against us when negotiating contracts and terms of services with us. The loss of any of our major clients, or a significant decrease in the extent of the services that they outsource to us or the level of prices we offer, could materially and adversely affect our financial condition and results of operations.

Any of our clients could experience a downturn in their business, which in turn could result in their inability or failure to make timely payments to us pursuant to their contracts with us. In the event of any client default, our liquidity could be adversely impacted and we may experience delays in enforcing our rights and may incur substantial costs in protecting our investment. These risks would be particularly significant if one of our major clients were to experience adverse effects to its business and defaults under their contracts with us. The inability of any significant client to meet its payment obligations could impact us negatively and significantly.

Our business, results of operations and financial condition may be adversely affected if our largest client were to experience adverse effects to its business as a result of the executive orders issued by the former U.S. President.

In August 2020, former U.S. President Donald J. Trump issued two executive orders concerning ByteDance, our largest client in terms of revenue contribution in 2019 and 2020, accounting for 68.2% and 81.7% of our total revenues, respectively. The executive order dated August 6, 2020 prohibits certain unspecified transactions by any person subject to U.S. jurisdiction, or with respect to any property subject to U.S. jurisdiction, with ByteDance Ltd. or its subsidiaries, while the executive order dated August 14, 2020 enjoins ByteDance Ltd. to divest all interest and rights in any tangible or intangible assets or property used to enable or support the U.S. operations of the TikTok application and any data obtained or derived from the TikTok application in the United States and prohibits its ownership of Musical.ly in the United States. Either or both of these executive orders could have a negative impact on ByteDance’s business prospects.

On September 18, 2020, the U.S. Department of Commerce published the restrictions that are applicable to the TikTok application pursuant to the August 6 executive order, which, among other things, prohibit any provision of services to distribute or maintain the TikTok application, constituent code, or application updates through an online mobile application store in the United States effective as of September 20, 2020, and, as of November 12, 2020, prohibit certain other provision of services enabling the functioning or optimization of, and certain utilization of, the TikTok U.S. application. The publication further provides that the U.S. Department of Commerce may further implement restrictions under authority of the August 6 executive order, but that otherwise any other transaction with ByteDance Ltd. or its subsidiaries is permitted unless identified as prohibited or otherwise contrary to law.

On September 19, 2020, the U.S. Department of Commerce announced that, “in light of recent positive developments,” it would delay, until September 27, 2020, implementation of the restrictions on TikTok that would have been effective on September 20, 2020. The U.S. Department of Commerce announcement reportedly was in reference to a possible transaction whereby, according to public reports, Oracle and Walmart would acquire a 20% interest in a newly formed TikTok Global and Oracle would assume a role as a “trusted technology provider”, regarding which former President Trump initially provided tacit approval “in concept” in spoken remarks to the press.

U.S. federal courts have since issued nationwide preliminary injunctions enjoining the U.S. Department of Commerce from implementing the restrictions regarding TikTok described above. Specifically, on September 27, 2020, the U.S. District Court for the District of Columbia issued a nationwide preliminary injunction restraining implementation of the restrictions scheduled to go into effect on September 27, 2020. Furthermore, in nationwide injunctions issued on October 30, 2020 and December 7, 2020, the U.S. District Court for the Eastern District of Pennsylvania and the U.S. District Court for the District of Columbia respectively restrained implementation of the U.S. Department of Commerce restrictions in their entirety. On November 17, 2020, the U.S. Department of Commerce published a notice in the Federal Register acknowledging that the TikTok restrictions have been enjoined and that it is complying with the court orders. The U.S. Department of Commerce has appealed the court orders, and the appeals are pending.

With respect to the August 14 executive order, the Committee on Foreign Investment in the United States has issued two extensions of the November 12, 2020 divestment deadline described above, first to November 27, 2020, and then to December 4, 2020. The December 4 deadline has since lapsed, but the U.S. Government has not taken any further official action as of this time regarding the August 14 executive order.

As of the date of this annual report, there is no public information indicating that the possible transaction with Oracle and Walmart has been finalized, and it remains to be seen whether the U.S. Government formally will approve this or any similar transaction; whether the U.S. Department of Commerce will prevail in its appeals regarding implementation of the August 6 executive order; and whether and how the Biden Administration will seek to implement the August 6 executive order and the August 14 executive order, or seek to modify the U.S. Government’s approach regarding ByteDance and TikTok.

