Malaysia can overcome execution challenges to become one of Southeast Asia’s largest data center hubs, nearly tripling capacity by 2030, S&P Global Ratings said Monday.

Proximity to Singapore, strong connectivity and growing power and water capacity should help Malaysia maintain its competitiveness, despite rising costs and tighter approvals, the rating agency said in its report – “Malaysia’s Data Center Outlook: A Reset For Sustainable Growth.”

“Malaysia is slowing down to get ahead in data centers. The country’s data center sector is in a reset mode–from rapid expansion toward a model that aims for sustainable growth,

“This 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 center hubs,” said S&P Global Ratings credit analyst Spencer Ng.

According to the rating agency, Malaysia will have to overcome execution risks.

It expects that data centers may take up over 30 percent of the Malaysia’s electricity demand by 2035.

It opined that any delays in the planned power or water rollouts would be a growth bottleneck in data centers.

According to S&P, funding is another critical issue because financing needs are likely greater than domestic banks can accommodate.

The country’s deep banking system will still require project finance and private credit to fill the developmental gap, given a significant funding requirement of $20 billion on powered shell and equipment alone over the next three years.

While public credit for data centers is still nascent in Asia Pacific, S&P highlighted that Malaysia’s robust solvency framework and established capital markets position it favorably against Southeast Asian peers.

It added operators with good financing access have a leg up in this race.

“We think demand will stay through Malaysia’s reset,

“The country’s draw remains intact–its strategic location, cost efficiency relative to Singapore and land availability,” said S&P Global Ratings credit analyst Yijing Ng.

AI data center boom tests Malaysia’s power, water and talent limits – AMRO