GDS
Annual Report 2018

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Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549 FORM 20-F (Mark One) ooREGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGEACT OF 1934 OR xxANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018. OR ooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 OR ooSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934. For the transition period from to Commission file number 001-37925 GDS Holdings Limited(Exact name of Registrant as specified in its charter) Cayman Islands(Jurisdiction of incorporation or organization) 2/F, Tower 2, Youyou Century Place428 South Yanggao RoadPudong, Shanghai 200127People’s Republic of China(Address of principal executive offices) Contact Person: Mr. Daniel NewmanChief Financial Officer+86-21-2033-03032/F, Tower 2, Youyou Century Place428 South Yanggao RoadPudong, Shanghai 200127People’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 className of each exchange on which registeredAmerican Depositary Shares, each representing eightClass A ordinary sharesNASDAQ Global MarketClass A ordinary shares, par value $0.00005 pershare*NASDAQ Global Market * Not for trading, but only in connection with the registration of American Depositary Shares representing such Class A ordinary shares pursuant to therequirements of the Securities and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Table of Contents Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None 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. 939,479,307 Class A ordinary shares were outstanding as of December 31, 201867,590,336 Class B ordinary shares were outstanding as of December 31, 2018 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.x Yes o 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 theSecurities Exchange Act of 1934.o Yes x No Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934from their obligations under those Sections. 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 1934during 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 filingrequirements for the past 90 days.x Yes o No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation 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).x Yes o 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 thedefinitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer x Accelerated filer o Non-accelerated filer o Emerging growth company o 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 notto use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of theExchange Act. o †The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its AccountingStandards Codification after April 5, 2012. Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP x International Financial Reporting Standards as issuedby the International Accounting Standards Board o Other o 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.o Item 17 o 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).o Yes x 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 Section 12, 13 or 15(d) of the Securities ExchangeAct of 1934 subsequent to the distribution of securities under a plan confirmed by a court. o Yes o No Table of Contents GDS HOLDINGS LIMITED FORM 20-F ANNUAL REPORTFISCAL YEAR ENDED DECEMBER 31, 2018 Table of Contents Page PART I.2 ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS2ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE2ITEM 3.KEY INFORMATION2ITEM 4.INFORMATION ON THE COMPANY51ITEM 4A.UNRESOLVED STAFF COMMENTS84ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS84ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES114ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS131ITEM 8.FINANCIAL INFORMATION135ITEM 9.THE OFFER AND LISTING136ITEM 10.ADDITIONAL INFORMATION136ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK143ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES144 PART II.146 ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES146ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS146ITEM 15.CONTROLS AND PROCEDURES147ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT148ITEM 16B.CODE OF ETHICS148ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES149ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES149ITEM 16E.PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS149ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT149ITEM 16G.CORPORATE GOVERNANCE149ITEM 16H.MINE SAFETY150 PART III.150 ITEM 17.FINANCIAL STATEMENTS150ITEM 18.FINANCIAL STATEMENTS150ITEM 19.EXHIBIT INDEX150 i Table of Contents Conventions That Apply to This Annual Report on Form 20-F Unless we indicate otherwise, references in annual report on Form 20-F to: · “ADSs” are to our American depositary shares, each of which represents eight Class A ordinary shares, and “ADRs” are to the Americandepositary receipts that evidence our ADSs; · “area committed” are to the net floor area of data centers in service for which agreements from customers remain in effect; · “area held for future development” are to the estimated data center net floor area that we expect to be able to develop on land, at buildings andpursuant to development or lease agreements which we have secured, but which are not under construction; · “area in service” are to the net floor area of data centers in service for which one or more modules have been equipped and fitted out ready forutilization by customers; · “area pre-committed” are to the net floor area of data centers under construction for which agreements from customers remain in effect; · “area utilized” are to the net floor area of data centers in service that is also revenue generating pursuant to customer agreements in effect; · “area under construction” are to the net floor area of data centers which are under construction and are not yet ready for service; · “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report on Form 20-F only, Taiwan, theHong Kong Special Administrative Region and the Macao Special Administrative Region; · “commitment rate” are to the ratio of area committed to area in service; · “ordinary shares” refers to, collectively, our Class A ordinary shares and Class B ordinary shares, par value US$0.00005 per share; · “pre-commitment rate” are to the ratio of area pre-committed to area under construction; · “RMB” or “Renminbi” are to the legal currency of China; · “self-developed data centers” are to data centers that we have either purpose-built, acquired while under construction or fully operational, orconverted from existing buildings to fit our standards; · “sqm” are to square meters; · “third-party data centers” are to data center net floor area that we lease on a wholesale basis from other data center providers and use to providedata center services to our customers; · “total area committed” are to the sum of area committed and area pre-committed; · “US$,” “U.S. dollars,” or “dollars” are to the legal currency of the United States; · “utilization rate” are to the ratio of area utilized to area in service; and · “we,” “us,” “our company” and “our” are to GDS Holdings Limited and its subsidiaries and consolidated affiliated entities, as the contextrequires. Unless specifically indicated otherwise or unless the context otherwise requires, all references to our ordinary shares exclude Class A ordinary sharesissuable upon the exercise of outstanding options with respect to our ordinary shares under our share incentive plans. This annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2016, 2017 and 2018. Our ADSs are listed on the Nasdaq Global Market under the ticker symbol “GDS.” 1 Table of Contents PART I. ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not required. ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not required. ITEM 3. KEY INFORMATION A. Selected Financial Data The selected consolidated financial data shown below should be read in conjunction with “Item 5. Operating and Financial review and Prospects,”and the financial statements and the notes to those statements included elsewhere in this annual report on Form 20-F. The selected consolidated statement ofoperations data for the years ended December 31, 2016, 2017 and 2018 and the selected consolidated balance sheet data as of December 31, 2017 and 2018have been derived from our audited consolidated financial statements included elsewhere in this annual report on Form 20-F. We derived the selectedconsolidated statement of operations data for the year ended December 31, 2014 and 2015, and the selected consolidated balance sheet data as ofDecember 31, 2014, 2015 and 2016, as set forth below, from our audited consolidated financial statements that are not included in this Form 20-F. Ourconsolidated financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. On May 19, 2016, we, through GDS Beijing, acquired all the equity interest in Guangzhou Weiteng Construction Co., Ltd., or WeitengConstruction, from a third party for an aggregate purchase price of RMB129.5 million. Weiteng Construction is a limited liability company organized andexisting under the PRC law and operates a data center (“GZ1”) in Guangzhou, China. Since the date of the acquisition, Weiteng Construction has been ourconsolidated variable interest entity and has been consolidated with our results of operations. On June 29, 2017, we consummated an acquisition of all the equity interests in a target group comprising two onshore entities (Shenzhen YaodeData Services Co., Ltd., or Shenzhen Yaode, and Shenzhen Jinyao Science & Technology Co., Ltd., or Shenzhen Jinyao) and an offshore entity (RDTJLimited or RDTJ, which has an onshore subsidiary, Guangzhou Shi Wan Guo Yun Lan Data Technology Co., Ltd., or Guangzhou Yunlan) from third partiesfor an aggregate contingent purchase price of RMB312.0 million. The target group owns a data center project (“SZ5”) in Shenzhen, China. As of the date ofthe acquisition, the data center had just commenced operations. Since the date of the acquisition, the target group has been our subsidiary and has beenconsolidated with our results of operations. On October 9, 2017, we consummated an acquisition of all equity interests in a target group comprising an onshore entity (Guangzhou WeitengNetwork Technology Co., Ltd., or Weiteng Network) and an offshore entity (Raojin Limited, or Raojin, which has an onshore subsidiary, Wan Qing TengData (Shenzhen) Co., Ltd., or Wan Qing Teng) from third parties for a cash consideration of RMB234.0 million. The target group owns a data center project(“GZ2”) in Guangzhou, China. As of the date of the acquisition, the data center was fully operational. Since the date of the acquisition, the target group hasbeen our subsidiary and has been consolidated with our results of operations. In May 2018, we consummated an acquisition of all equity interests in a target group comprising an onshore entity (Guangzhou Weiteng DataScience & Technology Co., Ltd., or Weiteng Data) and an offshore entity (PSDC Limited, or PSDC, which has an onshore subsidiary, Shenzhen Qian Hai WanChang Technology Services Co., Ltd., or Qian Hai Wan Chang) from third parties for a cash consideration of RMB262.2 million (US$38.1 million), subject toadjustment, if any, pursuant to the terms and conditions of the equity purchase agreement. The target group owns a data center project (“GZ3”) inGuangzhou, China. At the date of the acquisition, the data center had just commenced operations. The company operating the data center has its own IDClicense. 2 Table of Contents In June 2018, we consummated an acquisition of all equity interests in a target company (Cai Tuo Cloud Computing (Shanghai) Co., Ltd., orShanghai Cai Tuo) from third parties for a consideration of RMB320.0 million (US$46.5 million), subject to adjustment, if any, pursuant to the terms andconditions of the equity purchase agreement. The target company owns a data center project (“SH11”) in Shanghai, China. At the date of the acquisition, thedata center was fully operational. The company operating the data center has its own IDC license. See note 8 of our consolidated financial statements included elsewhere in this annual report on Form 20-F. Our historical results are not necessarily indicative of results to be expected for any future period. Year Ended December 31,2014 2015201620172018RMB RMBRMBRMBRMBUS$(in thousands, except for numbers of shares and per share data)Consolidated Statement of Operations Data:Net revenue468,337703,6361,055,9601,616,1662,792,077406,091Cost of revenue(388,171)(514,997)(790,286)(1,207,694)(2,169,636)(315,560)Gross profit80,166188,639265,674408,472622,44190,531Operating expensesSelling and marketing expenses(40,556)(57,588)(71,578)(90,118)(110,570)(16,082)General and administrative expenses(113,711)(128,714)(227,370)(228,864)(329,601)(47,938)Research and development expenses(1,597)(3,554)(9,100)(7,261)(13,915)(2,024)(Loss) Income from operations(75,698)(1,217)(42,374)82,229168,35524,487Other income (expenses)Net interest expense(124,973)(125,546)(263,164)(406,403)(636,973)(92,644)Foreign currency exchange (loss) gain, net(875)11,10718,310(12,299)20,3062,953Government grants4,8703,9152,2173,0623,217468Gain on remeasurement of equity investment62,506—————Others, net(412)1,1742844355,436791Loss before income taxes(134,582)(110,567)(284,727)(332,976)(439,659)(63,945)Income tax benefits4,58311,9838,3156,0769,3911,366Net loss(129,999)(98,584)(276,412)(326,900)(430,268)(62,579)Extinguishment of redeemable preferred shares(106,515)—————Change in redemption value of redeemablepreferred shares(69,116)(110,926)205,670———Cumulative Dividends on preferred shares(3,509)(7,127)(332,660)———Net loss attributable to ordinary shareholders(309,139)(216,637)(403,402)(326,900)(430,268)(62,579)Net loss per ordinary share—basic and diluted(1.91)(0.99)(1.35)(0.42)(0.43)(0.06)Weighted average number of ordinary sharesoutstanding—basic and diluted162,070,745217,987,922299,093,937784,566,371990,255,959990,255,959 As of December 31,2014 2015201620172018RMB RMBRMBRMBRMBUS$(in thousands, except for numbers of shares and per share data)Consolidated Balance Sheet Data:Cash606,758924,4981,811,3191,873,4462,161,622314,395Accounts receivable, net73,366111,013198,851364,654536,84278,080Total current assets745,8311,186,6992,210,3132,454,0283,037,396441,771Property and equipment, net1,694,9442,512,6874,322,8918,165,60113,994,9452,035,480Goodwill and intangible assets1,350,5241,341,5991,433,6561,919,2212,234,462324,989Total assets3,854,0745,128,2728,203,86613,144,56720,885,2433,037,632Total current liabilities897,630925,0491,479,2212,423,0713,507,879510,199Total liabilities1,706,6003,073,4635,217,3928,669,05515,363,3182,234,502Redeemable preferred shares2,164,0392,395,314————Total shareholders’ (deficit) equity(16,565)(340,505)2,986,4744,475,5125,521,925803,130 3 Table of Contents Key Financial Metrics We monitor the following key financial metrics to help us evaluate growth trends, establish budgets, measure the effectiveness of our businessstrategies and assess operational efficiencies: Year Ended December 31, 2014 2015 2016 2017 2018 Other Consolidated Financial Data:Gross margin17.1%26.8%25.2%25.3%22.3%Operating margin(16.2)%(0.2)%(4.0)%5.1%6.0%Net margin(27.8)%(14.0)%(26.2)%(20.2)%(15.4)% (1) Gross profit as a percentage of net revenue.(2) Income (loss) from operations as a percentage of net revenue.(3) Net income (loss) as a percentage of net revenue. Non-GAAP Measures In evaluating our business, we consider and use the following non-GAAP measures as supplemental measures to review and assess our operatingperformance: Year Ended December 31, 2014 2015 2016 2017 2018 RMB RMB RMB RMB RMB US$ (in thousands, except for numbers of shares and per share data) Non-GAAP Consolidated FinancialData:Adjusted EBITDA38,044164,701270,545512,3491,046,538152,215Adjusted EBITDA margin8.1%23.4%25.6%31.7%37.5%37.5%Adjusted net operating income (AdjustedNOI)154,114320,475475,100764,7261,322,585192,363Adjusted NOI margin32.9%45.5%45.0%47.3%47.4%47.4% (1) Adjusted EBITDA is defined as net income or net loss excluding net interest expenses, incomes tax benefits, depreciation and amortization, accretionexpenses for asset retirement costs, share-based compensation expenses and gain on remeasurement of equity investment.(2) Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of net revenue.(3) Adjusted net operating income (Adjusted NOI) is defined as net loss (computed in accordance with GAAP), excluding: net interest expenses, income taxbenefits, depreciation and amortization, accretion expenses for asset retirement costs, share-based compensation expenses, gain on remeasurement ofequity investment, selling and marketing expenses, general and administrative expenses, research and development expenses, foreign currency exchangeloss (gain), government grants and others.(4) Adjusted NOI margin is defined as adjusted NOI as a percentage of net revenue. Our management and board of directors use adjusted EBITDA, adjusted EBITDA margin, adjusted NOI, and adjusted NOI margin, which are non-GAAP financial measures, to evaluate our operating performance, establish budgets and develop operational goals for managing our business. In particular,we believe that the exclusion of the income and expenses eliminated in calculating adjusted EBITDA and adjusted NOI can provide a useful measure of ourcore operating performance. We also present these non-GAAP measures because we believe these non-GAAP measures are frequently used by securities analysts, investors andother interested parties as measures of the financial performance of companies in our industry. These non-GAAP financial measures are not defined under U.S. GAAP and are not presented in accordance with U.S. GAAP. These non-GAAPfinancial measures have limitations as analytical tools, and when assessing our operating performance, cash flows or our liquidity, investors should notconsider them in isolation, or as a substitute for net income (loss), cash flows provided by operating activities or other consolidated statements of operationsand cash flow data prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of these non-GAAP financial measures insteadof their nearest GAAP equivalent. First, adjusted EBITDA, adjusted EBITDA margin, adjusted NOI, and adjusted NOI margin are not substitutes for grossprofit, net income (loss), cash flows provided by operating activities or other consolidated statements of operation and cash flow data prepared in accordancewith U.S. GAAP. Second, other companies may calculate these non-GAAP financial measures differently or may use other measures to evaluate theirperformance, all of which could reduce the usefulness of these non-GAAP financial measures as tools for comparison. Finally, these non-GAAP financialmeasures do not reflect the impact of net interest expenses, incomes tax benefits, depreciation and amortization, accretion expenses for asset retirement costs,and share-based compensation expenses, each of which have been and may continue to be incurred in our business. 4(1)(2)(3)(1)(2)(3)(4) Table of Contents We mitigate these limitations by reconciling the non-GAAP financial measure to the most comparable U.S. GAAP performance measure, all of whichshould be considered when evaluating our performance. The following table reconciles our adjusted EBITDA in the years presented to the most directly comparable financial measure calculated andpresented in accordance with U.S. GAAP, which is net income or net loss: Year Ended December 31,20142015 2016 2017 2018RMBRMB RMB RMB RMB US$(in thousands, except for numbers of shares and per share data) Net loss(129,999)(98,584)(276,412)(326,900)(430,268)(62,579)Net interest expenses124,973125,546263,164406,403636,97392,644Income tax benefits(4,583)(11,983)(8,315)(6,076)(9,391)(1,366)Depreciation and amortization82,753145,406227,355378,130741,507107,848Accretion expenses for asset retirement costs732555889491,840268Share-based compensation expenses27,3334,06164,16559,843105,87715,400Gain on remeasurement of equity investment(62,506)—————Adjusted EBITDA38,044164,701270,545512,3491,046,538152,215 The following table reconciles our adjusted NOI in the years presented to the most directly comparable financial measure calculated and presentedin accordance with U.S. GAAP, which is net income or net loss: Year Ended December 31,20142015 2016 2017 2018RMBRMB RMB RMB RMB US$(in thousands, except for numbers of shares and per share data) Net loss(129,999)(98,584)(276,412)(326,900)(430,268)(62,579)Net interest expenses124,973125,546263,164406,403636,97392,644Income tax benefits(4,583)(11,983)(8,315)(6,076)(9,391)(1,366)Depreciation and amortization82,753145,406227,355378,130741,507107,848Accretion expenses for asset retirement costs732555889491,840268Share-based compensation expenses27,3334,06164,16559,843105,87715,400Gain on remeasurement of equity investment(62,506)—————Selling and marketing expenses 38,59957,26364,98871,72885,35712,415General and administrative expenses 79,457111,403152,054165,785207,25530,142Research and development expenses 1,5973,3048,3246,06212,3941,803Foreign currency exchange loss (gain), net875(11,107)(18,310)12,299(20,306)(2,953)Government grants(4,870)(3,915)(2,217)(3,062)(3,217)(468)Others, net412(1,174)(284)(435)(5,436)(791)Adjusted NOI154,114320,475475,100764,7261,322,585192,363 (1) Selling and marketing expenses, general and administrative expenses and research and development expenses exclude depreciation and amortizationand share-based compensation expenses. B. Capitalization and Indebtedness Not required. 5(1)(1)(1) Table of Contents C. Reasons for the Offer and Use of Proceeds Not required. D. Risk Factors Risks Relating to Our Business and Industry A slowdown in the demand for data center resources or managed services could have a material adverse effect on us. Adverse developments in the data center market, in the industries in which our customers operate, or in demand for cloud computing could lead to adecrease in the demand for data center resources or managed services, which could have a material adverse effect on us. We face risks including: · a decline in the technology industry, such as a decrease in the use of mobile or web-based commerce, business layoffs or downsizing, relocationof businesses, increased costs of complying with existing or new government regulations and other factors; · a slowdown in the growth of the Internet generally as a medium for commerce and communication and the use of cloud-based platforms andservices in particular; · a downturn in the market for data center space generally, which could be caused by an oversupply of or reduced demand for space, and adownturn in cloud-based data center demand in particular; and · the rapid development of new technologies or the adoption of new industry standards that render our or our customers’ current products andservices obsolete or unmarketable and, in the case of our customers, that contribute to a downturn in their businesses, increasing the likelihoodof a default under their service agreements or that they become insolvent. To the extent that any of these or other adverse conditions occurs, they are likely to impact market demand and pricing for our services. Any inability to manage the growth of our operations could disrupt our business and reduce our profitability. We have experienced significant growth in recent years. Our net revenue grew from RMB1,056.0 million in 2016 to RMB1,616.2 million in 2017,representing an increase of 53.1%, and increased to RMB2,792.1 million (US$406.1 million) in 2018, representing an increase of 72.8%. We derive netrevenue primarily from colocation services and, to a lesser extent, managed services. In addition, we also sell IT equipment either on a stand-alone basis orbundled in a managed service contract arrangement and provide consulting services. Our net revenues for colocation were RMB770.1 million, RMB1,219.1million and RMB2,104.3 million (US$306.1 million) in 2016, 2017 and 2018, representing 72.9%, 75.4% and 75.4% of total net revenue over the sameperiods, respectively. Our net revenues for managed services and consulting services were RMB232.9 million, RMB372.8 million and RMB655.2 million(US$95.3 million) in 2016, 2017 and 2018, representing 22.1%, 23.1% and 23.4% of total net revenue over the same periods, respectively. Our operations have also expanded in recent years through increases in the number and size of the data center facilities we operate, which we expectwill continue to grow. Our rapid growth has placed, and will continue to place, significant demands on our management and our administrative, operationaland financial systems. Continued expansion increases the challenges we face in: · obtaining suitable site or land to build new data centers; · establishing new operations at additional data centers and maintaining efficient use of the data center facilities we operate; 6 Table of Contents · managing a large and growing customer base with increasingly diverse requirements; · expanding our service portfolio to cover a wider range of services, including managed cloud services; · creating and capitalizing on economies of scale; · obtaining additional capital to meet our future capital needs; · recruiting, training and retaining a sufficient number of skilled technical, sales and management personnel; · maintaining effective oversight over personnel and multiple data center locations; · coordinating work among sites and project teams; and · developing and improving our internal systems, particularly for managing our continually expanding business operations. If we fail to manage the growth of our operations effectively, our businesses and prospects may be materially and adversely affected. If we are not successful in expanding our service offerings, we may not achieve our financial goals and our results of operations may be adversely affected. We have been expanding, and plan to continue to expand, the nature and scope of our service offerings, particularly into the area of managed cloudservices, including direct private connection to major cloud platforms and the provision of cloud infrastructure and solutions to assist customers in managingtheir hybrid clouds. The success of our expanded service offerings depends, in part, upon demand for such services by new and existing customers and ourability to meet their demand in a cost-effective manner. We may face a number of challenges expanding our service offerings, including: · acquiring or developing the necessary expertise in IT; · maintaining high-quality control and process execution standards; · maintaining productivity levels and implementing necessary process improvements; · controlling costs; and · successfully attracting existing and new customers for new services we develop. A failure by us to effectively manage the growth of our service portfolio could damage our reputation, cause us to lose business and adversely affectour results of operations. In addition, because managed cloud services may require significant upfront investment, we expect that continued expansion intothese services will reduce our profit margins. In the event that we are unable to successfully grow our service portfolio, we could lose our competitive edge inproviding our existing colocation and managed services, since significant time and resources that are devoted to such growth could have been utilizedinstead to improve and expand our existing colocation and managed services. We face risks associated with having a long selling and implementation cycle for our services that requires us to make significant capital expenditures andresource commitments prior to recognizing revenue for those services. We have a long selling cycle for our services, which typically requires significant investment of capital, human resources and time by both ourcustomers and us. Constructing, developing and operating our data centers require significant capital expenditures. A customer’s decision to utilize ourcolocation services, our managed solutions or our other services typically involves time-consuming contract negotiations regarding the service levelcommitments and other terms, and substantial due diligence on the part of the customer regarding the adequacy of our infrastructure and attractiveness of ourresources and services. Furthermore, we may expend significant time and resources in pursuing a particular sale or customer, and we do not recognize revenuefor our services until such time as the services are provided under the terms of the applicable contract. Our efforts in pursuing a particular sale or customermay not be successful, and we may not always have sufficient capital on hand to satisfy our working capital needs between the date on which we sign anagreement with a new customer and when we first receive revenue for services delivered to the customer. If our efforts in pursuing sales and customers areunsuccessful, 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 benegatively affected. 7 Table of Contents The data center business is capital-intensive, and we expect our capacity to generate capital in the short term will be insufficient to meet our anticipatedcapital requirements. The costs of constructing, developing and operating data centers are substantial. Further, we may encounter development delays, excessdevelopment costs, or delays in developing space for our customers to utilize. We also may not be able to identify suitable land or facilities for new datacenters or at a cost on terms acceptable to us. We are required to fund the costs of constructing, developing and operating our data centers with cash retainedfrom operations, as well as from financings from bank and other borrowings. Moreover, the costs of constructing, developing and operating data centers haveincreased in recent years, and may further increase in the future, which may make it more difficult for us to expand our business and to operate our datacenters profitably. Based on our current expansion plans, we do not expect that our net revenue in the short term will be sufficient to offset increases in thesecosts, or that our business operations in the short term will generate capital sufficient to meet our anticipated capital requirements. If we cannot generatesufficient capital to meet our anticipated capital requirements, our financial condition, business expansion and future prospects could be materially andadversely affected. Our substantial level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, expose us to interest rate risk tothe extent of our variable rate debt and prevent us from meeting our obligations under our indebtedness. We have substantial indebtedness. As of December 31, 2018, we had total consolidated indebtedness of RMB12,793.0 million (US$1,860.7million), including borrowings, capital lease and other financing obligations and convertible bonds. Based on our current expansion plans, we expect tocontinue to finance our operations through the incurrence of debt. 