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Although all of our business with ByteDance is based in China and for its operations in China only, there is no assurance that we would not be treated as a person or entity subject to U.S. jurisdiction for purposes of such restrictions, or that we would not be prohibited from entering into any transaction with ByteDance pursuant to the executive order or future restrictions that may be issued by the U.S. Department of Commerce or other U.S. regulators. Should we cancel substantial projects or otherwise significantly reduce our volume of business with ByteDance as a result of the executive orders, our revenues and profitability would be materially reduced and our business and results of operations would be seriously harmed.

If we do not succeed in attracting new clients for our services and/or growing revenues from existing clients, our business and results of operation may be adversely affected.

We have been expanding our client base to cover a range of industry verticals, particularly cloud service providers and technology companies. Our ability to attract new clients, as well as our ability to grow revenues from our existing clients, depends on a number of factors, including our data center capacity, our ability to offer high-quality services at competitive prices, the strength of our competitors and the capabilities of our client acquisition team to attract new clients. If we fail to attract new clients, we may not be able to grow our revenue as quickly as we anticipate or at all.

In addition, as our client base grows and diversifies into other industries, we may be unable to provide services that cater to their changing needs, which could result in client dissatisfaction, decreased overall demand for our services and loss of expected revenues. Moreover, our inability to meet client expectations may damage our reputation and could consequently limit our ability to retain existing clients and attract new clients, which would adversely affect our ability to generate revenues and negatively impact our results of operations.

Factors that adversely affect the industries in which our clients operate or information technology spending in these industries, particularly in the Internet and cloud service industries, may adversely affect our business.

Our clients are primarily technology companies in the Internet, cloud, software and other technology-based industries. Our clients, some of whom have experienced rapid changes in their business, substantial price competition and pressures on their profitability, may request price reductions or decrease their demand for space in our data centers, which could harm our financial performance. Furthermore, a decline in the technology industry or the demand for cloud-based services, or the desire of any of these companies to outsource their data center needs, could lead to a decrease in the demand for space in our data centers, which would have an adverse effect on our business and financial condition. We also are susceptible to adverse developments in the industries in which our clients operate, such as decreases in demand for their products or services, business layoffs or downsizing, industry slowdowns, relocations of businesses, costs of complying with government regulations or increased regulation and other factors. We also may be materially adversely affected by any downturns in the market for data centers due to, among other things, oversupply of or reduced demand for space or a slowdown in the technology industry. Also, a lack of demand for data center space by enterprise clients could have a material adverse effect on our business, results of operations and financial condition. If any of these events happen, we may lose clients or have difficulties in selling our services, which would materially and adversely affect our business and results of operations.

We generate a significant portion of our revenues from a small number of data centers, with some located in close proximity to each other. A significant disruption in any of such data centers could materially and adversely affect our business, results of operations and financial condition.

We generate significant revenues from a small number of hyperscale data center campuses located in close proximity to each other and a significant disruption to any single location could materially and adversely affect our operations. Our data centers typically surround metropolitan areas such as Beijing, Shanghai, Shenzhen, Kuala Lumpur and Mumbai and are in proximity to the corporate headquarters of our clients. The occurrence of a catastrophic event, or a prolonged disruption in any of these regions, could materially and adversely affect our operations.

We have a limited operating history as a combined company after the recent merger of Chindata and Bridge Data Centres. We may face challenges integrating our operations, services and personnel and may be unable to achieve the anticipated synergies from the combination. Our historical operating and financial results may not be indicative of future performance, which makes it difficult to predict our future business prospects and financial performance.

The combination of our China and overseas operations were completed in 2019. We have a limited operating history and experience in our business operation as a combined company, which makes it difficult to evaluate our future prospects and ability to make profit. Our ability to realize the anticipated benefits of the combination depends, to a large extent, on our ability to integrate independent businesses, which can be a complex, costly and time-consuming process, and thus requires significant time and focus from our management team and may divert attention from the day-to-day operations of our business. In addition, even if the operations of Chindata and Bridge Data Centres are integrated successfully, we may not realize the full benefits of the combination, including the synergies, operating efficiencies, or sales or growth opportunities that are expected.

