The Digital Infrastructure Transformation

The drivers are clear. Hyperscalers (including AWS, Microsoft Azure, Google Cloud, and Oracle) are committing billions of dollars to Saudi-based cloud regions, while domestic operators are scaling rapidly. DataVolt, a Saudi developer, has signed a SAR 75 billion (US$ 20 billion) partnership with Supermicro to deploy hyperscale AI infrastructure in the Kingdom and announced new campuses across the Kingdom.⁴The Public Investment Fund's launch of HUMAIN, a sovereign AI company, targets 1.9 gigawatts of data center capacity by 2030, with ambitions reaching 6.6 gigawatts by 2034.⁵ ACWA Power and Saudi Aramco have launched a joint venture focused on green data centers, combining ACWA's renewable energy platform with data center capacity in locations such as Yanbu.⁶ Meanwhile, data sovereignty regulations require government and regulated-sector workloads to remain onshore. For owners, developers, and fund managers, the question is no longer whether to invest but how to develop and deliver these projects efficiently, and Shariah-compliant structures are emerging as a central part of the answer.

This briefing note covers the commercial rationale for Shariah-compliant structures, the principal financing and fund vehicles available, and key construction and delivery considerations.

Why Shariah-Compliant Structures Make Sense

For data center owners and developers operating in Saudi Arabia, opting for Shariah-compliant structures is as much a commercial decision as a regulatory one. The key drivers include:

• Access to a deeper liquidity pool. Saudi Arabia's banking sector is overwhelmingly Shariah-compliant. The Kingdom's major banks structure their lending products on Islamic principles. Government funding vehicles implementing Vision 2030 predominantly use Shariah-compliant instruments. Developers who structure on a Shariah-compliant basis can access both domestic bank liquidity and the rapidly growing global sukuk market, where annual issuance now exceeds $170 billion and total outstanding instruments surpass $800 billion.
• Alignment with the regulatory environment. There are no specific legal or regulatory constraints in Saudi Arabia requiring Shariah compliance for financing transactions, but in practice, the Saudi Central Bank has actively guided banks toward Shariah-compliant solutions. Mortgage contracts in the Kingdom are exclusively structured on Islamic principles. For infrastructure projects, particularly those backed by government entities or sovereign wealth capital, Shariah-compliant financing is the market norm rather than the exception.
• Investor appetite and cost of capital. Institutional investors across the Gulf Cooperation Council (GCC) overwhelmingly prefer, and in some cases require, Shariah-compliant investment wrappers. Structuring on a compliant basis expands the pool of available equity co-investors, mezzanine providers, and sukuk subscribers. Pricing on well-structured Shariah-compliant facilities in Saudi Arabia is competitive with conventional alternatives, reflecting deep market liquidity and a mature banking infrastructure.

Key Considerations for Owners and Developers

Developers approaching Shariah-compliant development of a data center project should understand the principal instruments in play and how they interact with the realities of asset ownership, project delivery, and construction.

Structuring

There are two main Shariah structures we are seeing used to finance data centers, namely:

• Istisna (construction financing) is specifically designed for assets that are yet to be built, making it highly relevant to new data center developments. Under an Istisna contract, the financier agrees to deliver a completed asset built to agreed specifications, with payments made in installments during construction. For developers, this structure dovetails with the phased capital deployment that characterizes large-scale data center projects, where power, cooling, and IT infrastructure are delivered in successive tranches. An important practical note: where the project involves a build-to-suit arrangement (common in hyperscaler pre-lease deals), the Istisna financier's obligation to deliver a completed asset to specification must be carefully aligned with the underlying construction contract, including milestone payment schedules, variation mechanisms, and delay remedies. Interface risk between the Istisna financier, the developer (as ultimate obligor), and the EPC contractor requires clear allocation in the project documents to avoid gaps in liability and ensure that construction warranties flow through to the parties bearing the asset risk.
• Ijara (lease-based financing) is among the most common structures for operational data center assets. In an Ijara arrangement, the financier acquires (or retains title to) the asset and leases it to the developer or operator. Rental payments over the lease term effectively service the financing, and ownership transfers at maturity. This structure maps naturally onto data center economics, where long-term lease revenue from hyperscaler or enterprise tenants underpins the cash flow.

In practice, many Saudi data center developments use a combination of both instruments. A typical structure might layer an Istisna for the construction phase, converting to an Ijara upon practical completion. Where conventional co-lenders participate alongside Islamic banks in a syndicated facility, careful intercreditor structuring is required to ensure pari passu treatment across the capital structure while preserving Shariah compliance for the Islamic tranche.

Fund structures, CMA vehicles, and co-investment

As the Saudi data center sector matures, Shariah-compliant fund structures are playing an increasingly important role in aggregating investor capital. The Saudi Capital Market Authority (CMA) regulates a range of vehicles that are well-suited to data center investment. Real Estate Investment Traded Funds (REITs) listed on Tadawul can hold income-generating data center assets, while the CMA's July 2025 amendments to the Investment Funds Regulations and the Real Estate Investment Funds Regulations now explicitly allow REITs listed on the parallel market (Nomu) to be established with an initial objective of investing in real estate development projects, a significant change for fund managers looking to raise capital for greenfield data center builds.⁷The same amendments permit real estate development funds to appoint multiple developers, giving fund managers greater flexibility in diversifying construction risk across projects and asset types.

The CMA's March 2026 launch of the Simplified Investment Fund framework adds a further option: a streamlined, lower-cost vehicle offered by private placement to institutional clients, designed to reduce formation time and regulatory friction.⁸ Investment fund assets in Saudi Arabia reached SAR 884 billion by end of Q4 2025, growing 26.5% year-on-year, reflecting the depth of institutional appetite for CMA-regulated products.⁹

Developers and fund managers should consider establishing Shariah-compliant investment vehicles (whether REITs, private equity funds, or dedicated infrastructure funds) that can pool equity from GCC institutional investors and family offices alongside project-level Shariah-compliant debt. These vehicles allow capital to be recycled efficiently, institutional co-investors to be brought in post-construction, and portfolios to scale more rapidly than single-project financing alone would permit.

Construction and Delivery

Data center construction projects in Saudi Arabia raise distinct development issues that merit early attention. Saudi construction contracts are increasingly governed by standardized frameworks, but developers should account for local modifications, Saudi labor law requirements, and the approval processes of relevant municipal and regulatory authorities.

Beyond the Istisna-related structuring points discussed above, developers pursuing build-to-suit arrangements should note that asset specification risk extends beyond the financing structure. The developer must deliver a facility meeting exacting technical requirements for power density, cooling redundancy, and connectivity, and handover obligations are typically tied to rigorous commissioning and performance-testing protocols. As the Kingdom builds toward its 1.5 gigawatt national data center capacity target by 2030, developers are increasingly required to demonstrate not only financing readiness but also construction execution capability. Site selection, power procurement (and grid connection), and contractor mobilization are all areas where early planning pays dividends.¹⁰

About King & Spalding

King & Spalding has one of the most experienced data center practices globally and has built a market-leading position across the Middle East. From its Riyadh, Dubai, and Abu Dhabi offices, the firm advises data center owners, developers, fund managers, private equity funds, and institutional investors across the full lifecycle of digital infrastructure transactions.

King & Spalding has a proven track record in structuring Shariah-compliant project financings, fund formations, leveraged acquisitions, and landmark sukuk transactions. With integrated capabilities across financing, construction, real estate, and energy, King & Spalding is uniquely positioned to guide owners, developers, and fund managers through the full spectrum of issues that arise in developing and delivering data center assets in Saudi Arabia and the broader region.

For further information, please contact the authors of this article.