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, wouldnegatively 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, reducingthe 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 arevariable; · increase our cost of borrowing; 8 Table of Contents · 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 are limited in how we conduct our business, and we may be unable to raise additional debt or equityfinancing to compete effectively or to take advantage of new business opportunities. Our current or future borrowings could increase the level of financialrisk 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 ofoperations could be adversely affected. We have financing arrangements in place with various lenders to support specific data center construction projects. Certain of these financingarrangements are secured by share pledge over equity interests of our subsidiaries, our accounts receivable, property and equipment and land use rights. Theterms of these financing arrangements may impose covenants and obligations on the part of our borrowing subsidiary and/or our consolidated VIEs, namelyGDS Shanghai, GDS Beijing and its subsidiaries, and our company as guarantor. For example, some of these agreements contain requirements to maintain aspecified minimum cash balance at all times or require that the borrower’s outstanding loans stay within a “borrowing range.” A subsidiary of ours in the pastfailed to meet the borrowing range requirement and although the subsidiary obtained a waiver letter from the creditor that waived the covenant violations, wecannot provide any assurances that we will always be able to meet any covenant tests under our financing arrangements. Other loan facility agreements ofours require that STT GDC, one of our major shareholders, maintain an ownership percentage in our company of at least 25% or, in some cases, at least 30%.If STT GDC’s ownership in our company were to decrease below either of these percentages, pursuant to the terms of relevant facility agreements we could beobligated to notify the lender or repay any loans outstanding immediately or on an accelerated repayment schedule. In addition, other loan facilityagreements of ours require that the IDC license of GDS Beijing or the borrowing subsidiaries, or the authorization by GDS Beijing to one such subsidiary tooperate the data center business and provide IDC services under the auspices of the IDC license held by GDS Beijing, be maintained and renewed on orbefore the expiry date of the IDC license or authorization thereunder, as applicable. However, recently we have learned that the MIIT will not allowsubsidiaries authorized to provide IDC services by an IDC license holder to renew its current authorization in the future; instead, the MIIT will requiresubsidiaries of IDC license holders to apply for their own IDC licenses. See “—Risks Related to Doing Business in the People’s Republic of China—We maybe regarded as being non-compliant with the regulations on VATS due to the lack of IDC licenses for which penalties may be assessed that may materiallyand adversely affect our business, financial condition, growth strategies and prospects.” If the subsidiaries of GDS Beijing cannot timely renew theirauthorizations to provide IDC services under the auspices of GDS Beijing’s IDC license, and such subsidiaries cannot timely apply for and obtain their ownIDC licenses, we also could be obligated to notify the lender or repay any loans outstanding immediately or on an accelerated repayment schedule. The terms of any future indebtedness we may incur could include more restrictive covenants. A breach of any of these covenants could result in adefault with respect to the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interestand 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 oracceleration provisions contained in the agreements governing such other debt. In the event that some or all of our debt is accelerated and becomesimmediately due and payable, we may not have the funds to repay, or the ability to refinance, such debt. We will likely require additional capital to meet our future capital needs, which may adversely affect our financial position and result in additionalshareholder dilution. To grow our operations, we will be required to commit a substantial amount of operating and financial resources. Our planned capital expenditures,together with our ongoing operating expenses, will cause substantial cash outflows. In the near term, we will likely be unable to fund our expansion planssolely through our operating cash flows. Accordingly, we will likely need to raise additional funds through equity, equity-linked or debt financings in thefuture in order to meet our operating and capital needs. In this regard, at our annual general meeting, or AGM, held on October 9, 2018, our shareholderspassed ordinary resolutions authorizing our board of directors to approve the allotment or issuance, in the 12-month period from the date of the AGM, ofordinary shares or other equity or equity-linked securities of our company up to an aggregate twenty percent (20%) of our existing issued share capital at thedate of the AGM, whether in a single transaction or a series of transactions (other than any allotment or issues of shares on the exercise of any options thathave been granted by our company). Additional debt or equity financing may not be available when needed or, if available, may not be available onsatisfactory terms. Our inability to obtain additional debt and/or equity financing or to generate sufficient cash from operations may require us to prioritizeprojects or curtail capital expenditures and could adversely affect our results of operations. 9 Table of Contents If we raise additional funds through further issuances of equity or equity-linked securities, our existing shareholders could suffer significant dilutionin their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holdersof our ordinary shares. In addition, any debt financing that we may obtain in the future could have restrictive covenants relating to our capital raisingactivities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue businessopportunities, including potential acquisitions. Increased power costs and limited availability of power resources may adversely affect our results of operations. We are a large consumer of power and costs of power account for a significant portion of our cost of revenue. We require power supply to providemany services we offer, such as powering and cooling our customers’ servers and network equipment and operating critical data center plant and equipmentinfrastructure. Since we rely on two centralized power utility suppliers, State Grid and Southern Grid, to provide our data centers with power, our data centerscould have limited or inadequate access to power. New requirements or restrictions imposed by local authorities as to energy conversation or industrial policies may also limit our ability to obtainpower supply and expand our business. For example, the Development and Reform Commission of Shenzhen Municipality, or Shenzhen DRC, issuedregulations in the first half of 2017 to tighten the requirements for energy conservation review of fixed-asset investment projects for data centers by requiringall such projects to obtain an energy conservation review opinion from Shenzhen DRC regardless of the amount of their energy consumption andconditioning its approval of power supply applications on the receipt of such energy conservation review opinion. We plan to conduct relevant energyconservation examinations of our data center construction projects to meet the requirements under relevant laws and regulations (including requirements oflocal authorities). However, we may incur additional costs in order to fulfill such requirements, and we cannot assure you that our data centers will meet allthe requirements and that we will obtain all relevant approvals, the lack of which could have a material and adverse effect on our business and expectedgrowth. The amount of power required by our customers may increase as they adopt new technologies, for example, for virtualization of hardware resources.As a result, the average amount of power utilized per server is increasing, which in turn increases power consumption required to cool the data centerfacilities. Pursuant to our colocation service contracts, we provide our customers with a committed level of power supply availability. Although we aim toimprove the energy efficiency of the data center facilities that we operate, there can be no assurance such data center facilities will be able to providesufficient power to meet the growing needs of our customers. Our customers’ demand for power may exceed the power capacity in our older data centers,which may limit our ability to fully utilize the net floor area of these data centers. We may lose customers or our customers may reduce the services purchasedfrom us due to increased power costs, and limited availability of power resources, or we may incur costs for data center space which we cannot utilize, whichwould reduce our net revenue and have a material and adverse effect on our cost of revenue and results of operations. We attempt to manage our power resources and limit exposure to system downtime due to power outages from the electric grid by having redundantpower feeds from the grid and by using backup generators and battery power. However, these protections may not limit our exposure to power shortages oroutages entirely. Any system downtime resulting from insufficient power resources or power outages could damage our reputation and lead us to lose currentand potential customers, which would harm our financial condition and results of operations. 10 Table of Contents We have a history of net losses and may continue to incur losses in the future. We incurred net losses of RMB276.4 million, RMB326.9 million and RMB430.3 million (US$62.6 million) in 2016, 2017 and 2018, respectively,and we may incur losses in the future. We expect our costs and expenses to increase as we expand our operations, primarily including costs and expensesassociated with owning and leasing data center space, increasing our headcount and utility expenses. Our ability to achieve and maintain profitabilitydepends on the continued growth and maintenance of our customer base, our ability to control our costs and expenses, the expansion of our service offeringsand our ability to provide our services at the level needed to satisfy the stringent demands of our customers. In addition, our ability to achieve profitability isaffected by many factors which are beyond our control, such as the overall demand for data center services in China and general economic conditions. If wecannot efficiently manage the data center facilities we operate, our financial condition and results of operations could be materially and adversely affected.We may continue to incur losses in the future due to our continued investments in leasing data center space, increased headcount and increased utilityexpenses. Any significant or prolonged failure in the data center facilities we operate or services we provide would lead to significant costs and disruptions andwould reduce our net revenue, 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 thatwe provide, including a breakdown in critical plant, equipment or services, such as the cooling equipment, generators, backup batteries, routers, switches, orother equipment, power supplies, or network connectivity, whether or not within our control, could result in service interruptions and data losses for ourcustomers as well as equipment damage, which could significantly disrupt the normal business operations of our customers and harm our reputation andreduce our net revenue. Any failure or downtime in one of the data center facilities that we operate could affect many of our customers. The total destructionor severe impairment of any of the data center facilities we operate could result in significant downtime of our services and catastrophic loss of customer data.Since our ability to attract and retain customers depends on our ability to provide highly reliable service, even minor interruptions in our service could harmour reputation and cause us to incur financial penalties. The services we provide are subject to failures resulting from numerous factors, including: · power loss; · equipment failure; · human error or accidents; · theft, sabotage and vandalism; · failure by us or our suppliers to provide adequate service or maintenance to our equipment; · network connectivity downtime and fiber cuts; · security breaches to our infrastructure; · improper building maintenance by us or the landlords of the buildings in which our leased facilities are located; · physical, electronic and cyber security breaches; · fire, earthquake, hurricane, tornado, flood and other natural disasters; · extreme temperatures; · water damage; 11 Table of Contents · public health emergencies; and · terrorism. We have in the past experienced, and may in the future experience, interruptions in service due to power outages or other technical failures or forreasons outside of our control, including a service interruption that caused system downtime to certain banking and financial institution customers and othercustomers. These interruptions in service, regardless of whether they result in breaches of the service level agreements we have with customers, maynegatively affect our relationships with customers, including resulting in customers terminating their agreements with us or seeking damages from us or othercompensatory actions. Interruptions in service may also have consequences for customers, such as banking and financial institutions, that are under theoversight of industry regulators, including the China Banking Regulatory Commission (and its successor, the China Banking and Insurance RegulatoryCommission which was established in March 2018 to replace the China Banking Regulatory Commission) or CBRC, and other PRC regulatory agencies. Inresponse to such interruptions in service, industry regulators have taken, and may in the future take, various regulatory actions, including notifications orcitations to our customers, over which they have oversight. Such regulatory actions with respect to our customers, including banking and financialinstitutions, could negatively impact our relationships with such customers, lead to audits of our services, inspections of our facilities, place restrictions orprohibitions upon the ability of such institutions to use our services, and thereby negatively affect our business operations and results of operations. We havetaken and continue to take steps to improve our infrastructure to prevent service interruptions, including upgrading our electrical and mechanicalinfrastructure and sourcing, designing the best facilities possible and implementing rigorous operational procedures to maintenance programs to manage risk.However, we cannot assure you that such interruptions in service will not occur again in the future, or that such incidents will not result in the loss ofcustomers and revenue, our paying compensation to customers, reputational damage to us, penalties or fines against us, and would not have a material andadverse effect on our business and results of operations. See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to Information Technology Outsourcing Services Provided to Banking Financial Institutions.” Service interruptions continue to be asignificant risk for us and could affect our reputation, damage our relationships with customers and materially and adversely affect our business. 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 customer demand and the continued growth of our business, we need to expand existing data centers, lease new facilities or obtainsuitable land to build new data centers. Expansion of existing data centers and/or construction of new data centers are currently underway or beingcontemplated and such expansion and/or construction require us to carefully select and rely on the experience of one or more designers, general contractors,and subcontractors during the design and construction process. If a designer or contractor experiences financial or other problems during the design orconstruction process, we could experience significant delays and/or incur increased costs to complete the projects, resulting in negative impacts on ourresults of operations. In addition, we need to work closely with the local power suppliers, and sometimes local governments, where our proposed data centers are located.Delays in actions that require the assistance of such third-parties, or delays in receiving required permits and approvals from such parties, may also affect thespeed with which we complete data center projects or result in their not being completed at all. We have experienced such delays in receiving approvals andpermits or in actions to be taken by third parties in the past and may experience them again in the future. If we experience significant delays in the supply of power required to support the data center expansion or new construction, either during thedesign or construction phases, the progress of the data center expansion and/or construction could deviate from our original plans, which could causematerial and negative effect to our revenue growth, profitability and results of operations. 12 Table of Contents The occurrence of a catastrophic event or a prolonged disruption may exceed our insurance coverage by significant amounts. Our operations are subject to hazards and risks normally associated with the daily operations of our data center facilities. Currently, we maintaininsurance policies in four categories: business interruption for lost profits, property and casualty, public liability, and commercial employee insurance. Ourbusiness interruption insurance for lost profits includes coverage for business interruptions, our property and casualty insurance includes coverage forequipment breakdowns and our commercial employee insurance includes employee group insurance and senior management medical insurance. We believeour insurance coverage adequately covers the risks of our daily business operations. However, our current insurance policies may be insufficient in the eventof a prolonged or catastrophic event. The occurrence of any such event that is not entirely covered by our insurance policies may result in interruption of ouroperations and subject us to significant losses or liabilities and damage our reputation as a provider of business continuity services. In addition, any losses orliabilities that are not covered by our current insurance policies may have a material adverse effect on our business, financial condition and results ofoperations. We may be vulnerable to security breaches which could disrupt our operations and have a material adverse effect on our financial condition and results ofoperations. A party who is able to compromise the security measures protecting the data center facilities we operate or any of the data stored in such data centerfacilities could misappropriate our or our customers’ proprietary information or cause interruptions or malfunctions in our operations. As we provideassurances to our customers that we provide the highest level of security, such a compromise could be particularly harmful to our brand and reputation. Wemay be required to expend significant capital and resources to protect against such threats or to alleviate problems caused by breaches in security. Inaddition, as we continue expanding our service offerings in managed cloud services, including direct private connection to major cloud platforms and theprovision of cloud infrastructure, we will face greater risks from potential attacks because the provision of cloud-related services will increase the flow ofInternet user data through the data center facilities we operate and create broader public access to our system. As techniques used to breach security changefrequently 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 andwhen implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose us to increased risk oflawsuits, regulatory penalties, loss of existing or potential customers, harm to our reputation and increases in our security costs, which could have a materialadverse effect on our financial condition and results of operations. Security risks and deficiencies may also be identified in the course of government inspections, which could subject us to fines and other sanctions.During construction of certain of our facilities, government inspectors have cited security risks at our construction sites and subjected us and our legalrepresentative to fines for such risks. We cannot assure you that similar fines and sanctions will not occur in the future, or that such fines and sanctions willnot result in damage to our business and reputation, which could have a material and adverse effect on our 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 toincur substantial legal fees and have a material adverse effect on our business, reputation, financial condition and results of operations. Our ability to provide data center services depends on the major telecommunications carriers in China providing sufficient network services to ourcustomers in the data center facilities that we operate on commercially acceptable terms. Our ability to provide data center services depends on the major telecommunications carriers in China, namely China Telecom, China Unicom andChina Mobile, providing sufficient network connectivity and capacity to enable our customers to transfer data to and from equipment that they locate in thedata center facilities that we operate. Furthermore, given the limited competition among basic service providers in the telecommunications market in China,we depend on the dominant carrier in each location to provide such services to our customers on commercially acceptable terms. Although we believe wehave maintained good relationships with China Telecom, China Unicom and China Mobile in the past, there can be no assurance that they will continue toprovide the network services that our customers require on commercially acceptable terms at each of the data centers where we operate, if at all. In addition, ifChina Telecom, China Unicom or China Mobile increases the price of their network services, it would have a negative impact on the overall cost-effectiveness of data center services in China, which could cause our customers’ demand for our services to decline and would materially and adversely affectour business and results of operations. 13 Table of Contents Our leases for self-developed data centers or our agreements for third-party data centers could be terminated early and we may not be able to renew ourexisting leases and agreements 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. Most of our data center operations are located in properties that we have entered into long-term operating leases. Such leases generally have fifteento twenty year terms. In some instances, we may negotiate an option to purchase the leased premises and facilities according to the terms and conditionsunder the relevant lease agreements. However, upon the expiration of such leases, we may not be able to renew these leases on commercially reasonableterms, 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 ofunilateral early termination unless they provide the required notice, the lease may nonetheless be terminated early if we are in material breach of the leaseagreements. We may assert claims for compensation against the landlords if they elect to terminate a lease agreement early and without due cause. If theleases for our data centers were terminated early prior to their expiration date, notwithstanding any compensation we may receive for early termination ofsuch leases, or if we are not able to renew such leases, we may have to incur significant cost related to relocation. In addition, we have entered into sixagreements in respect of data centers in operation with parties who have not produced evidence of proper legal title of the premises, and although we mayseek damages from such parties, such leases may be void and we may be forced to relocate. Four of our data centers are located in properties that were alreadymortgaged to third parties before the commencement of the lease. If such third parties claim their rights on the mortgaged properties in case of default orbreach under the principal debt by the lessors or other relevant parties, we may not be able to protect our leasehold interest and may be ordered to vacate theaffected premises. Any relocation could also affect our ability to provide continuous uninterrupted services to our customers and harm our reputation. As aresult, our business and results of operations could be materially and adversely affected. Furthermore, certain portions of our data center operations are located in third-party data centers that we lease from wholesale data center providers.Our agreements with third parties are typically three years but may also be up to ten years. Under some of such agreements, we have the right of first refusal torenew the agreements subject to mutual agreement with the third parties. Some of such agreements allow the third parties to terminate the agreements early,subject to a notification period requirement and the payment of a pre-determined termination fee, which in some cases may not be sufficient to cover anydirect and indirect losses we might incur as a result. Although historically we have successfully renewed all agreements we wanted to renew, and we do notbelieve 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 ouragreements prior to its expiration date. We plan to renew our existing agreements with third parties upon expiration or migrate our operations to the datacenters leased or owned by our company. However, we may not be able to renew these agreements on commercially acceptable terms, if at all, or the space indata centers that we lease or own may not be adequate for us to relocate such operations, and we may experience an increase in our payments under suchagreements. Any adverse change to our ability to exert operational control over any of the data center facilities we operate could have a material adverseeffect on our ability to operate these data center facilities at the standards required for us to meet our service level commitments to our customers. We generate significant revenue from data centers located in only a few locations and a significant disruption to any location could materially andadversely affect our operations. We generate significant revenue from data centers located in only a few locations and a significant disruption to any single location couldmaterially and adversely affect our operations. As of the date of this annual report on Form 20-F, almost all of our data centers (self-developed and third-party) are located within the municipal areas of Shanghai, Beijing, Shenzhen, Guangzhou and Chengdu. Furthermore, several of our data centers are locatedon campuses or clusters in close proximity to each other in specific districts within these cities. The occurrence of a catastrophic event, or a prolongeddisruption in any of these regions, could materially and adversely affect our operations. 