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In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses and loss of client relationships, among other potential adverse consequences. If we cannot integrate and operate acquired properties or businesses to meet our financial expectations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations could be materially adversely affected.

If we are unable to locate and secure suitable sites for additional data centers on commercially acceptable terms, our ability to grow our business may be limited.

The selection of land or facilities suitable for development of data centers is a critical factor in our expansion plans. The available capacity and land resources that we hold may not be able to satisfy the growing demand of our clients. There may not be suitable properties available in our markets with the necessary combination of high power capacity and fiber connectivity, or selection of such sites may be limited. For instance, it may not always be possible to locate new data center facilities adjacent to our existing locations, which is our preference. Our lack of operating experience in a new market may make it difficult for us to successfully identify and acquire suitable properties in these markets in locations that are attractive to our clients and that have access to multiple network providers and a significant supply of electrical power. Any inability to acquire additional sites for development, at all or on terms commercially acceptable to us, could have a material adverse effect on our growth, future results of operations and financial condition.

We face risks associated with having a long selling, construction and implementation cycle for our services that requires us to make significant capital expenditures and resource commitments prior to receiving payments for those services.

Our industry for hyperscale data centers is characterized by a relatively long selling, construction and implementation cycle, which typically ranges from 15 to 19 months and requires significant investment of capital, human resources and time. Constructing, developing and operating our data centers require significant capital expenditures. A client’s decision to utilize our colocation services or our other services typically involves time-consuming contract negotiations regarding the service level commitments and other terms, and substantial due diligence on the part of the client regarding the adequacy of our infrastructure and attractiveness of our resources and services. Our efforts in pursuing a particular sale or client may not be successful, and we may not always have sufficient capital on hand to satisfy our working capital needs. If our efforts in pursuing sales and clients are unsuccessful, or our cash on hand is insufficient to cover our working capital needs over the course of our long selling cycle, our financial condition could be negatively affected.

The outbreak of COVID-19 could disrupt our operations and construction projects and adversely affect our results of operations.

An outbreak of COVID-19, a respiratory illness caused by a novel coronavirus, occurred in China and worldwide in 2020. In early February 2020, the World Health Organization declared the outbreak a Public Health Emergency of International Concern. While initially the outbreak was largely concentrated in China, it has now spread to a growing number of other international locations and infections have been reported globally. In an effort to limit the spread of the disease, many countries including China, Malaysia and India, have taken various emergency measures to combat the spread of the virus, including travel restrictions, voluntary and mandatory cessations of business operations, mandatory quarantines, work-from-home and other alternative working arrangements, limitations on social and public gatherings and lockdowns of cities or regions. These measures delayed the return of our employees to work, and our construction projects and obtaining certain regulatory approvals. Any prolonged deviations from normal daily operations could negatively impact our business. Due to the widespread nature and severity of COVID-19 as well as the measures taken to limit its spread, the Chinese economy was adversely impacted in the first quarter of 2020 and beyond.

There remains substantial uncertainty about the dynamic of the COVID-19 pandemic, which may have potential continuing impact on subsequent periods if the global pandemic and the resulting disruption were to extend over a prolonged period or if a wide spread of COVID-19 happens again in these countries. In light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict the COVID-19 pandemic’s cumulative and ultimate impact on our future business, results of operations, and financial condition. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend largely on future developments, including the duration and extent of the spread of COVID-19 both globally and within China, Malaysia and India, the impact on China, Malaysia and India’s and global economies, and governmental or regulatory orders that impact our business, all of which are highly uncertain and cannot be predicted. To the extent that COVID-19 or any health epidemic harms the Chinese, Malaysian and Indian and global economies in general, our results of operations could be adversely affected.

Delays in the construction of new data centers or the expansion of existing data centers could involve significant risks to our business.

