Developers are eyeing new data centers across the Middle East, from the UAE to Egypt, as the region looks to keep pace with the US and China in AI. Interest does not always mean the money will follow. Conor Moore, Co-Founder and COO at USD.AI, a platform that finances AI infrastructure through loans backed by computer chips, explains what lenders look at when they back a data center. He also covers why local legal systems and a strong local partner matter, how risk changes from country to country, and why government backed money can make deals easier to finance.
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What US Lenders Need Before They Fund AI Data Centers in the Middle East
What is USD.AI, and what do you do?
USD.AI is a debt capital marketplace for compute. We pair capital lenders with borrowers, the neoclouds, and we are doing this specifically in the middle market, with smaller deal sizes of 500 million dollars and below.
How does big institutional money finance the chips and data centers behind AI?
People think you are just financing a thing, the chips or the GPUs, but really you are financing an entire project. You have your co-location lease and your customer contract. The chips are a component, of course, but they also have to be connected to power. The lender looks at this in the context of the entire unit economics of the data center, not just one component.
When a lender looks at a loan backed by these chips, what are they looking for?
They are looking for contracted offtake. You have a customer you are underwriting, that customer’s cash flows and their ability to pay down your loan, and then your ability to sell on those assets. Additionally, as it relates to the Middle East and abroad, it is about what your local jurisdiction is, what your property rights are, and how you will be able to go in and take back those chips in a default scenario.
Developers are eyeing data centers in the UAE, Egypt and Israel. How far along is the region, and can it catch up with the US and China?
The benefit in the Middle East today, as of just the last couple of weeks, is that in the US, regulations are making it more challenging for data center developers to build very large scale projects. When capital is thinking about where to deploy, it looks at the menu of options. If everything in the US is increasingly challenging to deliver, you start to look at other markets where there is more friendly local support to deploy capital.
Why does interest in building not automatically mean projects get funded?
There is a lot of nuance at the project level. At a high level, if you are a capital allocator in the US or Europe and want to tap into a new market like the Middle East, you have to have a view on how you will operate there. Many operators and capital allocators do not have a presence in that market today. They would like to come in alongside a partner, whether that is a sovereign wealth fund or the government, to have boots on the ground support to lead those transactions.
What do US lenders need from the local legal system, including the ability to take back equipment if a loan goes bad?
They want to come in alongside the leading operator or leading capital allocator, so they have confidence not only that they understand the letter of the law but that they can enforce alongside the local jurisdiction. If you go into a market you are unfamiliar with and have no local presence, maybe you have done everything technically correctly, but when it comes time to enforce in a court, having no presence in the market means it is unlikely to be a success.
How much does risk change country to country, including the instability in the region?
Global capital markets have evolved so much in the last 20 years and are so interconnected that there is a way to do transactions abroad where you take advantage of one overarching, dominant property rights jurisdiction. In Asia this is often Singapore. You may do a development project in the Philippines but have all of your documentation under Singapore law. You can have the same outcome in the Middle East, and that is generally what I would expect to be the status quo going forward.
What role can government backed money play, especially in the UAE?
A huge role. All of these markets have their own capital markets and their own operators, and you want to come in alongside the leader in that market. In the Middle East, often those are government backed projects or sovereign wealth funds. To the extent that the government has a mandate to push forward the development of AI and can support that, the broad capital markets view that very favourably. How good would I feel going into a market where the government is my partner on the transaction? I would feel great about my opportunity to protect my interest as a lender.