14 Table of Contents Our net revenue is highly dependent on a limited number of customers, and the loss of, or any significant decrease in business from, any one or more of ourmajor customers could adversely affect our financial condition and results of operations. We consider our customers to be the end users of our data center services. We may enter into contracts directly with our end user customers orthrough intermediate contracting parties. See “Item 4. Information on the Company—B. Business Overview—Our Customers.” We have in the past derived,and believe that we will continue to derive, a significant portion of our net revenue from a limited number of customers. We had two end user customers thatgenerated 18.6% and 14.6% of our total net revenue, respectively, in 2016, and one end user customer that generated 25.2% of our total net revenue in 2017.We had two end user customers that generated 27.0% and 17.4% of our total net revenue, respectively, in 2018. No other end user customer accounted for10% or more of our total net revenue during those periods. We expect our net revenue will continue to be highly dependent on a limited number of end usercustomers who account for a large percentage of our total area committed. As of December 31, 2018, we had four end user customers who accounted for27.9%, 24.2%, 11.4% and 10.3%, respectively, of our total area committed. No other end user customer accounted for 10% or more of our total areacommitted. Moreover, for several of our data centers, a limited number of end user customers accounted for a substantial majority of area committed or areautilized, including some cases where a single end user customer accounted for all area committed or area utilized. If there are delays in the move in, wherebythe net floor area they are committed to is not utilized as expected, or there is contract termination in relation to these customers, then our net revenue andresults of operations would be materially and adversely affected. There are a number of factors that could cause us to lose major customers. Because many of our contracts involve services that are mission-critical toour customers, any failure by us to meet a customer’s expectations could result in cancellation or non-renewal of the contract. Our service agreements usuallyallow our customers to terminate their agreements with us before the end of the contract period under certain specified circumstances, including our failure todeliver services as required under such agreements, and in some cases without cause as long as sufficient notice is given. In addition, our customers maydecide to reduce spending on our services due to a challenging economic environment or other factors, both internal and external, relating to their businesssuch as corporate restructuring or changing their outsourcing strategy by moving more facilities in-house or outsourcing to other service providers.Furthermore, our customers, some of who have experienced rapid changes in their business, substantial price competition and pressures on their profitability,may demand price reductions or reduce the scope of services to be provided by us, any of which could reduce our profitability. In addition, our reliance onany individual customer for a significant portion of our net revenue may give that customer a degree of pricing leverage against us when negotiatingcontracts and terms of services with us. The loss of any of our major customers, or a significant decrease in the extent of the services that they outsource to us or the price at which we sellour services to them, could materially and adversely affect our financial condition and results of operations. If we are unable to meet our service level commitments, our reputation and results of operation could suffer. Most of our customer contracts provide that we maintain certain service level commitments to our customers. If we fail to meet our service levelcommitments, we may be contractually obligated to pay the affected customer a financial penalty, which varies by contract, and the customer may in somecases be able to terminate its contract. Although we have not had to pay any material financial penalties for failing to meet our service level commitments inthe past, there is no assurance that we will be able to meet all of our service level commitments in the future and that no material financial penalties may beimposed. In addition, if such a failure were to occur, there can be no assurance that our customers will not seek other legal remedies that may be available tothem, including: · requiring us to provide free services; · seeking damages for losses incurred; and 15 Table of Contents · cancelling or electing not to renew their contracts. Any of these events could materially increase our expenses or reduce our net revenue, which would have a material adverse effect on our reputationand results of operations. Our failure to meet our commitments could also result in substantial customer dissatisfaction or loss. As a result of such customerloss and other potential liabilities, our net revenue and results of operations could be materially and adversely affected. Our customer base may decline if our customers or potential customers develop their own data centers or expand their own existing data centers. Some of our customers may develop their own data center facilities. Other customers with their own existing data centers may choose to expand theirdata center operations in the future. In the event that any of our key customers were to develop or expand their data centers, we may lose business or facepressure as to the pricing of our services. Although we believe that the trend is for companies in China to outsource their data center facilities and operationsto colocation data center service providers, there can be no assurance that this trend will continue. In addition, if we fail to offer services that are cost-competitive and operationally advantageous as compared with services provided in-house by our customers, we may lose customers or fail to attract newcustomers. If we lose a customer, there is no assurance that we would be able to replace that customer at the same or a higher rate, or at all, and our businessand results of operations would suffer. We may be unable to achieve high contract renewal rates. We seek to renew customer contracts when those contracts are due for renewal. We endeavor to provide high levels of customer service, support, andsatisfaction to maintain long-term customer relationships and to secure high rates of contract renewals for our services. Nevertheless, we cannot assure youthat we will be able to renew service contracts with our existing customers or re-commit space relating to expired service contracts to new customers if ourcurrent customers do not renew their contracts. In the event of a customer’s termination or non-renewal of expired contracts, or a renewal of an expiredcontract for fewer services or less area than it had previously utilized, our ability to enter into services contracts so that new or other existing customers utilizethe expired existing space in a timely manner will impact our results of operations. If such expired existing space is not utilized by new or other existingcustomers in a timely manner, our service revenue and results of operations may be negatively impacted. Our quarterly churn rate, which we define as theratio of quarterly service revenue from contracts which terminated or expired without renewal during the quarter to the total quarterly service revenue for thepreceding quarter, averaged 1.6%, 2.1% and 0.9% in 2016, 2017 and 2018, respectively. During 2019, data center service agreements with our customerswith respect to 6.8% of our total area committed as of December 31, 2018 will become due for renewal. If we do not succeed in attracting new customers for our services and/or growing revenue from existing customers, we may not achieve our revenue growthgoals. We have been expanding our customer base to cover a range of industry verticals, particularly cloud service providers. Our ability to attract newcustomers, as well as our ability to grow revenue from our existing customers, depends on a number of factors, including our ability to offer high-qualityservices at competitive prices, the strength of our competitors and the capabilities of our marketing and sales teams to attract new customers. If we fail toattract new customers, we may not be able to grow our net revenue as quickly as we anticipate or at all. As our customer base grows and diversifies into other industries, we may be unable to provide customers with services that meet the specific demandof such customers or their industries, or with quality customer support, which could result in customer dissatisfaction, decreased overall demand for ourservices and loss of expected revenue. In addition, our inability to meet customer service expectations may damage our reputation and could consequentlylimit our ability to retain existing customers and attract new customers, which would adversely affect our ability to generate revenue and negatively impactour results of operations. 16 Table of Contents Customers who rely on us for the colocation of their servers, the infrastructure of their cloud systems, and management of their IT and cloud operationscould potentially sue us for their lost profits or damages if there are disruptions in our services, which could impair our financial condition. As our services are critical to many of our customers’ business operations, any significant disruption in our services could result in lost profits orother indirect or consequential damages to our customers. Although our customer contracts typically contain provisions attempting to limit our liability forbreach of the agreement, including failing to meet our service level commitments, there can be no assurance that a court would enforce any contractuallimitations on our liability in the event that one of our customers brings a lawsuit against us as the result of a service interruption that they may ascribe to us.The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that we may not be able to mitigate.In such cases, we could be liable for substantial damage awards. Since we do not carry liability insurance coverage, such damage awards could seriouslyimpair our financial condition. Our customers operate in a limited number of industries, particularly in the cloud services, Internet and financial services industries. Factors thatadversely affect these industries or information technology spending in these industries may adversely affect our business. Our customers operate in a limited number of industries, particularly in the cloud services, Internet and financial services industries. As ofDecember 31, 2018, end user customers from the cloud services, Internet and financial services industries accounted for 71.3%, 16.0% and 7.9% of our totalarea committed, respectively. Our business and growth depend on continued demand for our services from our current and potential customers in the cloudservices, Internet and financial services industries. Demand for our services, and technology services in general, in any particular industry could be affectedby multiple factors outside of our control, including a decrease in growth or growth prospects of the industry, a slowdown or reversal of the trend to outsourceinformation technology operations, or consolidation in the industry. In addition, serving a major customer within a particular industry may effectivelypreclude us from seeking or obtaining engagements with direct competitors of that customer if there is a perceived conflict of interest. Any significantdecrease in demand for our services by customers in these industries, or other industries from which we derive significant net revenue in the future, mayreduce the demand for our services. We enter into fixed-price contracts with many customers, and our failure to accurately estimate the resources and time required for the fulfillment of ourobligations under these contracts could negatively affect our results of operations. Our data center services are generally provided on a fixed-price basis that requires us to undertake significant projections and planning related toresource utilization and costs. Although our past project experience helps to reduce the risks associated with estimating, planning and performing fixed-pricecontracts, we bear the risk of failing to accurately estimate our projected costs, including power costs as we may not accurately predict our customer’sultimate power usage once the contract is implemented, and failing to efficiently utilize our resources to deliver our services, and there can be no assurancethat we will be able to reduce the risk of estimating, planning and performing our contracts. Any failure to accurately estimate the resources and time requiredfor a project, or any other factors that may impact our costs, could adversely affect our profitability and results of operations. Our customer contract commitments are subject to reduction and potential cancellation. Many of our customer contracts allow for early termination, subject to payment of specified costs and penalties, which are usually less than therevenues we would expect to receive under such contracts. Our customer contract commitments could significantly decrease if any of the customer contractsis terminated either pursuant to, or in violation of, the terms of such contract. In addition, our customer contract commitments during a particular futureperiod may be reduced for reasons outside of our customers’ control, such as general current economic conditions. It is difficult to predict how market forces,or PRC or U.S. government policy, in particular, the outbreak of a trade war between the PRC and the United States and the imposition in 2018 of additionaltariffs on bilateral imports, may continue to impact the PRC economy as well as related demand for our data center resources, managed services and solutionsgoing forward. If our customer contract commitments are significantly reduced, our results of operations and the price of our ADSs could be materially andadversely affected. 17 Table of Contents Even if our current and future customers have entered into a binding contract with us, they may choose to terminate such contract prior to theexpiration of its terms. Any penalty for early termination may not adequately compensate us for the time and resources we have expended in connection withsuch contract, or at all, which could have a material adverse effect on our results of operations and cash flows. We may not be able to compete effectively against our current and future competitors. We offer a broad range of data center services and, as a result, we may compete with a wide range of data center service providers for some or all ofthe services we offer. We face competition from the state-owned telecommunications carriers, namely China Telecom, China Unicom and China Mobile, as well as otherdomestic and international carrier-neutral data center service providers. Our current and future competitors may vary by size and service offerings andgeographic presence. See “Item 4. Information on the Company—B. Business Overview—Competition.” Competition is primarily centered on reputation and track record, quality and availability of data center space, quality of service, technicalexpertise, security, reliability, functionality, breadth and depth of services offered, geographic coverage, financial strength and price. Some of our current andfuture competitors may have greater brand recognition, marketing, technical and financial resources than we do. As a result, some of our competitors may beable to: · bundle colocation services with other services or equipment they provide at reduced prices; · develop superior products or services, gain greater market acceptance, and expand their service offerings more efficiently or rapidly; · adapt to new or emerging technologies and changes in customer requirements more quickly; · take advantage of acquisition and other opportunities more readily; and · adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sales of their services. We operate in a competitive market, and we face pricing pressure for our services. Prices for our services are affected by a variety of factors, includingsupply and demand conditions and pricing pressures from our competitors. Although we offer a broad range of data center services, our competitors thatspecialize in only one of our services offerings may have competitive advantages in that offering. With respect to all of our colocation services, ourcompetitors may offer such services at rates below current market rates or below the rates we currently charge our customers. With respect to both ourcolocation and managed services offerings, our competitors may offer services in a greater variety that are more sophisticated or that are more competitivelypriced than the services we offer. We may be required to lower our prices to remain competitive, which may decrease our margins and adversely affect ourbusiness prospects, financial condition and results of operations. An oversupply of data center capacity could have a material adverse effect on us. A buildup of new data centers or reduced demand for data center services could result in an oversupply of data center space in China’s largecommercial centers. Excess data center capacity could lower the value of data center services and limit the number of economically attractive markets that areavailable to us for expansion, which could negatively impact our business and results of operations. 18 Table of Contents Our failure to comply with regulations applicable to our leased data centers may materially and adversely affect our ability to use such data centers. Among the data centers that we lease, including those under construction, a majority of the lease agreements have not been registered or filed withrelevant authorities in accordance with the applicable PRC laws and regulations. The enforcement of this legal requirement varies depending on localpractices. In case of failure to register or file a lease, the parties to the unregistered lease may be ordered to make rectifications (which would involveregistering such leases with the relevant authority) before being subject to penalties. The penalty ranges from RMB1,000 to RMB10,000 for eachunregistered lease, at the discretion of the relevant authority. The law is not clear as to which of the parties, the lessor or the lessee, is liable for the failure toregister the lease, and the lease agreements of several of our data centers provide that the lessor is responsible for processing the registration and mustcompensate us for losses caused by any breach of the obligation. Although we have proactively requested that the applicable lessors complete or cooperatewith us to complete the registration in a timely manner, we are unable to control whether and when such lessors will do so. In the event that a fine is imposedon both the lessor and lessee, and if we are unable to recover from the lessor any fine paid by us in accordance with the terms of the lease agreement, such finewill be borne by us. In respect to one data center in Beijing, a portion of the property has been constructed without obtaining the building ownershipcertificate, and the part of the lease in relation to such portion may be deemed invalid if the construction has not been duly approved by the government, inwhich event we would not be able to use that portion of property. In respect of some data centers, the usage of leased properties for data center purposes maybe deemed to be inconsistent with the designated usage as stated under the building ownership certificates. If the owners fail to obtain the necessary consentsand/or to comply with the applicable legal requirements for the change of usage of these premises, and the relevant authority or the court orders us to use therelevant leased properties for the designated usage only, we may not be able to continue to use these properties for data center purposes and we may needrelocate our operation there to other suitable premises. We may also be subject to administrative penalties for lack of fire safety approvals for renovation ofthe leased premises, and we may be ordered to suspend operations at applicable premises if we fail to timely cure any such defect. Construction or renovationof certain other of our data centers was carried out without obtaining construction (including zoning) related permits, and certain leased premises were putinto use without fulfillment of construction inspection and acceptance procedures, which may cause administrative penalties to be imposed on us in the caseof renovation, and may cause the use of the leased premises to be deemed illegal, and we may be forced to suspend our operations as a result. See also “—Risks Related to Doing Business in the People’s Republic of China—Our business operations are extensively impacted by the policies and regulations of thePRC government. Any policy or regulatory change may cause us to incur significant compliance costs.” We cannot assure you that we will be able to relocate such operations to suitable alternative premises, and any such relocation may result indisruption to our business operations and thereby result in loss of earnings. We may also need to incur additional costs for the relocation of our operation.There is also no assurance that we will be able to effectively mitigate the possible adverse effects that may be caused by such disruption, loss or costs. Any ofsuch disruption, loss or costs could materially and adversely affect our financial condition and results of operations. Our failure to maintain our relationships with various cloud service providers may adversely affect our cloud-related services, and as a result, our business,operating results and financial condition. Our managed cloud services involve providing services to the customers of cloud service providers. If we do not maintain good relationships withcloud service providers, our business could be negatively affected. If these cloud service providers fail to perform as required under our agreements for anyreason or suffer service level interruptions or other performance issues, or if our customers are less satisfied than expected with the services provided or resultsobtained, we may not realize the anticipated benefits of these relationships. Since our agreements with key cloud service providers in China are non-exclusive, these companies may decide in the future to partner with more ofour competitors or they may decide to terminate their agreements with us, any of which could adversely and materially affect our business expansion planand expected growth. 19 Table of Contents Our data center infrastructure may become obsolete or unmarketable and we may not be able to upgrade our power, cooling, security or connectivitysystems cost-effectively or at all. The markets for the data centers we own and operate, as well as certain of the industries in which our customers operate, are characterized by rapidlychanging technology, evolving industry standards, frequent new service introductions, shifting distribution channels and changing customer demands. As aresult, the infrastructure at our data centers may become obsolete or unmarketable due to demand for new processes and/or technologies, including, withoutlimitation: (i) new processes to deliver power to, or eliminate heat from, computer systems; (ii) customer demand for additional redundancy capacity; (iii) newtechnology that permits higher levels of critical load and heat removal than our data centers are currently designed to provide; and (iv) an inability of thepower supply to support new, updated or upgraded technology. In addition, the systems that connect our self-developed data centers, and in particular, ourthird-party data centers, to the Internet and other external networks may become outdated, including with respect to latency, reliability and diversity ofconnectivity. When customers demand new processes or technologies, we may not be able to upgrade our data centers on a cost-effective basis, or at all, dueto, among other things, increased expenses to us that cannot be passed on to customers or insufficient revenue to fund the necessary capital expenditures. Theobsolescence of our power and cooling systems and/or our inability to upgrade our data centers, including associated connectivity, could reduce revenue atour data centers and could have a material adverse effect on us. Furthermore, potential future regulations that apply to industries we serve may requirecustomers in those industries to seek specific requirements from their data centers that we are unable to provide. If such regulations were adopted, we couldlose customers or be unable to attract new customers in certain industries, which could have a material adverse effect on us. If we are unable to adapt to evolving technologies and customer demands in a timely and cost-effective manner, our ability to sustain and grow ourbusiness may suffer. To be successful, we must adapt to our rapidly changing market by continually improving the performance, features and reliability of our servicesand modifying our business strategies accordingly, which could cause us to incur substantial costs. We may not be able to adapt to changing technologies ina timely and cost-effective manner, if at all, which would adversely impact our ability to sustain and grow our business. In addition, new technologies have the potential to replace or provide lower cost alternatives to our services. The adoption of such new technologiescould render some or all of our services obsolete or unmarketable. We cannot guarantee that we will be able to identify the emergence of all of these newservice alternatives successfully, modify our services accordingly, or develop and bring new services to market in a timely and cost-effective manner toaddress these changes. If and when we do identify the emergence of new service alternatives and introduce new services to market, those new services mayneed to be made available at lower profit margins than our then-current services. Failure to provide services to compete with new technologies or theobsolescence of our services could lead us to lose current and potential customers or could cause us to incur substantial costs, which would harm ouroperating results and financial condition. Our introduction of new alternative services that have lower price points than our current offerings may also resultin our existing customers switching to the lower cost products, which could reduce our net revenue and have a material adverse effect on our results ofoperation. We have limited ability to protect our intellectual property rights, and unauthorized parties may infringe upon or misappropriate our intellectual property. Our success depends in part upon our proprietary intellectual property rights, including certain methodologies, practices, tools and technicalexpertise we utilize in designing, developing, implementing and maintaining applications and processes used in providing our services. We rely on acombination of copyright, trademark, trade secrets and other intellectual property laws, non-disclosure agreements with our employees, customers and otherrelevant persons and other measures to protect our intellectual property, including our brand identity. Nevertheless, it may be possible for third parties toobtain and use our intellectual property without authorization. The unauthorized use of intellectual property is common in China and enforcement ofintellectual property rights by PRC regulatory agencies is inconsistent. As a result, litigation may be necessary to enforce our intellectual property rights.Litigation could result in substantial costs and diversion of our management’s attention and resources, and could disrupt our business, as well as have amaterial adverse effect on our financial condition and results of operations. Given the relative unpredictability of China’s legal system and potentialdifficulties in enforcing a court judgment in China, there is no guarantee that we would be able to halt any unauthorized use of our intellectual property inChina through litigation. 20 Table of Contents We may be subject to third-party claims of intellectual property infringement. We derive most our revenues in China and use , our figure trademark, in a majority of our services. We have registered the figure trademark inChina in several categories that cover our services areas and we plan to register the figure trademark in China in certain additional categories. We have alsoregistered the pure text of “GDS” as a trademark in several categories that cover our services areas, however, a third party has also registered the pure text of“GDS” as a trademark in certain IT-related services. As the services for which the third-party trademark is registered are also IT-related and could be construedas similar to ours in some respects, infringement claims may be asserted against us, and we cannot assure you that a government authority or a court will holdthe view that such similarity will not cause confusion in the market. In this case, if we use the pure text of GDS (which we have not registered as a trademarkwith respect to all services we provide) as our trademark, we may be required to explore the possibility of acquiring this trademark or entering into anexclusive licensing agreement with the third party, which will cause us to incur additional costs. In addition, we may be unaware of intellectual propertyregistrations or applications that purport to relate to our services, which could give rise to potential infringement claims against us. Parties makinginfringement claims may be able to obtain an injunction to prevent us from delivering our services or using trademark or technology containing the allegedlyintellectual property. If we become liable to third parties for infringing upon their intellectual property rights, we could be required to pay a substantialdamage award. We may also be subject to injunctions that require us to alter our processes or methodologies so as not to infringe upon a third party’sintellectual property, which may not be technically or commercially feasible and may cause us to expend significant resources. Any claims or litigation inthis area, whether we ultimately win or lose, could be time-consuming and costly, could cause the diversion of management’s attention and resources awayfrom the operations of our business and could damage our reputation. If our customers’ proprietary intellectual property or confidential information is misappropriated or disclosed by us or our employees in violation ofapplicable laws and contractual agreements, we could be exposed to protracted and costly legal proceedings and lose clients. We and our employees are in some cases provided with access to our customers’ proprietary intellectual property and confidential information,including technology, software products, business policies and plans, trade secrets and personal data. Many of our customer contracts require that we do notengage in the unauthorized use or disclosure of such intellectual property or information and that we will be required to indemnify our customers for any lossthey may suffer as a result. We use security technologies and other methods to prevent employees from making unauthorized copies, or engaging inunauthorized use or unauthorized disclosure, of such intellectual property and confidential information. We also require our employees to enter into non-disclosure arrangements to limit access to and distribution of our customers’ intellectual property and other confidential information as well as our own.However, the steps taken by us in this regard may not be adequate to safeguard our customers’ intellectual property and confidential information. Moreover,most of our customer contracts do not include any limitation on our liability with respect to breaches of our obligation to keep the intellectual property orconfidential information we receive from them confidential. In addition, we may not always be aware of intellectual property registrations or applicationsrelating to source codes, software products or other intellectual property belonging to our customers. As a result, if our customers’ proprietary rights aremisappropriated by us or our employees, our customers may consider us liable for such act and seek damages and compensation from us. Assertions of infringement of intellectual property or misappropriation of confidential information against us, if successful, could have a materialadverse effect on our business, financial condition and results of operations. Protracted litigation could also result in existing or potential customers deferringor limiting their purchase or use of our services until resolution of such litigation. Even if such assertions against us are unsuccessful, they may cause us tolose existing and future business and incur reputational harm and substantial legal fees. We rely on third-party suppliers for key elements of our network infrastructure and software. We contract with third parties for the supply of hardware, such as servers and other equipment, that we use in the provision of our services to ourcustomers and that we sell to our customers in some cases. The loss of a significant supplier could delay expansion of the data center facilities that weoperate, impact our ability to sell our services and hardware and increase our costs. If we are unable to purchase the hardware or obtain a license for thesoftware that our services depend on, our business could be significantly and adversely affected. In addition, if our suppliers are unable to provide productsthat meet evolving industry standards or that are unable to effectively interoperate with other products or services that we use, then we may be unable to meetall or a portion of our customer service commitments, which could materially and adversely affect our results of operations. 