In order to meet client demand and the continued growth of our business, we need to expand existing data centers, develop new facilities or obtain suitable land to build new data centers. Expansion of existing data centers and construction of new data centers are currently underway, or being contemplated and such expansion and construction require us to carefully select and rely on the experience of contractors during the construction process. We endeavor to engage contractors with a strong reputation and proven track record, high-performance reliability and adequate financial resources. However, any such contractor may still fail to provide satisfactory services at the level of quality required by us. Furthermore, if a contractor experiences financial or other problems during the design or construction process, we could experience significant delays and/or incur increased costs to complete the projects, resulting in negative impacts on our results of operations.

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In addition, we need to work closely with local power and network suppliers where our proposed data centers are located. We also rely on certain key technical personnel, such as engineering firms and construction contractors capable of developing our projects, and key suppliers of electrical and mechanical equipment. Delays in actions that require the assistance of such third parties, or delays in receiving required permits and approvals from local governments, which are out of our control, may also affect the construction and development of new projects or result in them not being completed at all.

Furthermore, the measures taken by the Chinese, Malaysian and Indian governments to contain the spread of COVID-19 in early 2020 delayed the return of our employees to work, and thus affected the construction and development of our new projects. See “— The outbreak of COVID-19 could disrupt our operations and construction projects and adversely affect our results of operations” for more information about the impact of the COVID-19 outbreak on us.

If we experience significant delays in the supply of power required to support the data center expansion or new construction, either during the design or construction phases, the progress of the data center expansion and/or construction could deviate from our original plans, which could cause material and negative effect to our revenue growth, profitability and results of operations.

Limited availability of power and power outages may adversely affect our results of operation.

We are a large consumer of power and costs of power account for a significant portion of our cost of revenues. We require power supply to provide many services we offer, such as powering and cooling our clients’ servers and network equipment and operating critical data center plant and equipment infrastructure. We are subject to risks associated with obtaining access to a sufficient amount of power from local utilities and constraints on the amount of electricity that a particular locality’s power grid is capable of providing at any given time.

In addition, the amount of power required by our clients may increase as they adopt new technologies, for example, for virtualization of hardware resources, or grow their businesses. As a result, our clients’ average amount of power utilized per server is increasing, which in turn increases power consumption required to cool the data center facilities. Although we aim to improve the energy efficiency of the data center facilities that we operate, such facilities may not be able to provide sufficient power to meet the growing needs of our clients. In addition, we may not be able to maintain competitive PUE for our data centers in service. Our clients’ demand for power may exceed the power capacity in our data centers, which may limit our ability to fully utilize the capacity of these data centers. We may lose clients or our clients may reduce the services purchased from us due to limited availability of power resources, or we may incur costs for data center capacity which we cannot utilize, which would reduce our revenues and have a material and adverse effect on our cost of revenues and results of operations.

In addition, we attempt to limit exposure to system downtime due to power outages from the electric grid by using backup generators and battery power. However, these protections may not limit our exposure to power shortages or outages entirely. Any system downtime resulting from insufficient power resources or power outages could damage our reputation and lead us to lose current and potential clients, which would harm our financial condition and results of operations.

Increased telecommunication costs and any delays or disruptions in Internet connectivity to our data centers may adversely affect our operating results.

Our clients require connectivity to the fiber networks of multiple telecommunication carriers, and we depend upon the presence of telecommunication carriers’ fiber networks serving the locations of our data centers in order to attract and retain clients. Any carrier may elect not to offer its services within our data centers, and any carrier that has decided to provide Internet connectivity to our data centers may discontinue the provision of Internet connectivity to our data centers. If carriers were to consolidate or otherwise downsize or terminate connectivity within our data centers, such action could have an adverse effect on the businesses of our clients and, in turn, our own business, financial condition and results of operations.

Each new data center that we develop requires the construction and operation of a sophisticated redundant fiber network. The construction required to connect multiple carrier facilities to our data centers is complex and involves factors outside of our control, including regulatory requirements and the availability of construction resources. If we are not able to establish adequate Internet connectivity to our data centers, such connectivity is materially delayed, interrupted or is discontinued, or there are significant hardware or fiber failures on this network, our ability to attract and retain new clients or retain existing clients could be impacted negatively, which in turn could have a material adverse effect on our business, financial condition and results of operations.

