S&P Global has cautioned that Korean companies face a substantial rise in investment burdens as they participate in large-scale data center construction under what is being called one of the country's "three major mega projects," a trend that could further pressure their credit ratings.
In a report released on the 21st, S&P estimated that data center investment in Korea will reach approximately 900 billion U.S. dollars (around 1,200 trillion Korean won) over the next decade, with telecom operators and other participating firms expected to significantly expand their data center operations. However, this expansion comes with rapidly rising capital expenditure, which may strain corporate credit profiles.
The rating agency noted that to minimize the impact on creditworthiness, Korean companies are likely to adopt structures such as asset securitization and project financing (PF), similar to overseas data center projects. Yet, a notable increase in capital spending remains unavoidable.
According to market research firm 451 Research, Korea currently accounts for only 2.5% of the Asia-Pacific data center market, a relatively modest share. Nevertheless, Korea plans to add roughly 1.9 gigawatts (GW) of new data center capacity annually by 2035, with SK Telecom, KT, the GS Group, and Naver among the companies involved in these initiatives.
By global construction standards, this pace of expansion is quite aggressive. Currently, only a few hyperscale cloud providers, including Amazon Web Services (AWS), Microsoft, and Google, are capable of adding 500 megawatts (MW) of data center capacity in a single year.
S&P projects that if the large-scale investments are realized successfully, Korea could leapfrog to become the second-largest data center market in the Asia-Pacific region based on rentable IT load capacity.
However, the agency pointed out that participating Korean firms will find it difficult to cover the required investment costs using only internal cash reserves and operating cash flow. As of the end of last year, SK Telecom, KT, and the GS Group (including GS Construction and GS Holdings) held a combined 177 trillion Korean won in cash and generated 147 trillion Korean won in operating cash flow. In contrast, building a 1GW data center facility is estimated to cost up to 70 trillion Korean won.
S&P noted that data center construction costs are typically shared between customers and operators, with customers directly purchasing chips and servers. As a result, the actual costs borne by Korean companies may be lower than the figures above. Additionally, partnerships with hyperscale cloud providers and artificial intelligence (AI)-related firms could further reduce the real investment burden on Korean enterprises.
Still, the agency cautioned that even with these mitigating factors, Korean companies may need to shoulder a considerable portion of the funding. And even after excluding costs covered by customers, the scale of capital required for data center construction remains extremely large.
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