21 Table of Contents We engage third-party contractors to carry out various services relating to our data center facilities, including security services. We engage third-party contractors to carry out various services relating to our data center facilities, including security services. We endeavor toengage third-party companies with a strong reputation and proven track record, high-performance reliability and adequate financial resources. However, anysuch third-party contractor may still fail to provide satisfactory security services at the level of quality required by us, resulting in inappropriate access to ourfacilities. Any difficulties in identifying and consummating future acquisitions may expose us to potential risks and have an adverse effect on our business, financialcondition or results of operations. We may seek to make strategic acquisitions and enter into alliances to further expand our business. If we are presented with appropriateopportunities, we may acquire additional businesses, services, resources, or assets, including data centers, that are complementary to our core business. Ourintegration of the acquired entities or assets into our business may not be successful and may not enable us to expand into new services, customer segments oroperating locations as well as we expect. This would significantly affect the expected benefits of these acquisitions. Moreover, the integration of anyacquired entities or assets into our operations could require significant attention from our management. The diversion of our management’s attention and anydifficulties encountered in any integration process could have an adverse effect on our ability to manage our business. In addition, we may face challengestrying to integrate new operations, services and personnel with our existing operations. Our possible future acquisitions may also expose us to other potentialrisks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, our inabilityto generate sufficient revenue to offset the costs, expenses of acquisitions and potential loss of, or harm to, relationships with employees and customers as aresult of our integration of new businesses. The occurrence of any of these events could have a material and adverse effect on our ability to manage ourbusiness, financial condition and results of operations. The uncertain economic environment may have an adverse impact on our business and financial condition. The uncertain economic environment could have an adverse effect on our liquidity. While we believe we have a strong customer base, if the currentmarket conditions were to worsen, some of our customers may have difficulty paying us and we may experience increased churn in our customer base andreductions in their commitments to us. We may also be required to make allowances for doubtful accounts and our results would be negatively impacted. Oursales cycle could also be lengthened if customers reduce spending on, or delay decision-making with respect to, our services, which could adversely affectour revenue growth and our ability to recognize net revenue. We could also experience pricing pressure as a result of economic conditions if our competitorslower prices and attempt to lure away our customers with lower cost solutions. Finally, our ability to access the equity and debt capital markets may beseverely restricted at a time when we would like, or need, to do so, especially during times of increased volatility in global financial markets and stockmarkets, which could limit our ability to raise funds through additional equity sales. Any inability to raise funds from capital markets generally, and equitycapital markets in particular, could adversely affect our liquidity as well as hinder our ability to pursue additional strategic expansion opportunities, executeour business plans and maintain our desired level of revenue growth in the future. A downturn in the PRC or global economy could reduce the demand for our services, which could materially and adversely affect our business andfinancial condition. The global financial markets have experienced significant disruptions between 2008 and 2009 and the United States, Europe and other economieshave experienced periods of recessions. The recovery from the economic downturns of 2008 and 2009 has been uneven and is facing new challenges. Theseinclude the anticipation of the United Kingdom’s exit from the European Union, the outbreak of a trade war between the PRC and the United States and theimposition in 2018 of additional tariffs on bilateral imports, as well as the slower growth of the PRC economy since 2012, all of which have contributed touncertainty about the global economy. It is unclear whether the PRC economy will accelerate and resume a faster pace of growth. There is considerableuncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of theworld’s leading economies, including those of the United States and the PRC. There have been concerns over unrest in the Middle East and Africa, whichhave contributed to volatility in financial and other markets. There also have been concerns about the economic effects of rising tensions between the PRCand surrounding Asian countries. Economic conditions in the PRC are sensitive to global economic conditions. Any prolonged slowdown in the global orthe PRC economy may lead to decreased demand for data center resources or managed services and have a negative impact on our business, financialcondition and results of operations. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capitalmarkets to meet our liquidity needs. Any periods of increased or heightened volatility in financial, equity and other markets could limit our ability to raisefunds, pursue further business expansion and maintain revenue growth. See “The uncertain economic environment may have an adverse impact on ourbusiness and financial condition” above. 22 Table of Contents Our success depends to a substantial degree upon our senior management, including Mr. William Wei Huang, and key personnel, and our businessoperations may be negatively affected if we fail to attract and retain highly competent senior management. We depend to a significant degree on the continuous service of Mr. William Wei Huang, our founder, chairman and chief executive officer, and ourexperienced senior management team and other key personnel such as project managers and other middle management. If one or more members of our seniormanagement team or key personnel resigns, it could disrupt our business operations and create uncertainty as we search for and integrate a replacement. If anymember of our senior management leaves us to join a competitor or to form a competing company, any resulting loss of existing or potential clients to anysuch competitor could have a material adverse effect on our business, financial condition and results of operations. Additionally, there could be unauthorizeddisclosure or use of our technical knowledge, practices or procedures by such personnel. We have entered into employment agreements with our seniormanagement and key personnel. We have also entered into confidentiality agreements with our personnel which contain nondisclosure covenants thatsurvive indefinitely as to our trade secrets. Additionally, pursuant to these confidentiality agreements, any inventions and creations of our employees relatingto the company’s business that are completed within twelve months after termination of employment shall be transferred to the company without payment ofconsideration, and the employees shall assist the company in applying for corresponding patents or other rights. However, these employment agreements donot ensure the continued service of these senior management and key personnel, and we may not be able to enforce the confidentiality agreements we havewith our personnel. In addition, we do not maintain key man life insurance for any of the senior members of our management team or our key personnel. Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business. We believe our success depends on the efforts and talent of our employees, including data center design, construction management, operations,engineering, IT, risk management, and sales and marketing personnel. Our future success depends on our continued ability to attract, develop, motivate andretain qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not be able to hire and retain these personnelat compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experiencedemployees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruitthem. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and ourability to serve our customers could diminish, resulting in a material adverse effect to our business. Our operating results may fluctuate, which could make our future results difficult to predict, and may fall below investor or analyst expectations. Our operating results may fluctuate due to a variety of factors, including many of the risks described in this section, which are outside of our control.You should not rely on our operating results for any prior periods as an indication of our future operating performance. Fluctuations in our net revenue canlead to even greater fluctuations in our operating results. Our budgeted expense levels depend in part on our expectations of long-term future net revenue.Given relatively large fixed cost of revenue for services, other than utility costs, any substantial adjustment to our costs to account for lower than expectedlevels of net revenue will be difficult. Consequently, if our net revenue does not meet projected levels, our operating performance will be negatively affected.If our net revenue or operating results do not meet or exceed the expectations of investors or securities analysts, the price of our ADSs may decline. 23 Table of Contents Declining fixed asset valuations could result in impairment charges, the determination of which involves a significant amount of judgment on our part.Any impairment charge could have a material adverse effect on us. We review our fixed assets for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying amountmay not be recoverable. Indicators of impairment include, but are not limited to, a sustained significant decrease in the market price of or the cash flowsexpected to be derived from a property. A significant amount of judgment is involved in determining the presence of an indicator of impairment. If the totalof the expected undiscounted future cash flows is less than the carrying amount of a property on our balance sheet, a loss is recognized for the differencebetween the fair value and carrying value of the asset. The evaluation of anticipated cash flows requires a significant amount of judgment regardingassumptions that could differ materially from actual results in future periods, including assumptions regarding future occupancy, contract rates and estimatedcosts to service the contracts. Any impairment charge could have a material adverse effect on us. Failure to commence or resume development of land that we have been granted right to use within the required timeframe may subject us to defaultliabilities under land use right grant contracts and cause us to lose such land use rights. We have two parcels of land, one in Chengdu and one in Kunshan, over which we have obtained land use rights, but which may be treated as “idleland” by the respective local government authorities. According to the relevant PRC regulations, the PRC government may impose an “idle land fee” equalto 20% of the land premium on land use if the relevant construction land has been identified as “idle land”. The construction land may be identified as “idleland” under any of the following circumstances: (i) where development of and construction on the land failed to commence for more than one year from theconstruction commencement date prescribed in the land grant contract; or (ii) the development and construction on the land have commenced but have beensuspended when the area of the developed land is less than one-third of the total area to be developed or the invested amount is less than 25% of the totalamount of investment, and the suspension of development attains for one year. Furthermore, the PRC government has the authority to confiscate any landwithout compensation if the construction does not commence within two years after the construction commencement date specified in the land grantcontract, unless the delay is caused by force majeure, governmental action or preliminary work necessary for the commencement of construction. We suspended the development of one parcel of land in Chengdu after completion of the construction of the then existing buildings thereon inNovember 2010, and upon such suspension, the area of the developed land was less than one third of the total land area. The development of one parcel ofland in Kunshan was not timely commenced before the December 2012 deadline. As of the date of this annual report on Form 20-F, we have receivedapproval from the local government authorities to commence construction on the rest of such land parcel in Chengdu and the parcel of land in Kunshan,respectively, and we have commenced construction after receiving such approval. Nonetheless, the local government may treat both the land parcel inKunshan and the land parcel in Chengdu as being formerly idle land, in which case we may be required to pay idle land fees or penalties, change the planneduse of the land, find another parcel of land, or even be required to forfeit the land to PRC government. We may further be subject to penalties for breach ofrelevant land use right grant contracts and be required to pay damages. We have not been subject to any penalties or required to forfeit any land as a result of failing to commence or resume development pursuant to therelevant land grant contract. However, we cannot assure you that we will not be subject to penalties as a result of any failure to commence development inaccordance with the relevant land grant contract. If this occurs, our financial condition and results of operations could be materially and adversely affected. 24 Table of Contents We may experience impairment of goodwill in connection with our acquisition of entities or other assets. We are required to perform an annual goodwill impairment test. As of December 31, 2018, we carried RMB1,752.0 million (US$254.8 million) ofgoodwill on our balance sheet. However, goodwill can become impaired. We test goodwill for impairment annually or more frequently if events or changes incircumstances indicate possible impairment, but the fair value estimates involved require a significant amount of difficult judgment and assumptions. Wemay not achieve the anticipated benefits of the acquisitions, which may result in the need to recognize impairment of some or all of the goodwill werecorded. We are subject to anti-corruption laws of China and Hong Kong as well as the U.S. Foreign Corrupt Practices Act. Our failure to comply with these lawscould result in penalties, which could harm our reputation and have an adverse effect on our business, financial condition and results of operations. We operate our business in China and Hong Kong and are thus subject to PRC and Hong Kong laws and regulations related to anti-corruption,which prohibit bribery to government agencies, state or government owned or controlled enterprises or entities, to government officials or officials that workfor state or government owned enterprises or entities, as well as bribery to non-government entities or individuals. We are also subject to the U.S. ForeignCorrupt Practices Act, or the FCPA, which generally prohibits companies and any individuals or entities acting on their behalf from offering or makingimproper payments or providing benefits to foreign officials for the purpose of obtaining or keeping business, along with various other anti-corruption laws.Our existing policies prohibit any such conduct and we have implemented and conducted additional policies and procedures designed, and providingtraining, to ensure that we, our employees, business partners and other third parties comply with PRC anti-corruption laws and regulations, the FCPA andother anti-corruption laws to which we are subject. There is, however, no assurance that such policies or procedures will work effectively all the time orprotect us against liability under the FCPA or other anti-corruption laws. There is no assurance that our employees, business partners and other third partieswould always obey our policies and procedures. Further, there is discretion and interpretation in connection with the implementation of PRC anti-corruptionlaws. We could be held liable for actions taken by our employees, business partners and other third parties with respect to our business or any businesses thatwe may acquire. We operate in the data center services industry in China and generally purchase our colocation facilities and telecommunications resourcesfrom state or government-owned enterprises and sell our services domestically to customers that include state or government-owned enterprises orgovernment ministries, departments and agencies. This puts us in frequent contact with persons who may be considered “foreign officials” under the FCPA,resulting in an elevated risk of potential FCPA violations. If we are found not to be in compliance with PRC anti-corruption laws, the FCPA and otherapplicable anti-corruption laws governing the conduct of business with government entities, officials or other business counterparties, we may be subject tocriminal, administrative, and civil penalties and other remedial measures, which could have an adverse impact on our business, financial condition andresults of operations. Any investigation of any potential violations of the FCPA or other anti-corruption laws by U.S., Chinese or Hong Kong authorities orthe authorities of any other foreign jurisdictions, could adversely impact our reputation, cause us to lose customer sales and access to colocation facilities andtelecommunications resources, and lead to other adverse impacts on our business, financial condition and results of operations. We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations. On May 12, 2008 and April 14, 2010, severe earthquakes hit part of Sichuan province in southeastern China and part of Qinghai province in westernChina, respectively, resulting in significant casualties and property damage. While we did not suffer any loss or experience any significant increase in costresulting from these earthquakes, if a similar disaster were to occur in the future that affected Shanghai, Beijing, Shenzhen, Guangzhou, Chengdu or anothercity where we have data centers or are in the process of developing data centers, our operations could be materially and adversely affected due to loss ofpersonnel and damages to property. In addition, a similar disaster affecting a larger, more developed area could also cause an increase in our costs resultingfrom the efforts to resurvey the affected area. Even if we are not directly affected, such a disaster could affect the operations or financial condition of ourcustomers and suppliers, which could harm our results of operations. In addition, our business could be materially and adversely affected by natural disasters or public health emergencies, such as the outbreak of avianinfluenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus, or another epidemic. If any of our employees is suspected of havingcontracted any contagious disease, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises.Therefore, we may have to temporarily suspend part of or all of our operations. Furthermore, any future outbreak may restrict economic activities in affectedregions, resulting in temporary closure of our offices or prevent us and our customers from traveling. Such closures could severely disrupt our businessoperations and adversely affect our results of operations. 25 Table of Contents If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired. We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Actof 2002, or the Sarbanes-Oxley Act, and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that we maintain effectivedisclosure controls and procedures and internal controls over financial reporting. Commencing with our year ended December 31, 2017, we have beenobligated to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on theeffectiveness of our internal controls over financial reporting in our Form 20-F filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. Inaddition, as of December 31, 2018, we have ceased to be an “emerging growth company” as the term is defined in the JOBS Act, and our independentregistered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Even if our managementconcludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its ownindependent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented,designed, operated or reviewed, or if it interprets the relevant requirements differently from us. This will require that we incur substantial additionalprofessional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. We are in the processof enhancing our accounting personnel and other resources to address our internal controls and procedures. In addition, our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how welldesigned and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherentlimitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that allcontrol issues and instances of fraud will be detected. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintainproper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of ourADSs could decline and we could be subject to sanctions or investigations by the SEC, Nasdaq, or other regulatory authorities. Compliance with rules and requirements applicable to public companies has caused us to incur increased costs, which may negatively affect our results ofoperations. As a public company, we have incurred significant legal, accounting and other expenses that we did not incur as a private company. In addition, theSarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, have required changes in corporate governance practices of publiccompanies. These rules and regulations have increased our legal, accounting and financial compliance costs and made certain corporate activities more time-consuming and costly. Complying with these rules and requirements may be especially difficult and costly for us because we may have difficulty locatingsufficient personnel in China with experience and expertise relating to U.S. GAAP and U.S. public company reporting requirements, and such personnel maycommand higher salaries relative to what similarly experienced personnel would command in the United States. If we cannot employ sufficient personnel toensure compliance with these rules and regulations, we may need to rely more on outside legal, accounting and financial experts, which may be expensive. Inaddition, we have incurred additional costs associated with our public company reporting requirements. We continuously evaluate and monitordevelopments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. 26 Table of Contents Risks Related to Our Corporate Structure If the PRC government deems that the contractual arrangements in relation to our consolidated variable interest entities do not comply with PRCregulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in thefuture, we could be subject to severe penalties or be forced to relinquish our interests in those operations. The PRC government regulates telecommunications-related businesses through strict business licensing requirements and other governmentregulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-relatedbusinesses. Specifically, foreign investors are not allowed to own more than a 50% equity interest in any PRC company engaging in value-addedtelecommunications businesses, with certain exceptions relating to e-commerce which does not apply to us. Any such foreign investor must also haveexperience and a good track record in providing value-added telecommunications services overseas. Because we are a Cayman Islands company, we are classified as a foreign enterprise under PRC laws and regulations, and our wholly owned PRCsubsidiaries, GDS (Shanghai) Investment Co., Ltd. (formerly known as Shanghai Free Trade Zone GDS Management Co., Ltd.), or GDS ManagementCompany, Shenzhen Yungang EDC Technology Co., Ltd., Beijing Wanguo Shu’an Science & Technology Development Co., Ltd., Beijing Hengpu’an DataTechnology Development Co., Ltd., Guojin Technology (Kunshan) Co., Ltd., Shanghai Yungang EDC Technology Co., Ltd., Shenzhen Pingshan New AreaGlobal Data Science & Technology Development Co., Ltd., EDC Technology (Suzhou) Co., Ltd., EDC (Chengdu) Industry Co., Ltd., EDC Technology(Kunshan) Co., Ltd., Wan Qing Teng, Shanghai Shuyao Data Technology Co., Ltd., Shanghai Lingying Data Technology Co., Ltd., Guangzhou WanxuTechnology Services Co., Ltd., Shanghai Puchang Data Science and Technology Co., Ltd., Shanghai Shuchang Data Science and Technology Co., Ltd.,Shanghai Wanshu Data Technology Co., Ltd., Beijing Hengchang Data Science & Technology Development Co., Ltd. Guangzhou Yunlan, Shanghai ShugeData Science & Technology Co., Ltd., Shanghai Shulan Data Science & Technology Co., Ltd., Shanghai Fengtu Data Science & Technology Co., Ltd.,Shanghai Jingyao Network Technology Co.,Ltd., Shou Xin Yun (Beijing) Science & Technology Co., Ltd., Beijing Wan Qing Teng Science & TechnologyCo., Ltd., Beijing Wan Teng Yun Science & Technology Co., Ltd., Beijing Hua Wei Yun Science & Technology Co., Ltd., Shou Rong Yun (Beijing)Science & Technology Co., Ltd., Jiangsu Wanguo Xingtu Data Services Co., Ltd., Qian Hai Wan Chang, Shenzhen Anda Data Science & TechnologyDevelopment Co., Ltd., Heyuan Teng Wei Yun Science & Technology Co., Ltd., Wulanchabu Wanguo Yuntu Data Services Co., Ltd., Zhangjiakou YunhongData & Technology Co., Ltd., Guangzhou Wanzhuo Data &Technology Co., Ltd. and Langfang Wanguo Yunxin Data & Technology Co., Ltd. are foreign-invested enterprises, or their subsidiaries. To comply with PRC laws and regulations, we conduct our business in China through contractual arrangementswith our consolidated variable interest entities, or VIEs, and their shareholders. These contractual arrangements provide us with effective control over ourconsolidated VIEs, namely GDS Shanghai, GDS Beijing and its subsidiaries, and enable us to receive substantially all of the economic benefits of ourconsolidated VIEs in consideration for the services provided by our wholly-owned PRC subsidiaries, and have an exclusive option to purchase all of theequity interest in our consolidated VIEs when permissible under PRC laws. For a description of these contractual arrangements, see “Item 4. Information onthe Company—C. Organizational Structure—Contractual Arrangements with Our Affiliated Consolidated Entities.” We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. Our PRC legalcounsel, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among our wholly-owned PRCsubsidiaries, our consolidated VIEs and their shareholders is valid, binding and enforceable in accordance with its terms. However, as there are substantialuncertainties regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions of DomesticEnterprises by Foreign Investors, or the M&A Rules, the telecommunications circular described above and the Telecommunications Regulations of thePeople’s Republic of China, or the Telecommunications Regulations, and the relevant regulatory measures concerning the telecommunications industry,there can be no assurance that the PRC government, such as the Ministry of Commerce, or the MOFCOM, the MIIT, or other authorities that regulatesproviders of data center service and other participants in the telecommunications industry would agree that our corporate structure or any of the abovecontractual arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policiesthat may be adopted in the future. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevantgovernment authorities have broad discretion in interpreting these laws and regulations. 27 Table of Contents If our corporate and contractual structure is deemed by the MIIT, the MOFCOM or other regulators having competent authority to be illegal, eitherin whole or in part, we may lose control of our consolidated VIEs and have to modify such structure to comply with regulatory requirements. However, therecan be no assurance that we can achieve this without material disruption to our business. Further, if our corporate and contractual structure is found to be inviolation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations,including: · revoking our business and operating licenses; · levying fines on us; · confiscating any of our income that they deem to be obtained through illegal operations; · shutting down a portion or all of our networks and servers; · discontinuing or restricting our operations in China; · imposing conditions or requirements with which we may not be able to comply; · requiring us to restructure our corporate and contractual structure; · restricting or prohibiting our use of the proceeds from overseas offering to finance our PRC consolidated VIEs’ business and operations; and · taking other regulatory or enforcement actions that could be harmful to our business. Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporatestructure and contractual arrangements. See “—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation ofthe draft PRC Foreign Investment Law, and its enactment may materially and adversely affect our business and financial condition.” Occurrence of any ofthese events could materially and adversely affect our business, financial condition and results of operations. In addition, if the imposition of any of thesepenalties or requirement to restructure our corporate structure causes us to lose the rights to direct the activities of our consolidated VIEs or our right toreceive their economic benefits, we would no longer be able to consolidate in our consolidated financial statements such VIEs. However, we do not believethat such actions would result in the liquidation or dissolution of our company, our wholly-owned subsidiaries in China or our consolidated VIEs or theirsubsidiaries. For the years ended December 31, 2016, 2017 and 2018, our consolidated VIEs contributed 80.1%, 91.0% and 97.2%, respectively, of our totalnet revenue. Our contractual arrangements with our consolidated VIEs may result in adverse tax consequences to us. We could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with our consolidatedVIEs were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes by requiring a transfer pricing adjustment. A transferpricing adjustment could adversely affect us by (i) increasing the tax liabilities of our consolidated VIEs without reducing the tax liability of our subsidiaries,which could further result in late payment fees and other penalties to our consolidated VIEs for underpaid taxes; or (ii) limiting the ability of ourconsolidated VIEs to obtain or maintain preferential tax treatments and other financial incentives. 28 Table of Contents We rely on contractual arrangements with our consolidated VIEs and their shareholders for our China operations, which may not be as effective as directownership in providing operational control and otherwise have a material adverse effect as to our business. We rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our business in China. For a description of thesecontractual arrangements, see “Item 4. Information on the Company— C. Organizational Structure—Contractual Arrangements with Our AffiliatedConsolidated Entities.” In 2016, 2017 and 2018, 80.1%, 91.0% and 97.2%, of our total net revenue, respectively, were attributed to our consolidated VIEs.See “Item 4. Information on the Company—A. History and Development of the Company.” These contractual arrangements may not be as effective as directownership in providing us with control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their respective obligationsunder these contractual arrangements, our recourse to the assets held by our consolidated VIEs is indirect and we may have to incur substantial costs andexpend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective,particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolutionproceedings, assets under the name of any of record holder of equity interest in our consolidated VIEs, including such equity interest, may be put under courtcustody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the recordholder of the equity interest. All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC.Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legalprocedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRClegal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or ifwe suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effectivecontrol over our consolidated VIEs, and our ability to conduct our business and our financial conditions and results of operation may be materially andadversely affected. See “—Risks Related to Doing Business in the People’s Republic of China—There are uncertainties regarding the interpretation andenforcement of PRC laws, rules and regulations.” The shareholders of our consolidated VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business andfinancial condition. In connection with our operations in China, we rely on the shareholders of our consolidated VIEs to abide by the obligations under such contractualarrangements. In particular, Shanghai Shu’an Data Services Co., Ltd., or GDS Shanghai, is 99.90% owned by William Wei Huang, our chairman and chiefexecutive officer, and 0.10% owned by Qiuping Huang, and Beijing Wanguo Chang’an Science & Technology Co., Ltd., or GDS Beijing, is approximately99.97% owned by William Wei Huang, and approximately 0.03% owned by Qiuping Huang. The interests of William Wei Huang and Qiuping Huang in theirindividual capacities as the shareholders of GDS Shanghai and GDS Beijing may differ from the interests of our company as a whole, as what is in the bestinterests of GDS Shanghai and GDS Beijing, including matters such as whether to distribute dividends or to make other distributions to fund our offshorerequirement, may not be in the best interests of our company. There can be no assurance that when conflicts of interest arise, any or all of these individualswill act in the best interests of our company or that conflicts of interest will be resolved in our favor. In addition, these individuals may breach or cause ourconsolidated VIEs and their subsidiaries to breach or refuse to renew the existing contractual arrangements with us. Currently, we do not have arrangements to address potential conflicts of interest the shareholders of GDS Shanghai and GDS Beijing may encounter,on one hand, and as a beneficial owner of our company, on the other hand; provided that we could, at all times, exercise our option under the exclusive calloption agreements to cause them to transfer all of their equity ownership in GDS Shanghai and GDS Beijing to a PRC entity or individual designated by us aspermitted by the then applicable PRC laws. In addition, if such conflicts of interest arise, we could also, in the capacity of attorney-in-fact of the then existingshareholders of GDS Shanghai and GDS Beijing as provided under the shareholder voting rights proxy agreements, directly appoint new directors of GDSShanghai and GDS Beijing. We rely on the shareholders of our consolidated VIEs to comply with PRC laws and regulations, which protect contracts andprovide that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage oftheir positions for personal gains, and the laws of the Cayman Islands, which provide that directors have a duty of care and a duty of loyalty to act honestly ingood faith with a view to our best interests. However, the legal frameworks of China and Cayman Islands do not provide guidance on resolving conflicts inthe event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and the shareholders ofour consolidated VIEs, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertaintyas to the outcome of any such legal proceedings. 29 Table of Contents Our corporate actions are substantially controlled by our principal shareholders, including our founder, chairman and chief executive officer, WilliamWei Huang, who have the ability to control or exert significant influence over important corporate matters that require approval of shareholders, whichmay deprive you of an opportunity to receive a premium for your ADSs and materially reduce the value of your investment. Our amended articles of association provide that Class B ordinary shares are entitled to 20 votes per share at general meetings of our shareholderswith respect to the election of a simple majority of our directors. Mr. William Wei Huang beneficially owns 100% of the Class B ordinary shares issued andoutstanding, and any additional Class A ordinary shares which are acquired by the Class B shareholders will be converted into Class B ordinary shares. Inaddition, for so long as there are Class B ordinary shares outstanding, the Class B shareholders are entitled (i) to nominate one less than a simple majority, orfive, of our directors, and (ii) to have 20 votes per share with respect to the election and removal of a simple majority, or six, of our directors. In addition, ouramended articles of association provide that STT GDC Pte Ltd, or STT GDC (a wholly owned subsidiary of Singapore Technologies Telemedia Pte Ltd, or STTelemedia), has the right to appoint up to three directors to our board of directors for so long as they beneficially own certain percentages of our issued sharecapital. Such appointments will not be subject to a vote by our shareholders. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Appointment, Nomination and Terms of Directors.” Furthermore, as of the date of this annual report on Form 20-F, two of our principal shareholders—STT GDC and William Wei Huang, our founder,chairman and chief executive officer—owned or exercised voting and investment control over approximately 35.4% and 6.7% (including ordinary sharesunderlying share options, and ADSs underlying restricted share units, exercisable within 60 days beneficially owned by Mr. Huang), respectively, of ouroutstanding ordinary shares, and approximately 38.0% of our outstanding Class A ordinary shares, and 100% of our outstanding Class B ordinary shares,respectively. As a result of these appointment rights, nomination rights, dual-class ordinary share structure and ownership concentration, these shareholders havethe ability to control or exert significant influence over important corporate matters, investors may be prevented from affecting important corporate mattersinvolving our company that require approval of shareholders, including: · the composition of our board of directors and, through it, any determinations with respect to our operations, business direction and policies,including the appointment and removal of officers; · any determinations with respect to mergers or other business combinations; · our disposition of substantially all of our assets; and · any change in control. These actions may be taken even if they are opposed by our other shareholders, including the holders of the ADSs. Furthermore, this concentration of ownership may also discourage, delay or prevent a change in control of our company, which could have the dualeffect of depriving our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and reducing the price of theADSs. As a result of the foregoing, the value of your investment could be materially reduced. If the custodians or authorized users of our controlling non-tangible assets, including chops and seals, fail to fulfill their responsibilities, ormisappropriate or misuse these assets, our business and operations may be materially and adversely affected. Under PRC law, legal documents for corporate transactions, including agreements and contracts such as the leases and sales contracts that ourbusiness relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative whose designation is registered andfiled with the relevant local branch of the SAIC. We generally execute legal documents by affixing chops or seals, rather than having the designated legalrepresentatives sign the documents. We have three major types of chops—corporate chops, contract chops and finance chops. We use corporate chops generally for documents to besubmitted to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We use contract chopsfor executing leases and commercial, contracts. We use finance chops generally for making and collecting payments, including, but not limited to issuinginvoices. Use of corporate chops and contract chops must be approved by our legal department and administrative department, and use of finance chops mustbe approved by our finance department. The chops of our subsidiaries and consolidated VIEs are generally held by the relevant entities so that documentscan be executed locally. Although we usually utilize chops to execute contracts, the registered legal representatives of our subsidiaries and consolidatedVIEs have the apparent authority to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise. In order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the designated keyemployees of our legal, administrative or finance departments. Our designated legal representatives generally do not have access to the chops. Although wehave approval procedures in place and monitor our key employees, including the designated legal representatives of our subsidiaries and consolidated VIEs,the procedures may not be sufficient to prevent all instances of abuse or negligence. There is a risk that our key employees or designated legal representativescould abuse their authority, for example, by binding our subsidiaries and consolidated VIEs with contracts against our interests, as we would be obligated tohonor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of our chops or signatures of our legalrepresentatives. If any designated legal representative obtains control of the chop in an effort to obtain control over the relevant entity, we would need tohave a shareholder or board resolution to designate a new legal representative and to take legal action to seek the return of the chop, apply for a new chopwith the relevant authorities, or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives obtainsand misuses or misappropriates our chops and seals or other controlling intangible assets for whatever reason, we could experience disruption to our normalbusiness operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distractingmanagement from our operations, and our business and operations may be materially and adversely affected. 30 Table of Contents Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law, andits enactment may materially and adversely affect our business and financial condition. The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015, or the 2015 Draft FIL, aiming to, upon itsenactment, replace major existing laws and regulations governing foreign investment in China. While the MOFCOM solicited comments on this draft,substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the proposed legislation and the extent ofrevision to the currently proposed draft. The 2015 Draft FIL, if enacted as proposed, may materially impact the entire legal framework regulating foreigninvestments in China. Among other things, the 2015 Draft FIL purports to introduce the principle of “actual control” in determining whether a company is considered aforeign invested enterprise, or an FIE. The 2015 Draft FIL specifically provides that entities established in China but “controlled” by foreign investors will betreated as FIEs, whereas an entity organized in a foreign jurisdiction, but cleared by the MOFCOM as “controlled” by PRC entities and/or citizens, wouldnonetheless be treated as a PRC domestic entity for investment in the “restricted category” or similar category that could appear on any such “negative list.”In this connection, “control” is broadly defined in the 2015 Draft FIL to cover any of the following summarized categories: · holding 50% or more of the voting rights or similar rights and interests of the subject entity; · holding less than 50% of the voting rights or similar rights and interests of the subject entity but having the power to directly or indirectlyappoint or otherwise secure at least 50% of the seats on the board or other equivalent decision-making bodies, or having the voting power tomaterially influence the board, the shareholders’ meeting or other equivalent decision-making bodies; or · having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial, staffing andtechnology matters. Once an entity is determined to be an FIE, and its investment amount exceeds certain thresholds or its business operation falls within a “negativelist” separately issued by the State Council in the future, market entry clearance by the MOFCOM or its local counterparts would be required. The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including our company, to obtainnecessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. Under the 2015 Draft FIL, VIEs that arecontrolled via contractual arrangements would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors. For any companies with a VIEstructure in an industry category that is “restricted,” or similar category that could appear on any such “negative list,” the existing VIE structure may bedeemed legitimate only if its ultimate controlling persons are of PRC nationality, whether PRC state owned enterprises or agencies, or PRC citizens.Conversely, if the one or more actual controlling persons are of foreign nationality, then the VIEs will be treated as FIE, in which case, the existing VIEstructures are likely to be scrutinized as well as subject to foreign investment restrictions and approval requirements of PRC supervisory authorities such asthe MOFCOM and MIIT. Any operations in industry categories on a “negative list” without market entry clearance may be considered illegal. However, there are significant uncertainties as to how the control status of our company and our consolidated VIEs would be determined under theenacted version of the 2015 Draft FIL. In addition, it is uncertain whether any of the businesses that we currently operate or plan to operate in the futurethrough our consolidated VIEs, and the businesses operated by our equity investees with a VIE structure, would be on any to-be-issued “negative list” andtherefore be subject to any restrictions or prohibitions on foreign investment. We also face uncertainties as to whether the enacted version of the 2015 DraftFIL and the final “negative list” would mandate further actions, such as MOFCOM market entry clearance, to be completed by companies with existing VIEstructures, and whether such clearance can be timely obtained, if at all. If we or our equity investees with a VIE structure were not considered as ultimatelycontrolled by PRC domestic investors, we or our equity investees may be required to take further actions under the enacted version of the 2015 Draft FIL, andour business and financial condition may be materially and adversely affected. In addition, our corporate governance practices may be materially impacted and our compliance costs could increase if we were not considered asultimately controlled by PRC domestic investors under the 2015 Draft FIL, if enacted as currently proposed. For instance, the 2015 Draft FIL as proposedpurports to impose stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investmentimplementation reports and investment amendment reports that would be required for each investment, and alteration of investment specifics, an annualreport would be mandatory, and large foreign investors meeting certain criteria would be required to report on a quarterly basis. Any company found to benoncompliant with these information reporting obligations could potentially be subject to fines and/or administrative or criminal liabilities, and the personsdirectly responsible could be subject to criminal liabilities. On December, 26, 2018, the National People’s Congress published the Foreign Investment Law of the PRC (Draft), or the 2018 Draft FIL, on itsofficial website for public review and comments. The 2018 Draft FIL defines foreign investment and contains provisions regulating the promotion, protectionand management of foreign investment. If the 2018 Draft FIL were enacted as currently proposed, it would apply to foreign investment within the PRC andreplace the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-investedEnterprise Law in their entirety. The 2015 Draft FIL and the 2018 Draft FIL regulate the same subject area, namely foreign investment in the PRC, but the two drafts are different intheir legislative approach. The 2018 Draft FIL is silent on the concepts of “control of a domestic enterprise through contractual arrangement” and whetherVIEs that are controlled via contractual arrangements would be deemed as FIEs if they are ultimately “controlled” by foreign investors. There areuncertainties as to whether the 2018 Draft FIL will be enacted, its enactment timetable, whether issues presented by the 2015 Draft FIL will be reflected inlaws or regulations promulgated by the relevant authorities in the future, and how such laws or regulations, if and when enacted, would impact our existingcontractual arrangements. 31 Table of Contents Risks Related to Doing Business in the People’s Republic of China We may be regarded as being non-compliant with the regulations on VATS due to the lack of IDC licenses for which penalties may be assessed that maymaterially and adversely affect our business, financial condition, growth strategies and prospects. The laws and regulations regarding value-added telecommunications services, or VATS, licenses in the PRC are relatively new and are stillevolving, and their interpretation and enforcement involve significant uncertainties. Investment activities in the PRC by foreign investors are principallygoverned by the Industry Catalog Relating to Foreign Investment, or the Catalog. The Catalog divides industries into three categories: encouraged, restrictedand prohibited. Industries not included in the Catalog are permitted industries. Industries such as VATS, including Internet data center services, or IDCservices, restrict foreign investment. Specifically, the Administrative Regulations on Foreign-Invested Telecommunications Enterprises restrict the ultimatecapital contribution percentage held by foreign investor(s) in a foreign-invested VATS enterprise to 50% or less. See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulation on Foreign Investment Restrictions” for additional details. Under the TelecommunicationsRegulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The AdministrativeMeasures for Telecommunications Business Operating License, which took effect on April 10, 2009 and was amended on September 1, 2017, set forth thetypes of licenses required to provide telecommunications services in China and the procedures and requirements for obtaining such licenses. Before 2013, the definition of the IDC services was subject to interpretation as to whether our services would fall within its scope. In addition,authorities in different localities had different interpretations. According to the Telecom Catalogue publicized in February 2003 by the Ministry ofInformation Industry, or MII, the predecessor of the MIIT, which took effect in April 2003, and our consultations with the MIIT, IDC services should berendered through the connection with the Internet or other public telecommunications networks. On May 6, 2013, the “Q&A on the Application of IDC/ISP Business”, the Q&A, was published on the website of China Academy of TelecomResearch, an affiliate of the MIIT. The Q&A was issued together with the draft revised Telecom Catalogue of the 2013 version, which although not an officiallaw or regulation, reflected the evolving attitude of the MIIT towards the legal requirements as to applications for IDC licenses. A national consulting bodyand certain telephone numbers, the Designated Numbers, are provided in the Q&A to answer any questions arising from the application of IDC licenses. Sincethen, even though the definition of IDC services under the Q&A is identical to that under the Telecom Catalogue, whether a business model should bedeemed to be IDC services is subject to the unified clarifications under the Q&A and replies obtained from such Designated Numbers, rather than differentreplies which may be obtained from different officials from MIIT or its local branches. The draft revised Telecom Catalogue did not come into effect untilMarch 2016, when it was further revised to adapt to developments in the telecommunications industry. During such period, we closely followed legislativedevelopments and conducted feasibility studies for restructuring our business. Based on the Q&A and our consultation with both the Designated Numbersand MIIT officials in 2014 and 2015, IDC services which did not utilize public telecommunication networks would also require an IDC license and that IDCservices could only be provided by a holder of an IDC license, or a subsidiary of such holder, with the authorization of the holder. GDS Beijing obtained a cross-regional IDC license in November 2013, the scope of which now includes Shanghai, Suzhou, Beijing, Shenzhen,Chengdu and Guangzhou. As of the date of this annual report on Form 20-F, we are in the process of applying to further expand the scope of such cross-regional IDC license to include Tianjin and Zhangjiakou, Hebei province. In order to adapt to the new regulatory requirements and address pre-existingcustomer contracts, we converted Global Data Solutions Co., Ltd., or GDS Suzhou, into a domestic company wholly owned by GDS Beijing by acquiring allof the equity interests in GDS Suzhou from Further Success Limited, or FSL, a limited liability company established in the British Virgin Islands, in order toenable GDS Suzhou to provide IDC services with the authorization of GDS Beijing, and under the auspices of an IDC license held by GDS Beijing. MIIT hasapproved GDS Beijing’s application to expand its IDC license coverage to include GDS Suzhou and Kunshan Wanyu Data Service Co., Ltd., or KunshanWanyu, so that they are now authorized to provide IDC services. See “Item 4. Information on the Company—A. History and Development of the Company—2016 VIE Restructuring.” As part of the VIE restructuring, we converted and changed the shareholding of Shanghai Waigaoqiao EDC Technology Co, Ltd.,or EDC Shanghai Waigaoqiao, in the same way as GDS Suzhou, and MIIT has approved GDS Beijing’s application to expand its IDC license coverage toinclude EDC Shanghai Waigaoqiao so that EDC Shanghai Waigaoqiao is also authorized to provide IDC services, and MIIT has approved GDS Beijing’sapplication to expand its IDC license coverage to include Shenzhen Yaode. In addition, with regard to the other WFOEs that have not contributed substantialrevenue, we are deliberating different measures to ensure that any business activity that may have to be conducted by IDC license holders will be conductedby our IDC license holders, which are our consolidated VIEs. See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to Value-Added Telecommunications Business” for additional details. Recently we have learned that the MIIT will not approve any expansion of authorization by an IDC license holder to its subsidiary, and that it willnot allow any such subsidiary of an IDC license holder to renew its current authorization in the future. Instead, the MIIT will require subsidiaries of IDClicense holders to apply for their own IDC licenses. Although, to our knowledge, such policy is not supported by any published laws or regulations. Wecannot assure you that we will be able to obtain approvals from the MIIT for an expansion of authorization from GDS Beijing under its IDC license to allowIDC services to be provided by GDS Suzhou or the other subsidiaries of our VIEs, who rely on such authorizations and expansions to provide IDC services, orthat we will be able to renew such authorizations and expansions in due course. GDS Suzhou and the other subsidiaries of our VIEs currently plan to apply fortheir own IDC licenses in order to continually maintain authorizations to provide IDC services going forward. 32 Table of Contents However, there can be no assurance that our contracts signed before the completion of the VIE restructuring with any of our WFOEs as the serviceprovider will not be deemed as historical non-compliance. If the MIIT regards us as existing in a state of non-compliance, penalties could potentially beassessed against us. It is possible that the amount of any such penalties may be several times more than the net revenue generated from these services. Ourbusiness, financial condition, expected growth and prospects would be materially and adversely affected if such penalties were to be assessed upon us. It isalso possible that the PRC government may prohibit a non-compliant entity from continuing to carry on its business, which would materially and adverselyaffect our results of operations, expected growth and prospects. Some of our consolidated VIEs may be regarded as being non-compliant with the regulations on VATS, due to operating beyond the permitted scope oftheir IDC licenses. One of our consolidated VIEs, GDS Shanghai, obtained a regional IDC license for the Shanghai area in January 2012. Nevertheless, GDS Shanghaiprovided IDC services in cities outside of Shanghai, which were beyond the scope of its then-effective IDC license. GDS Shanghai upgraded its IDC licenseto a cross-regional license in April 2016, according to which GDS Shanghai is allowed to provide IDC services in Beijing, Shanghai, Suzhou, Shenzhen andChengdu. Another one of our consolidated VIEs, GDS Suzhou, is authorized to provide general IDC services under the auspices of an IDC license held byGDS Beijing but such authorization approved by MIIT did not include Internet resources collaboration services. Nevertheless, GDS Suzhou signed contractswith clients to provide Internet resources collaboration services. In 2018, we further expanded GDS Beijing’s authorization to GDS Suzhou so that GDSSuzhou also is allowed to provide Internet resources collaboration services. In addition, in 2016, 2017 and 2018, GDS Beijing and GDS Suzhou entered intoIDC service agreements with relevant customers, according to which GDS Beijing and GDS Suzhou have been providing IDC services to their respectivecustomers through third-party data centers in Tianjin. In 2017, GDS Beijing entered into an IDC services agreement with a certain customer, according towhich GDS Beijing has been providing IDC services since 2018 in our data centers HB1/2/3. As GDS Beijing’s IDC license and its authorization granted toGDS Suzhou do not include the Tianjin and Zhangjiakou areas, GDS Beijing and GDS Suzhou may be regarded as being non-compliant with the regulationson VATS due to operating beyond the permitted geographic scope of their IDC licenses. GDS Beijing is in the process of applying to expand its IDC licenseto cover the Tianjin and Zhangjiakou areas. Once GDS Beijing has upgraded its IDC license to cover a broader geographic scope, we will then apply tofurther expand GDS Beijing’s authorization to GDS Suzhou so that GDS Suzhou also will be allowed to provide IDC services in Tianjin. We cannot assureyou that GDS Beijing and GDS Suzhou will be able to obtain approvals from the MIIT for the foregoing expanded permitted geographic scope andauthorizations, and even if such approvals are obtained, any agreements signed before GDS Beijing and GDS Suzhou obtained such approvals could bedeemed as historical non-compliance. If the MIIT regards GDS Shanghai, GDS Suzhou and GDS Beijing as being historically non-compliant, penalties whichcould be several times more than the net revenue generated from these services, could potentially be assessed against us, and as a result, our business,financial condition, expected growth and prospects would be materially and adversely affected. It is also possible that the PRC government may prohibit ahistorically non-compliant entity from continuing to carry on its business, which would materially and adversely affect our results of operations, expectedgrowth and prospects. One of our subsidiaries, GDS (HK) Limited, has entered into IDC service agreements with customers outside China, which may be regarded as non-compliance with the regulations on foreign investment restriction and value-added telecommunications services, by providing IDC service withoutqualification. In 2015 and 2016, GDS (HK) Limited, or GDS HK, which is one of our Hong Kong—incorporated subsidiaries, entered into IDC service agreementswith a few customers outside China, while the actual service provider was intended to be GDS Beijing or EDC Shanghai Waigaoqiao. These IDC serviceagreements may be regarded as non-compliant because the law prohibits foreign entities providing IDC services in the PRC. As of the date of this annual report on Form 20-F, we have amended all of our IDC service agreements to specify GDS Beijing or its subsidiary as thecontracting party for such agreements, so that such agreements are, in our belief, compliant. However, we cannot assure you that our IDC service agreementsas amended will not be found to be non-compliant. If the MIIT regards such agreements as non-compliant, penalties could potentially be assessed against us,and as a result, our business, financial condition, expected growth and prospects would be materially and adversely affected. 