As our client base grows and their usage of telecommunications capacity increases, we may be required to make additional investments in our capacity to maintain adequate data transmission speeds. The availability of such capacity may be limited or the costs may be on terms unacceptable to us. If adequate capacity is not available to us as our clients’ usage increases, our network may be unable to achieve or maintain sufficiently high data transmission capacity, reliability or performance. In addition, our operating margins will suffer if our bandwidth suppliers increase the prices for their services and we are unable to pass along the increased costs to our clients.

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If we are unable to adapt to new technologies or industry standards in a timely and cost-effective manner, our business, financial performance and prospects could be materially and adversely affected.

The markets for the data centers we own and operate, as well as certain of the industries in which our clients operate, are characterized by rapidly changing technologies, evolving industry standards, and frequent new service introductions. As a result, the infrastructure at our data centers may become obsolete or unmarketable due to demand for new processes and technologies, including, new processes to deliver power to, or eliminate heat from, computer systems and new technology that permits higher levels of critical load and heat removal than our data centers are currently designed to provide. In addition, the systems that connect our data centers to the Internet and other external networks may become outdated, including with respect to latency, reliability and diversity of connectivity. When clients demand new processes or technologies, we may not be able to upgrade our data centers on a cost-effective basis, or at all, due to, among other things, increased expenses to us that cannot be passed on to clients or insufficient revenues to fund the necessary capital expenditures. The obsolescence of our power and cooling systems and/or our inability to upgrade our data centers, including associated connectivity, could reduce revenues at our data centers and could have a material adverse effect on us. To be successful, we must adapt to our rapidly changing market by continually improving the performance, features and reliability of our services and modifying our business strategies accordingly, which could cause us to incur substantial costs. We may not be able to adapt to changing technologies in a timely and cost-effective manner, if at all, which would adversely impact our ability to sustain and grow our business. If we are unable to purchase the hardware or obtain a license for the software that our services depend on, our business could be significantly and adversely affected.

Furthermore, potential future regulations that apply to industries we serve may require clients in those industries to seek specific requirements from their data centers that we are unable to provide. If such regulations were adopted, we could lose clients or be unable to attract new clients in certain industries, which could have a material adverse effect on us.

In addition, new technologies or industry standards have the potential to replace or provide lower cost alternatives to our services. We focus primarily on providing data center solutions through hyperscale data centers. We cannot guarantee that we will be able to identify the emergence of all the new service alternatives successfully, modify our services accordingly, or develop and bring new services to market in a timely and cost-effective manner to address these changes. If and when we do identify the emergence of new service alternatives and introduce new services to market, those new services may need to be made available at lower profit margins than our then-current services. Failure to provide services to compete with new technologies or the obsolescence of our services could lead us to lose current and potential clients or could cause us to incur substantial costs, which would harm our operating results and financial condition. Our introduction of new alternative services that have lower price points than our current offerings may also result in our existing clients switching to the lower cost products, which could reduce our revenues and have a material adverse effect on our results of operation.

Any significant or prolonged failure in the data center facilities we operate or services we provide, including events beyond our control, would lead to significant costs and disruptions and would reduce the attractiveness of our facilities, harm our business reputation and have a material adverse effect on our results of operation.

The data center facilities we operate are subject to failure. Any significant or prolonged failure in any data center facility we operate or services that we provide, including a breakdown in critical plant, equipment or services, such as the cooling equipment, generators, backup batteries, routers, switches, or other equipment, power supplies, or network connectivity, whether or not within our control, could result in service interruptions and data losses for our clients as well as equipment damage, which could significantly disrupt the normal business operations of our clients and harm our reputation and reduce our revenues. Any failure or downtime in one of the data center facilities that we operate could affect many of our clients. The total destruction or severe impairment of any of the data center facilities we operate could result in significant downtime of our services and catastrophic loss of client data. Since our ability to attract and retain clients depends on our ability to provide highly reliable service, even minor interruptions in our service could harm our reputation and cause us to incur financial penalties. The services we provide are subject to failures resulting from numerous factors, including, but not limited to, human error or accident, natural disasters and security breaches, whether accidental or willful.

We may in the future experience interruptions in service, power outages and other technical failures or be otherwise unable to satisfy the requirements of the agreements we have with clients for reasons outside of our control. As our services are critical to many of our clients’ business operations, any significant or prolonged disruption in our services could result in lost profits or other indirect or consequential damages to our clients and subject us to lawsuits brought by the clients for potentially substantial damages. Furthermore, these interruptions in service, regardless of whether they result in breaches of the agreements we have with clients, may negatively affect our relationships with clients and lead to clients terminating their agreements with us or seeking damages from us or other compensatory actions. We have taken and continue to take steps to improve our infrastructure to prevent service interruptions and satisfy the requirements of the agreements we have with clients, including upgrading our electrical and mechanical infrastructure and sourcing, designing the best facilities possible and implementing rigorous operational procedures to maintenance programs to manage risk. Service interruptions continue to be a significant risk for us and could affect our reputation, damage our relationships with clients and materially and adversely affect our business. Any breaches of the agreements we have with clients will damage our relationships with clients and materially and adversely affect our business.

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We rely on suppliers for project construction, equipment procurement and installation and general operations of our business.

We contract with third parties for the supply of components and services needed in our projects, such as construction works and equipment, that we use in the provision of our services to our clients. If we are unable to find a qualified new supplier in a timely manner, the loss of a significant supplier could delay expansion of the data center facilities that we operate, impact our ability to sell our services and increase our costs. In addition, if our existing suppliers are unable to provide products and services that meet evolving industry standards or that are unable to effectively interoperate with other products or services that we use, we may be forced to look for new suppliers on favorable terms or at all. As a result, we may be unable to meet all or a portion of our client service commitments, which could materially and adversely affect our results of operations.

Failure to accurately estimate the resources and time required for the fulfillment of our obligations under these contracts could negatively affect our results of operation.

Our contract terms require us to undertake significant projections and planning related to resource utilization and costs. Power costs may be included in the costs for our solutions, or we may charge our clients separately for actual power consumed. The contracts with our clients typically have fixed price based on capacity. Although our past project experience helps to reduce the risks associated with estimating, planning and performing fixed-price contracts, we bear the risk of failing to accurately estimate our projected costs, including power costs as we may not accurately predict our client’s ultimate power usage once the contract is implemented. Increases in power costs may directly affect our profitability. There can be no assurance that we will be able to reduce the risk of estimating, planning and performing our contracts. Any failure to accurately estimate the resources and time required for a project, or any other factors that may impact our costs, could adversely affect our profitability and results of operations.

The contract commitments of our clients are subject to reduction and potential cancellation and we may be unable to achieve high contract renewal rates.

Many of our client contracts allow for early termination, subject to payment of early termination fee, which may be less than the revenues we would expect to receive under such contracts. Any penalty for early termination may not adequately compensate us for the time and resources we have expended in connection with such contract, or at all, which could have a material adverse effect on our results of operations and cash flows. Reduced client contract commitments could also put pressure on our pricing. In addition, our client contract commitments during a particular future period may be reduced for reasons outside of our clients’ control, such as general current economic conditions. If our client contract commitments are significantly reduced, our business, financial condition and results of operations could be materially and adversely affected.

Even if our current and future clients have entered into a binding contract with us, they may choose to terminate such contract prior to the expiration of its terms. There are a number of factors that could cause us to lose clients. Our contracts usually allow our clients to terminate their contracts with us before the end of the contract period under certain specified circumstances, including our failure to deliver services as required under such agreements, and in some cases without cause as long as sufficient notice and early termination fee is given. In addition, our clients may decide to reduce spending on our services in response to a challenging economic environment or other factors, both internal and external, relating to their business such as corporate restructuring or changing their outsourcing strategy by moving more facilities in-house or outsourcing to other service providers. Some of our clients may choose to develop or expand their own data center facilities in the future, which may result in a decline in our existing or potential clients.

We seek to renew client contracts when those contracts are due for renewal. We endeavor to provide high levels of client service, support, and satisfaction to maintain long-term relationships and to secure high rates of contract renewals for our services. Nevertheless, we cannot assure you that we will be able to renew service agreements with our existing clients or re-commit space relating to expired service agreements to new clients if our current clients do not renew their contracts. In the event of non-renewal and if we are unable to secure contractual commitments from other sources in a timely manner, our results of operations will be adversely impacted.

We are in the process of expanding our operations into new geographies in the Asia-Pacific emerging markets, which exposes us to significant additional regulatory, economic and political risks due to our unfamiliarity with those areas, the failure to handle which may adversely affect our business, results of operations and financial condition.

We currently operate in China, Malaysia and India, and plan to expand our data center development and operations into new geographies in the Asia-Pacific emerging markets. As a part of this expansion strategy, we may develop and operate data centers in markets in which we have little or no operating experience, and thus will be exposed to significant additional regulatory, economic and political risks. Our ability to successfully enter new markets will depend on, among other things, our ability to identify and acquire land suitable for development, our ability to develop new data centers on our anticipated time-line and at the expected costs, and our ability to secure new client commitments. Our new markets may have different competitive conditions, and may subject us to operating considerations that are different from those we have experienced in our existing markets, which, in turn, may adversely affect our ability to develop and operate data centers in these new markets.

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Expansion of our business into new markets will involve substantial planning and allocation of significant company resources and certain risks, including risks related to financing, zoning, regulatory approvals, construction costs and delays. Our lack of operating experience in these new markets may adversely impact our ability to successfully develop new data center facilities in such markets. In order to successfully develop our prospective data center facilities in these new markets, we need to work closely with local power and network suppliers, and sometimes local governments, where our proposed data centers are located and certain key third-party technical personnel, such as engineering firms and construction contractors, with whom we have little or no experience. Should a significant third party working on any such development project experience financial or other material problems or breach their contractual obligations during the construction process, we could experience significant delays, increased costs to complete the project and other issues that may negatively impact our expected financial returns. These and other risks could result in delays to, or increased costs of, completing development projects in new markets or could prevent the completion of development projects in new markets, any of which could have a material adverse effect on our business, financial condition and results of operations.

Due to our lack of operating experience in our new markets, we may be unable to attract new clients on a timely basis, or at all, to the properties that we have developed. Once development of a data center facility is complete, we incur certain operating expenses even if there are no clients occupying any space. Consequently, if any of our properties have significant vacancies for an extended period of time, we will incur operating expenses that will not be reimbursed by clients and our results of operations and business and financial condition will be affected adversely, the impact of which could be material.

We are subject to a variety of national, regional and local laws and regulations in the markets where we do business, currently, China, Malaysia and India, some of which may conflict with each other and all of which are subject to change. These laws and regulations include telecommunication regulations, tax laws and regulations, environmental regulations, labor laws and other government requirements, approvals, permits and licenses. Any new regulations or policies pertaining to our business may result in significant additional expenses to us and clients, which could cause a significant reduction in demand for data center services. Changes in applicable laws or regulations, or in the interpretations of these laws and regulations, could result in increased compliance costs or the need for additional capital expenditures. If we fail to comply with these requirements, we could also be subject to civil or criminal liability and the imposition of fines.

Regulatory changes in a jurisdiction where we are developing data center facilities may make the continued development of the project infeasible or economically disadvantageous and any expenditure that we have previously made on the project may be wholly or partially written off. Any of these changes could significantly increase the regulatory related compliance and other expenses incurred by the projects and could significantly reduce or entirely eliminate any potential revenues that can be generated by one or more of the projects or result in significant additional expenses to us and clients, which could materially and adversely affect our business, financial condition, results of operations and cash flows.

Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and expose us to interest rate risk to the extent of our variable rate debt.

As of December 31, 2020, we had total consolidated indebtedness of RMB4.3 billion (US$651.9 million), including short-term and long-term banks loans, and finance lease obligations. Our indebtedness could, among other consequences:

 

make it more difficult for us to satisfy our obligations under our indebtedness, exposing us to the risk of default, which, in turn, would negatively affect our ability to operate as a going concern;

 

require us to dedicate a substantial portion of our cash flows from operations to interest and principal payments on our indebtedness, reducing the availability of our cash flows for other purposes, such as capital expenditures, acquisitions and working capital;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;

 

increase our vulnerability to general adverse economic and industry conditions;

 

place us at a disadvantage compared to our competitors that have less debt;

 

expose us to fluctuations in the interest rate environment because the interest rates on borrowings under our project financing agreements are variable;

 

increase our cost of borrowing;

 

limit our ability to borrow additional funds; and

 

require us to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes.

As a result of covenants and restrictions, we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. Our current or future borrowings could increase the level of financial risk to us and, to the extent that the interest rates are not fixed and rise, or that borrowings are refinanced at higher rates, our available cash flow and results of operations could be adversely affected.

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We have financing arrangements in place with various lenders to support specific data center construction projects. Certain of these financing arrangements are secured by our accounts receivable, property and equipment and land use rights. The terms of these financing arrangements may impose covenants and obligations on the part of both the borrowing subsidiary of ours and us as guarantor. For more information regarding covenants arising from our financing arrangements, see “Item 5. Operating and Financial Review and Prospects — Contractual Obligations.” Furthermore, we may lose such assets that we pledge as collateral to secure our debts in the event of default.

The terms of any future indebtedness we may incur could include more restrictive covenants. A breach of any of these covenants could result in a default with respect to the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and other fees, to be due and payable immediately. This, in turn, could cause our other debt, to become due and payable as a result of cross-default or acceleration provisions contained in the agreements governing such other debt. In the event that some or all of our debt is accelerated and becomes immediately due and payable, we may not have the funds to repay, or the ability to refinance, such debt.

Insurance coverage of our operations may be insufficient, especially in cases of prolonged or extraordinary adverse events. Any losses to our properties that are not covered by insurance, or that exceed our insurance coverage limits, may expose us to significant costs and business disruption.

Our operations are subject to hazards and risks normally associated with the daily operations of data center facilities. Currently we maintain insurance policies for our business operations in line with industry practice. However, our current insurance policies may be insufficient, especially when a prolonged or catastrophic event occurs. If we experience a loss that is uninsured or exceeds policy limits, our business could be disrupted and we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. These events would materially adversely affect our business, financial condition and results of operations.

Security breaches or alleged security breaches of our data centers could disrupt our operations and have a material adverse effect on our business, financial condition and results of operation.

A security breach of our data center facilities could result in the misappropriation of our or our clients’ proprietary information, and may cause interruptions or malfunctions in our operations or the operations of our clients. As we commit to implementing effective security measures to safeguard our data centers, such a compromise could be particularly harmful to our brand and reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. Security risks and deficiencies may also be identified in the course of government inspections, which could subject us to fines and other sanctions. As techniques used to breach security change frequently and are often not recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and when implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk of lawsuits, regulatory penalties, loss of existing or potential clients, harm to our reputation and increases in our security costs, which could have a material adverse effect on our financial condition and results of operations.

In addition, any assertions of alleged security breaches or systems failure made against us, whether true or not, could harm our reputation, cause us to incur substantial legal fees and have a material adverse effect on our business, reputation, financial condition and results of operations.

Our leases for data centers could be terminated early and we may not be able to renew our existing leases on commercially acceptable terms or our rent or payment under the agreements could increase substantially in the future, which could materially and adversely affect our operations.

We enter into leases for certain of our wholesale and retail data centers. Upon the expiration of such leases, we may not be able to renew these leases on commercially reasonable terms, if at all. Under certain lease agreements, the lessor may terminate the agreement by giving prior notice and paying default penalties to us. However, such default penalties may not be sufficient to cover our losses. Even though the lessors for most of our data centers generally do not have the right of unilateral early termination unless they provide the required notice, the lease may nonetheless be terminated early if we are in material breach of the lease agreements. We may assert claims for compensation against the landlords if they elect to terminate a lease agreement early and without due cause. Although historically we have successfully renewed all agreements we wanted to renew, and we do not believe that any of our agreements will be terminated early in the future, there can be no assurance that the counterparties will not terminate any of our agreements prior to its expiration date. If the leases for our data centers were terminated early prior to their expiration date, notwithstanding any compensation we may receive for early termination of such leases, or if we are not able to renew such leases, or if we are unable to find suitable alternative premises in a timely manner, we may have to incur significant costs related to relocation. Any relocation could also affect our ability to provide continuous uninterrupted services to our customers and harm our reputation. Furthermore, rent or payment under such leases in the future may increase substantially in the future. Any of the foregoing could have an adverse impact on our business and results of operations.

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