33 Table of Contents We may fail to obtain, maintain and update licenses and permits necessary to conduct our operations in the PRC, and our business may be materially andadversely affected as a result of any changes in the laws and regulations governing the VATS industry in the PRC. There can be no assurance that we will be able to maintain our existing licenses or permits necessary to provide our current IDC services in the PRC,renew any of them when their current term expires, or update existing licenses or obtain additional licenses necessary for our future business expansion. Thefailure to obtain, retain, renew or update any license or permit generally, and our IDC licenses in particular, could materially and adversely disrupt ourbusiness and future expansion plans. For example, the revised Telecom Catalogue came into effect in March 2016 in which the definition of the IDC business also covers the Internetresources collaboration services business to reflect the developments in the telecommunications industry in China and covers cloud-based services. Also, inJanuary 2017, the MIIT issued Circular of the Ministry of Industry and Information Technology on Clearing up and Regulating the Internet Access ServiceMarket, or the 2017 MIIT Circular, according to which an enterprise that obtained its IDC license prior to the implementation of the revised TelecomCatalogue and has actually carried out Internet resources collaboration services shall make a written commitment to its original license issuing authoritybefore March 31, 2017 to meet the relevant requirements for business licensing and obtain the corresponding telecommunication business license by the endof 2017. The 2017 MIIT Circular also requires that companies providing IDC services shall not construct communication transmission facilities withoutpermission. Although we have successfully expanded the scope of our IDC licenses to cover Internet resources collaboration services, fixed network domesticdata transmission services and domestic Internet virtual private network services as required under the 2017 MIIT Circular, changes in the regulatoryenvironment of this kind can be disruptive to our business as they may require us to modify the way we conduct our business in order to receive licenses orotherwise comply with such requirements. We may also be deemed in non-compliance for failure to update our operation licenses in a timely manneraccording to such new regulatory requirements. Any such changes could increase our compliance costs, divert management’s attention or interfere with ourability to serve customers, any of which could harm our results of operations and lower the price of our ADSs. In addition, if future PRC laws or regulations governing the VATS industry require that we obtain additional licenses or permits or update existinglicenses in order to continue to provide our IDC services, there can be no assurance that we would be able to obtain such licenses or permits or updateexisting licenses in a timely fashion, or at all. If any of these situations occur, our business, financial condition and prospects would be materially andadversely affected. Third-party data center providers from whom we lease data center space on a wholesale basis may fail to maintain licenses and permits necessary toconduct their operations in the PRC, and our business may be materially and adversely affected. As of December 31, 2018, we operated an aggregate net floor area of 9,839 sqm that we lease on a wholesale basis from other data center providers,and which we refer to as our third-party data centers. There can be no assurance that the wholesale data center providers from whom we lease will be able tomaintain their existing licenses or permits necessary to provide our current IDC services in the PRC or renew any of them when their current term expires.Their failure to obtain, retain or renew any license or permit generally, and their IDC licenses in particular, could materially and adversely disrupt ourbusiness. In addition, if future PRC laws or regulations governing the VATS industry require that the wholesale data center providers from whom we leaseobtain additional licenses or permits in order to continue to provide their IDC services, there can be no assurance that they would be able to obtain suchlicenses or permits in a timely fashion, or at all. If any of these situations occur, our business, financial condition and prospects could be materially andadversely affected. 34 Table of Contents Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results ofoperations and may result in our inability to sustain our growth and expansion strategies. Substantially all of our operations are conducted in the PRC and a substantial majority of our net revenue is sourced from the PRC. Accordingly, ourfinancial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC. The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, levelof development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has implemented measuresemphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improvedcorporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRCgovernment continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercisessignificant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, settingmonetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies. While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and amongvarious sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation ofresources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results ofoperation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.In addition, the PRC government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreasedeconomic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses,financial condition and results of operations. There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. Substantially all of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries andconsolidated VIEs are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based onwritten statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general.The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment inChina. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover allaspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because theselaws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, andbecause the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement ofthese laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part ongovernment policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, wemay not be aware of our violation of these policies and rules until after the occurrence of the violation. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and managementattention. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it maybe more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legalsystems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business,financial condition and results of operations. 35 Table of Contents Our business operations are extensively impacted by the policies and regulations of the PRC government. Any policy or regulatory change may cause us toincur significant compliance costs. We are subject to extensive national, provincial and local governmental regulations, policies and controls. Central governmental authorities andprovincial and local authorities and agencies regulate many aspects of Chinese industries, including, among others and in addition to specific industry-related regulations, the following aspects: · construction or development of new data centers or rebuilding or expansion of existing data centers; · banking regulations, as a result of the colocation services we provide to banks and financial institutions, including regulations governing theuse of subcontractors in the management and maintenance of facilities; · environment laws and regulations; · security laws and regulations; · establishment of or changes in shareholder of foreign investment enterprises; · foreign exchange; · taxes, duties and fees; · customs; · land planning and land use rights; and · cyber security and information protection laws and regulations, including the Cyber Security Law of the People’s Republic of China, or theCyber Security Law, and the Administrative Measures for the Graded Protection of Information Security. The liabilities, costs, obligations and requirements associated with these laws and regulations may be material, may delay the commencement ofoperations at our new data centers or cause interruptions to our operations. Failure to comply with the relevant laws and regulations in our operations mayresult in various penalties, including, among others the suspension of our operations and thus adversely and materially affect our business, prospects,financial condition and results of operations. Additionally, there can be no assurance that the relevant government agencies will not change such laws orregulations or impose additional or more stringent laws or regulations. For example, see “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to Information Technology Outsourcing Services Provided to Banking Financial Institutions” for informationregarding regulations of banking and financial institutions that outsource their data center services to us, and “—Regulations Related to Land Use Rights”for information regarding restrictions on the new construction or expansion of data centers within the boundaries of the Beijing municipality. Compliancewith such laws or regulations may require us to incur material capital expenditures or other obligations or liabilities. Additionally, the Cyber Security Law came into effect on June 1, 2017, which provides certain rules and requirements applicable to network serviceproviders in China. The Cyber Security Law requires network operators to perform certain functions related to cyber security protection and the strengtheningof network information management through taking technical and other necessary measures as required by laws and regulations to safeguard the operation ofnetworks, responding to network security effectively, preventing illegal and criminal activities, and maintaining the integrity and confidentiality andusability of network data. In addition, the Cyber Security Law imposes certain requirements on network operators of critical information infrastructure, forexample, network operators of critical information infrastructure generally shall, during their operations in the PRC, store the personal information andimportant data collected and produced within the territory of PRC, and shall perform certain security obligations as required under the Cyber Security Law.However, the Cyber Security Law still leaves a series of gaps to be filled due to the complex and sensitive nature of this regulatory area. While the CyberSecurity law sets out a broad set of principles, certain key terms and clauses are uncertain and ambiguous, which appear intended to be clarified through aseries of implementing regulations and guidelines to be issued by relevant authorities. For example, implementing regulations dealing with “personalinformation protection”, “security assessment of cross-border transfer of personal information and important data” and “protection of critical informationinfrastructure (CII)” are being formulated. Currently, the Cyber Security Law has not directly impacted our operations, but in light of rapid advances in itsimplementation, we believe the implementation of the Cyber Security Law involves potential risks to our business because we may be deemed as the networkoperator of critical information infrastructure thereunder. We are in the process of formulating internal rules to comply with the requirements under the CyberSecurity Law, including without limitation, the appointment of designated personnel in charge of data protection. However, we cannot assure you that themeasures we have taken or will take are adequate under the Cyber Security Law. If further changes in our business practices are required under China’sevolving regulatory framework for the protection of information in cyberspace, our business, financial condition and results of operations may be adverselyaffected. 36 Table of Contents The approval of the China Securities Regulatory Commission, or the CSRC, may be required under a PRC regulation. The regulation also establishesmore complex procedures for acquisitions conducted by foreign investors that could make it more difficult for us to grow through acquisitions. On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission, orthe SASAC, the State Administration of Taxation, the State Administration for Industry and Commerce, or the SAIC, the CSRC, and the SAFE, jointlyadopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect onSeptember 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshorespecial purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing andtrading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official websiteprocedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope andapplicability of the M&A Rules to offshore special purpose vehicles. While the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, King & Wood Mallesons, that theCSRC approval was not required in the context of our initial public offering or follow-on public offering because we had not acquired any equity interests orassets of a PRC company owned by its controlling shareholders or beneficial owners who are PRC companies or individuals, as such terms are defined underthe M&A Rules. There can be no assurance that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRCcounsel. If the CSRC or another PRC regulatory body subsequently determines that its approval was needed for our initial public offering or follow-on publicoffering or such approval is needed for any future offerings, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. In anysuch event, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict therepatriation of the proceeds from our initial public offering or follow-on public offering into the PRC or take other actions that could have a material adverseeffect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The regulations also established additional procedures and requirements that are expected to make merger and acquisition activities in China byforeign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained incircumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. We may grow ourbusiness in part by acquiring other companies operating in our industry. Complying with the requirements of the new regulations to complete suchtransactions could be time-consuming, and any required approval processes, including approval from the MOFCOM, may delay or inhibit our ability tocomplete such transactions, which could affect our ability to expand our business or maintain our market share. See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to M&A and Overseas Listings.” 37 Table of Contents PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiariesto liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registeredcapital or distribute profits. SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment andFinancing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonlyknown as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFEin connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRCresidents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purposevehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle,such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that aPRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purposevehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities,and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with thevarious SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. According to theNotice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment released on February 13, 2015 by SAFE,local banks will examine and handle foreign exchange registration for overseas direct investment, including the initial foreign exchange registration andamendment registration, under SAFE Circular 37 from June 1, 2015. Mr. William Wei Huang has completed the initial SAFE registration pursuant to SAFE Circular 75 in 2012 and is in the process of applying foramendment of such registration. We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation.Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial ownersand there can be no assurance that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules, andthere is no assurance that the registration under SAFE Circular 37 and any amendment will be completed in a timely manner or will be completed at all. Thefailure of our beneficial owners who are PRC residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registrationprocedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legalsanctions. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries andlimit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial conditionand results of operations. Any failure to comply with PRC regulations regarding our employee share incentive plans may subject the PRC plan participants or us to fines and otherlegal or administrative sanctions. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to theirposition as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or its localbranches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees whoare PRC residents and who were granted options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company became anoverseas listed company. Since our company became an overseas listed company upon completion of our initial public offering, we and directors, executiveofficers and other employees of our PRC subsidiaries and consolidated VIEs and who have been granted options have been subject to the Notice on IssuesConcerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company,issued by SAFE in February 2012, or SAFE Circular 7, according to which, among others, employees, directors, supervisors and other management membersof PRC companies participating in any stock incentive plan of an overseas publicly listed company who are domestic individuals as defined therein arerequired to register and make regular periodic filings with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listedcompany, and complete certain other procedures. One of our subsidiaries, as the domestic qualified agent, has completed the registration under SAFE Circular7 for our share incentive plans and we are making efforts to comply with these requirements stipulated in SAFE Circular 7. Failure to complete the SAFEregistrations or meet other requirements may subject relevant participants in our share incentive plans to fines and legal sanctions and may also limit theability to make payment under our share incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capitalinto our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also faceregulatory uncertainties that could restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law. 38 Table of Contents The enforcement of the Labor Contract Law of the People’s Republic of China, or the PRC Labor Contract Law, and other labor-related regulations in thePRC may increase our labor costs, impose limitations on our labor practices and adversely affect our business and our results of operations. On June 29, 2007, the Standing Committee of the National People’s Congress of China enacted the PRC Labor Contract Law, which becameeffective on January 1, 2008 and was amended on December 28, 2012. The PRC Labor Contract Law introduces specific provisions related to fixed-termemployment contracts, part-time employment, probation, consultation with labor unions and employee assemblies, employment without a written contract,dismissal of employees, severance, and collective bargaining, which together represent enhanced enforcement of labor laws and regulations. According to thePRC Labor Contract Law, an employer is obliged to sign an unfixed-term labor contract with any employee who has worked for the employer for 10consecutive years. Further, if an employee requests or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, theresulting contract must have an unfixed term, with certain exceptions. The employer must pay economic compensation to an employee where a labor contractis terminated or expires in accordance with the PRC Labor Contract Law, except for certain situations which are specifically regulated. In addition, thegovernment has issued various labor-related regulations to further protect the rights of employees. According to such laws and regulations, employees areentitled to annual leave ranging from five to 15 days and are able to be compensated for any untaken annual leave days in the amount of three times theirdaily salary, subject to certain exceptions. In the event that we decide to change our employment or labor practices, the PRC Labor Contract Law and itsimplementation rules may also limit our ability to effect those changes in a manner that we believe to be cost-effective. In addition, as the interpretation andimplementation of these new regulations are still evolving, our employment practices may not be at all times deemed in compliance with the new regulations.If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations, our business and financial conditionsmay be adversely affected. We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash andfinancing requirements. We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal operatingsubsidiaries and on remittances from the consolidated VIEs, for our offshore cash and financing requirements, including the funds necessary to pay dividendsand other cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside of China and pay our expenses. When ourprincipal operating subsidiaries or the consolidated VIEs incur additional debt, the instruments governing the debt may restrict their ability to pay dividendsor make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to our PRC subsidiaries and certain other subsidiariespermit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable accounting standards and regulations. Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required to set aside at least 10% of its net income each yearto fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered capital. These reserves, together with theregistered capital, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries incorporated in China are restrictedin their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or advances. As of December 31, 2018, the restrictedassets were RMB4,768.7 million (US$693.6 million), which mainly consisted of registered capital. Our subsidiaries did not have any significant retainedearnings available for distribution in the form of dividends as of December 31, 2018. In addition, registered share capital and capital reserve accounts are alsorestricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. 39 Table of Contents Limitations on the ability of VIEs to make remittance to the wholly-foreign owned enterprise and on the ability of our subsidiaries to pay dividendsto us could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could bebeneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business. In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuinenessand Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domesticentities to offshore entities, including (i) under the principle of genuine transactions, banks shall check board resolutions regarding profit distribution,original copies of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses beforeremitting any profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of their sources of capital and utilizationarrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with any outboundinvestment. We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRCincome tax on our global income. Under the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside of China with“de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterpriseincome tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overallmanagement and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxationissued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis ofDe Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de factomanagement body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprisescontrolled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the StateAdministration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status ofoffshore enterprises, regardless of whether they are controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would be subjectto PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result ofour global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise forPRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain withrespect to the interpretation of the term “de facto management body.” We may not be able to obtain certain benefits under the relevant tax treaty on dividends paid by our PRC subsidiary to us through our Hong Kongsubsidiary. We are a holding company incorporated under the laws of the Cayman Islands and as such rely on dividends and other distributions on equity fromour PRC subsidiary to satisfy part of our liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currentlyapplies to dividends paid by a PRC “resident enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has atax treaty with China that provides for preferential tax treatment. Pursuant to the Arrangement between Mainland China and the Hong Kong SpecialAdministrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, such withholding tax ratemay be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC enterprise. However, the 5% withholding tax rate does notautomatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong enterprise must be the beneficial ownerof the relevant dividends; and (b) the Hong Kong enterprise must directly hold no less than 25% share ownership in the PRC enterprise during the 12consecutive months preceding its receipt of the dividends. 40 Table of Contents Dividends payable to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may become subject toPRC tax. Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable todividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have suchestablishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividendsare derived from sources within the PRC. Similarly, any gain realized on the transfer of ADSs or Class A ordinary shares by such investors is also subject toPRC tax at a current rate of 10%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements betweenjurisdictions, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on ourClass A ordinary shares or ADSs, and any gain realized from the transfer of our Class A ordinary shares or ADSs, would be treated as income derived fromsources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable toindividual investors who are non-PRC residents and any gain realized on the transfer of ADSs or Class A ordinary shares by such investors may be subject toPRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties or under applicable tax arrangements betweenjurisdictions. If we or any of our subsidiaries established outside China are considered a PRC resident enterprise, it is unclear whether holders of our ADSs orClass A ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. Ifdividends payable to our non-PRC investors, or gains from the transfer of our ADSs or Class A ordinary shares by such investors, are deemed as incomederived from sources within the PRC and thus are subject to PRC tax, the value of your investment in our ADSs or Class A ordinary shares may declinesignificantly. We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to aChinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies. On February 3, 2015, the State Administration of Taxation issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets byNon-PRC Resident Enterprises, or Bulletin 7, which replaced or supplemented previous rules under the Notice on Strengthening Administration ofEnterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation, onDecember 10, 2009. Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC residententerprises may be recharacterized and treated as a direct transfer of PRC taxable assets if such arrangement does not have a reasonable commercial purposeand was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subjectto PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immoveable propertieslocated in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRCresident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of thetransaction arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore enterprisederives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if itsincome mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have real commercialnature which is evidenced by their actual function and risk exposure; the duration of existence of the business model and organizational structure; thereplicability of the transaction by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similararrangements. In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income taxfiling of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of 25%.Where the underlying transfer relates to the immoveable properties located in China or to equity investments in a PRC resident enterprise, which is notrelated to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would apply, subject to availablepreferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has thewithholding obligation. Where the payor fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itselfwithin the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of saleof shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange. 41 Table of Contents On October 17, 2017, the State Administration of Taxation issued the Announcement on Issues Relating to Withholding at Source of Income Tax ofNon-resident Enterprises, or SAT Circular 37. SAT Circular 37 supersedes Circular 698 in its entirety, and amends certain provisions in Bulletin 7, but doesnot touch upon other provisions of Bulletin 7, which remain in full force. SAT Circular 37 purports to clarify certain issues in the implementation of theabove regime, by providing, among others, the definitions of equity transfer income and tax basis, the foreign exchange rate to be used in the calculation ofwithholding amounts and the date of occurrence of the withholding obligation. Specially, SAT Circular 37 provides that where the transfer income subject towithholding at its source is derived by a non-PRC resident enterprise by way of instalments, the instalments may first be treated as recovery of costs ofprevious investments; upon recovery of all costs, the tax amount to be withheld shall then be computed and withheld. There is uncertainty as to the application of Bulletin 7 and SAT Circular 37. Bulletin 7 and SAT Circular 37 may be determined by the taxauthorities to be applicable to our historical or future offshore restructuring transactions or sale of our shares or ADSs or those of our offshore subsidiarieswith non-resident enterprises being the transferors. We may be subject to filing obligations or taxed as the transferor, or subject to withholding obligations asthe transferee, in such transactions. For transfer of our shares or ADSs by investors that are non-PRC resident enterprises, our PRC subsidiaries may berequested to assist with filings under Bulletin 7 and SAT Circular 37. For example, in the past, we acquired EDC Holding by issuing shares of GDS HoldingsLimited, or GDS Holdings, to its shareholders in exchange for all of the outstanding shares of EDC Holding that were not held by us then. In addition, certainof our direct and indirect shareholders transferred some or all of their equity interest in us through indirect transfers conducted by their respective overseasholding companies which held shares in us. As a result, the transferors and transferees in these transactions, including us may be subject to the tax filing andwithholding or tax payment obligation, while our PRC subsidiaries may be requested to assist in the filing. Furthermore, we, our non-resident enterprises andPRC subsidiaries may be required to spend valuable resources to comply with Bulletin 7 and SAT Circular 37 or to establish that we and our non-residententerprises should not be taxed under Bulletin 7 and SAT Circular 37, for our previous and future restructuring or disposal of shares of our offshoresubsidiaries, which may have a material adverse effect on our financial condition and results of operations. Restrictions on currency exchange may limit our ability to utilize our net revenue effectively. Substantially all of our net revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includesdividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans,including loans we may secure from our onshore subsidiaries or consolidated VIEs. Currently, certain of our PRC subsidiaries, may purchase foreign currencyfor settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain proceduralrequirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for currentaccount transactions. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with,SAFE and other relevant PRC governmental authorities. Since a significant amount of our future net revenue will be denominated in Renminbi, any existingand future restrictions on currency exchange may limit our ability to utilize net revenue generated in Renminbi to fund our business activities outside of thePRC or pay dividends in foreign currencies to our shareholders, including holders of our ADSs, and may limit our ability to obtain foreign currency throughdebt or equity financing for our subsidiaries and consolidated VIEs. Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment. The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political andeconomic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy ofpegging the value of the Renminbi to the U.S. dollar. From December 31, 2015 to December 31, 2016, the Renminbi depreciated approximately 6.7% againstthe U.S. dollar. In 2017, however, the RMB appreciated approximately 6.7% against the U.S. dollar; and in 2018, the RMB depreciated approximately 5.7%against the U.S. dollar. It remains unclear what further fluctuations may occur or what impact this will have on our results of operations. 42 Table of Contents Substantially all of our net revenue and costs are denominated in Renminbi. We are a holding company and we rely on dividends paid by ouroperating subsidiaries in China for our cash needs. Any significant revaluation of the Renminbi may materially reduce any dividends payable on, our ADSsin U.S. dollars. To the extent that we need to convert U.S. dollars we received from our initial public offering into Renminbi for our operations, appreciationof the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert ourRenminbi into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs or for other business purposes,appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount. The audit report included in this annual report on Form 20-F is prepared by an auditor who is not inspected by the Public Company Accounting OversightBoard and, as such, our investors are deprived of the benefits of such inspection. Our independent registered public accounting firm that issues the audit report included elsewhere in this annual report on Form 20-F filed with theSEC, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board,or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the UnitedStates and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable toconduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB. Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and qualitycontrol procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in Chinaprevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits ofPCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s auditprocedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence inour reported financial information and procedures and the quality of our financial statements. If additional remedial measures are imposed on the “big four” PRC-based accounting firms, including our independent registered public accounting firm,in administrative proceedings brought by the SEC alleging such firms’ failure to meet specific criteria set by the SEC with respect to requests for theproduction of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act. Starting in 2011 the Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, were affectedby a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOBsought to obtain from the Chinese accounting firms access to their audit work papers and related documents. The firms were, however, advised and directedthat under Chinese law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to suchpapers in China had to be channeled through the CSRC. In late 2012 this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under theSarbanes-Oxley Act against the Chinese accounting firms, including our independent registered public accounting firm. In January 2014, the administrativelaw judge reached an initial decision to impose penalties on the firms including a temporary suspension of their right to practice before the SEC. Theaccounting firms filed a petition for review of the initial decision. On February 6, 2015, before a review by the commissioners of the SEC had taken place, thefirms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normallybe made to the CSRC. The firms will receive matching Section 106 requests and are required to abide by a detailed set of procedures with respect to suchrequests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose avariety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, asappropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or inextreme cases the resumption of the current proceeding against all four firms. 43 Table of Contents In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States withmajor PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statementsbeing determined to not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about anysuch future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market priceof our ADSs may be adversely affected. If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable totimely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determinednot to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our Class A ordinary sharesfrom Nasdaq or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States. Risks Related to Our ADSs The trading price of our ADSs may be volatile, which could result in substantial losses to you. The trading prices of our ADSs have been, and are likely to continue to be, volatile and could fluctuate widely due to factors beyond our control.This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance ordeteriorating financial results of other listed companies based in China. The securities of some of these companies have experienced significant volatilitysince their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances ofother Chinese companies’ securities after their offerings, including Internet and e-commerce companies, may affect the attitudes of investors toward Chinesecompanies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters ofother Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether wehave conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations thatare not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early2009, the second half of 2011 and in 2015, which may have a material and adverse effect on the trading price of our ADSs. In addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the following: · regulatory developments affecting us or our industry, customers or suppliers; · announcements of studies and reports relating to the quality of our service offerings or those of our competitors; · changes in the economic performance or market valuations of other data center services companies; · actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; · changes in financial estimates by securities research analysts; 44 Table of Contents · conditions in the market for data center services; · announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capitalraisings or capital commitments; · additions to or departures of our senior management; · fluctuations of exchange rates between the RMB and the U.S. dollar; · release or expiry of lock-up or other transfer restrictions on our outstanding shares or ADSs; · sales or perceived potential sales of additional Class A ordinary shares or ADSs; and · attacks by short sellers, including the publication of negative opinions regarding us and our business prospects in order to create negativemarket momentum and generate profits for themselves after selling a stock short. See “—Techniques employed by short sellers may drive downthe market price of our ADSs.” If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSsand trading volume could decline. The trading market for our ADSs depends in part on the research and reports that securities or industry analysts publish about us or our business. Ifresearch analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishesinaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage ofour company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or tradingvolume for our ADSs to decline. Techniques employed by short sellers may drive down the market price of our ADSs. Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention of buyingidentical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale ofthe borrowed securities and the purchase of the replacement shares, as the short seller expects to pay less in that purchase than it received in the sale. As it isin the short seller’s best interests for the price of the stock to decline, many short sellers publish, or arrange for the publication of, negative opinions regardingthe relevant issuer and its business prospects in order to create negative market momentum and generate profits for themselves after selling a stock short.These short attacks have, in the past, led to selling of shares in the market. Public companies that have substantially all of their operations in China have been the subject of short selling. Much of the scrutiny and negativepublicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial and accounting irregularities andmistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result, many of thesecompanies are now conducting internal and external investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SECenforcement actions. We have in the past been, and may in the future be, the subject of unfavorable allegations made by a short seller, which allegations were followed byperiods of instability in the market price of our ADSs. If we again were to become the subject of any unfavorable allegations, whether such allegations areproven to be true or untrue, it is not clear what effect such negative publicity could have on us, and we could have to expend a significant amount ofresources to investigate such allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may beconstrained in the manner in which it can proceed against the relevant short seller by principles of freedom of speech, applicable state law or issues ofcommercial confidentiality. Such a situation could be costly and time-consuming and could distract our management from growing our business. Even ifsuch allegations are ultimately proven to be groundless, allegations against us could severely impact its business operations and stockholders equity, andany investment in our ADSs could be greatly reduced or rendered worthless. 45 Table of Contents Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of our ADSs for return on your investment. We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. Asa result, we do not expect to pay any cash dividends in the foreseeable future. See “Item 8. Financial Information—A. Consolidated Statements and OtherFinancial Information—Dividend Policy and Distributions.” Therefore, you should not rely on an investment in our ADSs as a source for any future dividendincome. Our board of directors has complete discretion as to whether to distribute dividends. Even if our board of directors decides to declare and paydividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, ourcapital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions andother factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any futureprice appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs.You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs. Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline. Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to declinesignificantly. As of the date of this annual report on Form 20-F, we have 1,007,069,640 ordinary shares outstanding, comprising 939,479,304 Class Aordinary shares (including 5,208,216 Class A ordinary shares held by JPMorgan Chase Bank, N.A., as depositary, which are reserved for future delivery uponexercise or vesting of share awards granted under our share incentive plans) and 67,590,336 Class B ordinary shares. All ADSs representing our Class Aordinary shares sold in our public offerings are freely transferable by persons other than our “affiliates” without restriction or additional registration under theU.S. Securities Act of 1933, as amended, or the Securities Act. All of the other Class A ordinary shares may be available for sale, subject to volume and otherrestrictions as applicable under Rules 144 and 701 under the Securities Act. Certain major holders of our Class A ordinary shares have the right to cause us to register under the Securities Act the sale of their shares, subject tothe applicable lock-up periods in connection with our initial public offering. Registration of these shares under the Securities Act would result in ADSsrepresenting these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales ofthese registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline significantly. We have adopted share incentive plans, under which we have the discretion to grant a broad range of equity-based awards to eligible participants.See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.” We intend to register all ordinary shares that we mayissue under these share incentive plans. Once we register these ordinary shares, they can be freely sold in the public market in the form of ADSs uponissuance, subject to volume limitations applicable to affiliates. If a large number of our ordinary shares or securities convertible into our ordinary shares aresold in the public market in the form of ADSs after they become eligible for sale, the sales could reduce the trading price of our ADSs and impede our abilityto raise future capital. In addition, any ordinary shares that we issue under our share incentive plans would dilute the percentage ownership held by theinvestors who purchased ADSs in our follow-on public offering. 46 Table of Contents Our dual-class voting structure and concentrated ownership limits your ability to influence corporate matters and could discourage others from pursuingany change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial. As discussed under “—Risks Related to Our Corporate Structure—Our corporate actions are substantially controlled by our principal shareholders,including our founder, chairman and chief executive officer, William Wei Huang, who have the ability to control or exert significant influence overimportant corporate matters that require approval of shareholders, which may deprive you of an opportunity to receive a premium for your ADSs andmaterially reduce the value of your investment” above, Mr. William Wei Huang, our founder, chairman and chief executive officer and our other principalshareholders have considerable influence over matters requiring shareholder approval. To the extent that their interests differ from yours, you may bedisadvantaged by any action that they may seek to pursue. This concentrated control could also discourage others from pursuing any potential merger,takeover or other change of control transactions, which could have the effect of depriving the holders of our Class A ordinary shares and our ADSs of theopportunity to sell their shares at a premium over the prevailing market price. You, as holders of ADSs, may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights. Holders of ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying Class Aordinary shares in accordance with the provisions of the deposit agreement. Under our amended articles of association, the minimum notice period required toconvene a general meeting will be 10 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permityou to withdraw your Class A ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents maynot be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause thedepositary to extend voting rights to you in a timely manner, but there can be no assurance that you will receive the voting materials in time to ensure thatyou can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out anyinstructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to voteand you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call ashareholders’ meeting. Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights availableto you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from theregistration requirements is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and theunderlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. Weare under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to bedeclared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable toparticipate in our rights offerings and may experience dilution in your holdings. You may not receive cash dividends if the depositary decides it is impractical to make them available to you. The depositary will pay cash dividends on the ADSs only to the extent that we decide to distribute dividends on our ordinary shares or otherdeposited securities, and we do not have any present plan to pay any cash dividends in the foreseeable future. See “Item 8. Financial Information—A.Consolidated Statements and Other Financial Information—Dividend Policy and Distributions.” To the extent that there is a distribution, the depositary ofour ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securitiesafter deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent.However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. Forexample, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions maybe less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you. 47 Table of Contents You may be subject to limitations on transfer of your ADSs. Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to timewhen it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers ofADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of anyrequirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. Certain judgments obtained against us by our shareholders may not be enforceable. We are a company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United States and substantially all ofour assets are located outside the United States. In addition, all of our directors and executive officers and the experts named in this annual report on Form 20-F reside outside the United States, and most of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bringan action against us or against them in the United States in the event that you believe that your rights have been infringed under the U.S. federal securitieslaws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, the PRC or other relevant jurisdiction mayrender you unable to enforce a judgment against our assets or the assets of our directors and officers. You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we areincorporated under Cayman Islands law. We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by ourmemorandum and articles of association, the Companies Law (2018 Revision) of the Cayman Islands and the common law of the Cayman Islands. The rightsof shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands laware to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparativelylimited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, butare not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not asclearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a lessdeveloped body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies ofcorporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federalcourt of the United States. Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or toobtain copies of lists of shareholders of these companies. Our directors will have discretion under the post-offering memorandum and articles of associationwe expect to adopt, to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obligedto make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for ashareholder resolution or to solicit proxies from other shareholders in connection with a proxy contest. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken bymanagement, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the UnitedStates. 48 Table of Contents Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’opportunity to sell their shares, including Class A ordinary shares represented by our ADSs, at a premium. We have adopted amended and restated articles of association that contain provisions to limit the ability of others to acquire control of our companyor cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell theirshares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similartransaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more seriesand to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations orrestrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greaterthan the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay orprevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, theprice of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected. Inaddition, our amended articles of association contain other provisions that could limit the ability of third parties to acquire control of our company or causeus to engage in a transaction resulting in a change of control, as defined in our amended articles of association, including: a provision that entitles Class Bordinary shares to 20 votes per share at general meetings of our shareholders with respect to the election of a simple majority of our directors; a provision thatentitles Class B shareholders to nominate one less than a simple majority, or five, of our directors; a provision that allows one of our principal shareholders toappoint up to three directors to our board of directors for so long as they beneficially own certain percentages of our issued share capital; and a classifiedboard with staggered terms for our directors, which will prevent the replacement of a majority of directors at one time. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market pricesby discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable toU.S. domestic public companies. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulationsin the United States that are applicable to U.S. domestic issuers, including: · the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; · the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under theExchange Act; · the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiderswho profit from trades made in a short period of time; and · the selective disclosure rules by issuers of material nonpublic information under Regulation FD. We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our resultson a quarterly basis as press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material eventswill also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and lesstimely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or informationthat would be made available to you were you investing in a U.S. domestic issuer. 49 Table of Contents As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance mattersthat differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than theywould enjoy if we complied fully with the Nasdaq corporate governance listing standards. As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to the Nasdaq corporate governance listing standards. However,Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporategovernance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards. For instance, we are not required to: · have a majority of the board be independent (although all of the members of the audit committee must be independent under the ExchangeAct); · have a compensation committee or a nominations or corporate governance committee consisting entirely of independent directors; or · have regularly scheduled executive sessions with only independent directors each year. We have relied on and intend to continue to rely on some of these exemptions. As a result, you may not be provided with the benefits of certaincorporate governance requirements of Nasdaq. We may become a passive foreign investment company, or PFIC, which could result in adverse United States federal income tax consequences to UnitedStates investors. Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe wewere a PFIC for our most recent taxable year and we do not expect to become one in the future, although there can be no assurance in this regard. Thedetermination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time.Specifically, for any taxable year, we will be classified as a PFIC for United States federal income tax purposes if either (i) 75% or more of our gross income inthat taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which produce, or are heldfor the production of, passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of ourADSs, which is subject to change. See “Item 10. Additional Information—E. Taxation—Material United States Federal Income Tax Considerations—PassiveForeign Investment Company.” In addition, there is uncertainty as to the treatment of our corporate structure and ownership of our consolidated VIEs for United States federalincome tax purposes. For United States federal income tax purposes, we consider ourselves to own the stock of our consolidated VIEs. If it is determined,contrary to our view, that we do not own the stock of our consolidated VIEs for United States federal income tax purposes (for instance, because the relevantPRC authorities do not respect these arrangements), we may be treated as a PFIC. If we are a PFIC for any taxable year during which you hold our ADSs or Class A ordinary shares, our PFIC status could result in adverse UnitedStates federal income tax consequences to you if you are a United States Holder, as defined under “Taxation—Material United States Federal Income TaxConsiderations.” For example, if we are or become a PFIC, you may become subject to increased tax liabilities under United States federal income tax lawsand regulations and will become subject to burdensome reporting requirements. See “Item 10. Additional Information—E. Taxation—Material United StatesFederal Income Tax Considerations—Passive Foreign Investment Company.” There can be no assurance that we will not be a PFIC for 2019 or any futuretaxable year. Simpson Thacher & Bartlett LLP, our United States counsel, does not express any opinion about our status as a PFIC in any taxable year. 50 Table of Contents We will continue to incur increased costs as a result of being a public company, particularly since we have ceased to qualify as an “emerging growthcompany.” Since the completion of our initial public offering, we have incurred significant legal, accounting and other expenses that we did not incur as aprivate company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporategovernance practices of public companies. As of December 31, 2018, we are deemed to be a “large accelerated filer” as the term is defined in Rule 12b-2 ofthe Exchange Act, and we thereby have ceased to be an “emerging growth company” as the term is defined in the JOBS Act. These rules and regulations have increased our legal and financial compliance costs and made some corporate activities more time-consuming andcostly. Since we have ceased to be an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort towardensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the other rules and regulations of the SEC. Operating as a publiccompany has also made it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to acceptreduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we have incurred additional costsassociated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors oras executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimatewith any degree of certainty the amount of additional costs we may incur or the timing of such costs. Shareholders of our company have in the past brought, and may in the future bring, securities class action lawsuits against our company followingperiods of instability in the market price of our ADSs. On August 2, 2018, a securities class action lawsuit was filed against GDS Holdings Limited, our ChiefExecutive Officer William Huang, and our Chief Financial Officer Daniel Newman by Hamza Ramzan, a GDS shareholder. See “Item 4. Information on theCompany—B. Business Overview—Legal Proceedings.” There can be no assurance, however, that we will be successful. As of the date of this annual reporton Form 20-F, this lawsuit is in its preliminary stages; at present, we cannot reasonably assess the likelihood of any unfavorable outcome, nor can wereasonably estimate the amount, or range, of potential losses, if any, related to the lawsuit. Any class action lawsuit, including the abovementioned lawsuit, could divert a significant amount of our management’s attention and otherresources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Anysuch class action lawsuit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim issuccessfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition andresults of operations. ITEM 4. INFORMATION ON THE COMPANY A. History and Development of the Company We are an exempted company and were incorporated in the Cayman Islands in 2006. We own 100% of the shares in EDC Holding, an exemptedcompany also incorporated in the Cayman Islands, through which we indirectly hold 100% of the equity interests in holding companies in Hong Kong, manyof which own our data centers through one or more data center companies. Through EDC Holding we also indirectly hold 100% of the equity interests inGDS Management Company. Due to PRC regulations that limit foreign equity ownership of entities providing VATS at 50%, and the inclusion of IDC services within the scope ofVATS, we conduct a substantial part of our operations in China through contractual arrangements among GDS Management Company, our data centercompanies and two VIEs that hold licenses required to operate our business, GDS Beijing and GDS Shanghai, and their shareholders. As a result of thesecontractual arrangements, we control GDS Shanghai, GDS Beijing and its subsidiaries, including EDC Shanghai Waigaoqiao, GDS Suzhou, Kunshan Wanyu,Weiteng Construction, Beijing Wanguo Yixin Science & Technology Co., Ltd., or Beijing Yixin, Zhangbei Yuntong Data Network Science & TechnologyCo., Ltd., or Zhangbei Yuntong, Shenzhen Yaode, Shenzhen Jinyao, Weiteng Network, and Shanghai Jinkai Data Technology Co., Ltd., or Shanghai Jinkai,Shanghai Cai Tuo , Beijing Wan Chang Yun Science & Technology Co., Ltd., or Beijing Wan Chang Yun and Guangzhou Weiteng Data Science &Technology Co.,Ltd., or Guangzhou Weiteng Data have consolidated the financial information of these VIEs in our consolidated financial statements inaccordance with U.S. GAAP. MIIT has approved GDS Beijing’s application to expand its IDC license coverage to include GDS Suzhou and Kunshan Wanyuso that they are now authorized to provide IDC services. See “—2016 VIE Restructuring.” As part of the VIE restructuring, we converted and changed theshareholding of EDC Shanghai Waigaoqiao in the same way as GDS Suzhou, and MIIT has approved GDS Beijing’s application to expand its IDC licensecoverage to include EDC Shanghai Waigaoqiao so that EDC Shanghai Waigaoqiao is also authorized to provide IDC services. MIIT has also approved GDSBeijing’s application to expand its IDC license coverage to include Shenzhen Yaode, the company operating the data center we acquired in the SZ5acquisition. In addition, with regard to the other WFOEs that have not contributed substantial revenue, we are deliberating different measures to ensure thatany business activity that may have to be conducted by IDC license holders will be conducted by our IDC license holders, which are consolidated VIEs. See“Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to Value-Added Telecommunications Business”for additional details. 51 Table of Contents Historically, prior to our VIE restructuring, our consolidated VIEs, GDS Beijing and GDS Shanghai, contributed 2.0% and 4.3% of our total netrevenue, and we conducted the substantial majority of our operations through GDS Suzhou when it was a WFOE under PRC law. See “—2016 VIERestructuring” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the People’s Republic of China—We may be regarded asexisting, in a state of historical non-compliance with the regulations on foreign investment restriction and value-added telecommunications services, forwhich penalties may be assessed that may materially and adversely affect our business, financial condition, growth strategies and prospects.” As a result ofour internal restructuring, GDS Suzhou and EDC Shanghai Waigaoqiao became domestic-owned enterprises under PRC law and operating subsidiaries ofGDS Beijing. GDS Suzhou and EDC Shanghai Waigaoqiao have received approval from the MIIT for providing IDC services with authorization from GDSBeijing under its IDC license. As of the date of this annual report on Form 20-F, we conducted the substantial majority of our operations in China throughGDS Beijing and its subsidiaries. Accordingly, going forward we expect that substantially all of our net revenue will be generated through our consolidatedVIEs, namely GDS Shanghai, GDS Beijing and its subsidiaries. Acquisition of GZ1 In May 2016, we, through GDS Beijing, acquired all the equity interest in a target company from a third party for an aggregate purchase price ofRMB129.5 million. The target company is a limited liability company organized and existing under the PRC law, operates GZ1 in Guangzhou, China, andhas its own IDC license. Acquisition of SZ5 In June 2017, we consummated an acquisition of all the equity interests in a target group comprising two onshore entities (Shenzhen Yaode andShenzhen Jinyao) and an offshore entity (RDTJ, which has an onshore subsidiary, Guangzhou Yunlan) from third parties for an aggregate contingentpurchase price of RMB312.0 million, subject to adjustment, if any, pursuant to the terms and conditions of the equity purchase agreement. The target groupowns SZ5 in Shenzhen, China. As of the date of the acquisition, the data center had just commenced operations. The company operating the data center hasbeen authorized by GDS Beijing to provide IDC services under GDS Beijing’s IDC license. Acquisition of GZ2 In October 2017, we consummated an acquisition of all equity interests in a target group comprising an onshore entity (Weiteng Network) and anoffshore entity (Raojin, which has an onshore subsidiary, Wan Qing Teng) from third parties for a cash consideration of RMB234.0 million. The target groupowns GZ2 in Guangzhou, China. At the date of the acquisition, the data center was fully operational. The company operating the data center has its own IDClicense. 52 Table of Contents Acquisition of GZ3 In May 2018, we consummated an acquisition of all equity interests in a target group comprising an onshore entity (Weiteng Data) and an offshoreentity (PSDC, which has an onshore subsidiary, Qian Hai Wan Chang) from third parties for a cash consideration of RMB262.2 million (US$38.1 million),subject to adjustment, if any, pursuant to the terms and conditions of the equity purchase agreement. The target group owns GZ3 in Guangzhou, China. At thedate of the acquisition, the data center had just commenced operations. The company operating the data center has its own IDC license. Acquisition of SH11 In June 2018, we consummated an acquisition of all equity interests in a target company (Shanghai Cai Tuo) from third parties for a consideration ofRMB320.0 million (US$46.5 million), subject to adjustment, if any, pursuant to the terms and conditions of the equity purchase agreement. The targetcompany owns SH11 in Shanghai, China. At the date of the acquisition, the data center was fully operational. The company operating the data center has itsown IDC license. 2016 VIE Restructuring The laws and regulations regarding VATS licenses in the PRC, especially those in relation to IDC services, are relatively new and are still evolving,and their interpretation and enforcement involve significant uncertainties. PRC laws and regulations restrict foreign equity ownership of entities that holdVATS licenses, and such licenses have been denied to entities whose foreign equity ownership exceeds permitted thresholds. Before 2013, the definition of IDC service did not offer clear guidance as to whether our business at the time fell within its scope. Between 2010 and2012, in order to comply with then-effective laws and administrative practice, we consulted relevant officials of local branches of the MIIT. Based on suchconsultations, we understood that we were not required to hold an IDC license in order for us to operate our business lawfully, and we entered into most of ourcustomer contracts through GDS Suzhou, a WFOE, because we believed that restrictions on foreign investment in IDC services did not apply in our case. On May 6, 2013, the Q&A was published on the website of China Academy of Telecom Research, an affiliate of the MIIT. The Q&A was issuedtogether with the draft revised Telecom Catalogue of the 2013 version, which although not an official law or regulation, reflected the evolving attitude of theMIIT towards the legal requirements as to applications for VATS licenses, especially with regards to IDC services. A national consulting body and certainDesignated Numbers are provided in the Q&A to answer any questions arising from the application of IDC licenses. Since then, even though the definition ofIDC services under the Q&A is identical to that under the Telecom Catalogue, whether a business model should be deemed to be an IDC service is subject tothe unified clarifications under the Q&A and replies obtained from such Designated Numbers, rather than different replies which may be obtained fromdifferent officials from the MIIT or its local branches. The draft revised Telecom Catalogue did not come into effect until March 2016, when it was furtherrevised to adapt to developments in the telecommunications industry. During this period, we closely followed legislative developments and conductedfeasibility studies for restructuring our business. Based on the Q&A and our consultation with both the Designated Numbers and MIIT officials in 2014 and2015, most of our services would be deemed IDC services, and that such services could only be provided by a holder of an IDC license, or a subsidiary ofsuch holder, with the authorization of the holder. GDS Beijing obtained a cross-regional IDC license in November 2013, the scope of which now includes Shanghai, Suzhou, Beijing, Shenzhen,Chengdu and Guangzhou, and is in the process of applying to expand its IDC license to include Tianjin and Zhangjiakou, Hebei province. In order to adaptto the new regulatory requirements and address pre-existing customer contracts, we converted GDS Suzhou into a domestic company wholly owned by GDSBeijing by way of transferring all of the equity interests in GDS Suzhou from FSL to GDS Beijing in order to enable GDS Suzhou to engage in the provisionof IDC services with the authorization of GDS Beijing, and under the auspices of an IDC license held by GDS Beijing. As part of the VIE restructuring, weconverted and changed the shareholding of EDC Shanghai Waigaoqiao in the same way as GDS Suzhou, and MIIT has approved GDS Beijing’s applicationto expand its IDC license coverage to include EDC Shanghai Waigaoqiao so that EDC Shanghai Waigaoqiao is also authorized to provide IDC services. Inaddition, with regard to the other WFOEs that have not contributed substantial revenue, we are considering measures to ensure that any services that mayhave to be provided by IDC license holders will be conducted by our IDC license holders, which are our consolidated VIEs. See “Item 4. Information on theCompany—B. Business Overview—Regulatory Matters—Regulations Related to Value-Added Telecommunications Business” for additional details. 53 Table of Contents Public Offerings On November 2, 2016, our ADSs began trading on the Nasdaq Global Market under the ticker symbol “GDS.” We completed our initial publicoffering on November 7, 2016 and subsequently the underwriters partially exercised their over-allotment option on December 6, 2016. We issued and sold atotal of 20,070,735 ADSs in these transactions, representing 160,565,880 Class A ordinary shares in the form of ADSs, raising US$186.7 million in proceedsto us before expenses but after underwriting discounts and commissions. On January 30, 2018, we completed our follow-on public offering of 12,650,000 ADSs (including full exercise of the underwriters’ option topurchase additional ADSs), comprising 8,225,000 ADSs offered and sold by us and 4,425,000 ADSs offered and sold by certain selling shareholder entitiesaffiliated with SBCVC Holdings Limited, or SBCVC, representing an aggregate of 101,200,000 Class A ordinary shares, raising US$204.8 million inproceeds to us and US$110.2 million in proceeds to SBCVC before expenses but after underwriting discounts and commissions. We did not receive any ofthe proceeds from the sale of ADSs by SBCVC. Investment from CyrusOne In October 2017, we formed a new strategic partnership with CyrusOne, a premier global data center REIT company, through the execution of acommercial agreement, and the issuance to CyrusOne of 64,257,028 Class A ordinary shares, equivalent to approximately 8.0 million ADSs, at a purchaseprice of US$1.55625 per ordinary share, or US$12.45 per ADS, for a total consideration of US$100 million. Pursuant to the commercial agreement, the partiesintend to exchange best practices as to sales and marketing, data center design and construction, supply chain management, customer relationshipmanagement, as well as operations, leveraging the core competencies of both companies in order to deliver data center solutions to their respective customersand assist in their global expansion. Conversion of Convertible Bonds In November 2017, our outstanding convertible bonds in an aggregate principal amount of US$150.0 million, together with the accrued interestthereon, were voluntarily converted into approximately 97.9 million additional Class A ordinary shares, equivalent to approximately 12.2 million ADS andrepresenting 10.4% of our enlarged issued share capital immediately after completion of the conversion. Partnership with SDIC, China Unicom and China Telecom In January 2018, we entered into a non-binding letter of intent with State Development Investment Corporation, or SDIC, the largest state-ownedinvestment holding company in China, China United Network Communications Corporation Limited, or China Unicom, and China TelecommunicationsCorporation Limited, or China Telecom, for the joint development of data centers in selected upcoming markets in China. We believe that this positions us tocapture a growing market opportunity outside our core geographic markets. The parties intend to prioritize an initial pilot project in the Tianjin market. Theparties have been collaborating in furtherance of the objectives under the letter of intent. Upgrade of GDS Management Company to an Investment Holding Company On March 28, 2018, we completed the regulatory filing and registration to upgrade GDS Management Company to a foreign invested investmentholding company in the PRC by changing its name from “Shanghai Free Trade Zone GDS Management Co., Ltd.” to “GDS (Shanghai) Investment Co., Ltd.”and expanding its business scope to include, among other things, equity investment. We expect that the upgrade of GDS Management Company to a foreigninvested investment holding company will further facilitate our future investment activities in China. 54 Table of Contents Issuance of Convertible Notes On June 5, 2018, we completed our offering of US$300 million aggregate principal amount of 2% convertible senior notes due 2025 (including fullexercise of the initial purchasers’ option to purchase additional notes), raising US$291.1 million in net proceeds to us after deducting underwriting discountsand commissions and other offering expenses. Principal Offices Our principal executive offices are located at 2/F, Tower 2, Youyou Century Place, 428 South Yanggao Road, Pudong, Shanghai 200127, People’sRepublic of China. Our telephone number at this address is +86-21-2033-0303. Our registered office in the Cayman Islands is located at the offices ofConyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Prior toSeptember 30, 2018, our agent for service of process in the United States was Law Debenture Corporate Services Inc., located at 801 2 Avenue, Suite 403,New York, New York 10017, U.S.A. We appointed Cogency Global Inc., located at 10 East 40 Street, 10 Floor, New York, New York 10016, U.S.A., as oursuccessor agent for service of process in the United States, effective as of and after October 1, 2018. B. Business Overview We are a leading developer and operator of high-performance data centers in China. Our facilities are strategically located in China’s primaryeconomic hubs where demand for high-performance data center services is concentrated. Our data centers have large net floor area, high power capacity,density and efficiency, and multiple redundancy across all critical systems. We are carrier and cloud-neutral, which enables our customers to connect to allmajor PRC telecommunications carriers, and to access a number of the largest PRC cloud service providers, whom we host in our facilities. We offercolocation and managed services, including direct private connection to major public cloud platforms. We have a 18-year track record of service delivery,successfully fulfilling the requirements of some of the largest and most demanding customers for outsourced data center services in China. Our base ofapproximately 590 customers consists predominantly of cloud service providers, large Internet companies, financial institutions, telecommunications and ITservice providers, and large domestic private sector and multinational corporations. As of December 31, 2018, we had an aggregate net floor area of 160,356sqm in service, 94.9% of which was committed, and an aggregate net floor area of 65,201 sqm under construction, 48.4% of which was pre-committed. The market for high-performance data center services in China is experiencing strong growth. Demand is driven by the confluence of several seculareconomic and industry trends, including: rapid growth of the Internet, e-commerce, e-payments and big data; rising adoption of cloud computing and servervirtualization, which requires data centers with higher power capacity, density and efficiency; increasing criticality of information technology and data in theenterprise environment which requires data centers with higher reliability; and growing reliance by enterprises on outsourcing as a solution to the increasingcomplexity and cost of managing mission-critical IT infrastructure. We believe that, as a result of this strong demand and the challenges of sourcing,developing and operating new facilities that meet the required standard, there is a relative scarcity of high-performance data center capacity in China. Our portfolio of data centers and secured expansion capacity are strategically located to address this growing demand. We operate our data centers toservice our customers predominantly in Shanghai, Beijing, Shenzhen, Guangzhou and Chengdu, the primary financial, commercial, industrial andcommunications hubs in each region of China. We have established and are developing our presence in Hong Kong which we believe is another importantmarket for our customers. Our data centers are located in close proximity to the corporate headquarters and key operation centers of many large enterprises,providing convenient access for our customers. Furthermore, the extensive multi-carrier telecommunications networks in these markets enable our customersto enhance the performance and lower the cost of connectivity to our facilities. In addition to our presence in core markets, in 2018 we developed and nowoperate a data center campus in Hebei province, China, for one of our largest customers. Our management is considering potential strategic acquisitions ofland use rights and developments of data center campuses in order to meet the demands of our customers. 55ndthth Table of Contents Our data centers are large-scale, highly reliable and highly efficient facilities that provide a flexible, modular and secure operating environment inwhich our customers can house, power and cool the computer systems and networking equipment that support their mission-critical IT infrastructure. Weinstall large power capacity and optimize power usage efficiency, which enables our customers to deploy their IT infrastructure more efficiently and reducetheir operating and capital costs. As a result of our advanced data center design, high technical specifications and robust operating procedures, we are able tomake service level commitments related to service availability and other key metrics that meet our customers’ required standards. We currently serve approximately 590 customers, including cloud service providers and large Internet companies, a diverse community of financialinstitutions, telecommunications and IT service providers and large domestic private sector and multinational corporations, many of which are leaders intheir respective industries. We host a number of the largest cloud service providers operating in China, including Aliyun, the cloud computing unit ofAlibaba, which are present in several of our data centers. Contracts with our cloud service provider and large Internet customers generally have terms of threeto ten years, while contracts with our financial institution and enterprise customers typically have terms of one to five years. Capturing demand from cloud adoption in China is an important part of our business, and we believe it will remain central to our growth strategygoing forward. During the past three years, cloud service providers have grown to account for over 70% of our total area committed as of December 31, 2018.Cloud service providers are driving increased global demand for data center capacity, and we believe that leading cloud service providers represent themajority of such new demand in China. Our total area committed increased from 102,528 sqm as of December 31, 2017 to 183,743 sqm as of December 2018,representing an increase of 79.2%. This sales increase was driven primarily by increased cloud adoption in China and higher demand from cloud serviceproviders, as well as new commitments from large Internet, financial service institution and enterprise customers. As we strengthen partnerships with cloudservice providers and supply data center capacity that meets their needs, we believe that our service offerings will also be more attractive to enterprisecustomers. As of December 31, 2018, we operated twenty-six self-developed data centers with an aggregate net floor area of 150,517 sqm in service. We alsooperated capacity at approximately eighteen third-party data centers with an aggregate net floor area of 9,839 sqm in service, which we lease on a wholesalebasis and use to provide colocation and managed services to our customers. As of the same date, we had a further nine new self-developed data centers, andmultiple phases of two existing data centers, which collectively have an aggregate net floor area of 65,201 sqm, under construction. In addition, we had anestimated aggregate developable net floor area of approximately 79,000 sqm held for future development and had entered into a memorandum ofunderstanding for leasing of three data center shell buildings that we expect to provide us with additional net floor area of approximately 30,000 sqm. Ournet revenue and results of operations are largely determined by the degree to which data center space is committed or pre-committed as well as its utilization.We had commitment rates of 89.0%, 91.8% and 94.9% as of December 31, 2016, 2017 and 2018, respectively. We had utilization rates of 60.8%, 60.9% and67.6% as of December 31, 2016, 2017 and 2018, respectively. The difference between commitment rate and utilization rate is primarily attributable tocustomers who have entered into agreements but have not yet started to use revenue generating services. Our net revenue grew from RMB1,056.0 million in 2016 to RMB1,616.2 million in 2017, representing an increase of 53.1%, and increased toRMB2,792.1 million (US$406.1 million) in 2018, representing an increase of 72.8%. Our adjusted EBITDA increased from RMB270.5 million in 2016 toRMB512.3 million in 2017, and further increased to RMB1,046.5 million (US$152.2 million) in 2018. Our net loss increased from RMB276.4 million in2016 to RMB326.9 million in 2017, and increased to RMB430.3 million (US$62.6 million) in 2018. As of December 31, 2017 and 2018, our accumulateddeficit was RMB1,185.6 million and RMB1,615.1 million (US$234.9 million), respectively. 56 Table of Contents Our Business Model and the Data Center Lifecycle Our core business operations entail the planning and sourcing of new data center sites, developing such sites, securing customer commitments,providing our colocation services and managed services to customers, and maintaining high levels of service and customer satisfaction to develop andmaintain long-term relationships with our customers. We focus on developing and operating what we refer to as high-performance data centers. These are datacenters that feature large net floor area, high power capacity, density, and efficiency, and multiple redundancy across all critical systems. Our strong customer and industry relationships afford us insight into the size, timing, and location of future demand which is reflected in our datacenter resource development plan. We source new data center resources by: (i) acquiring or leasing property which we develop for use as data center facilities,whether through constructing on greenfield sites or converting existing industrial buildings; (ii) leasing existing data center capacity from third-partywholesale providers; and, (iii) acquiring high performance data centers from other companies. Regardless of the source of our data center resource, we ensurethat the facilities meet the high-performance standards required by our target customers. After procuring greenfield sites or existing buildings for conversion,we design and, through cooperation with developers, contractors, and suppliers, build out the facility to our advanced design and high technicalspecifications. We take a modular approach to developing, commissioning, equipping and fitting out of facilities, so that we can cater to a range of customerrequirements with regard to redundancy, power density, cooling, rack configuration and other technical specifications. In addition, by taking a modularapproach, we are able to phase our capital expenditures related to equipping and fitting out resource in accordance with proven sales demand or contractualdelivery commitments to customers. We commence marketing new data center facilities several quarters prior to completion of construction. We aim to secure pre-commitments fromcustomers for a portion of the area under construction, typically from anchor customers who require large-scale capacity. Through securing such pre-commitments, we are able to reduce investment risk and optimize resource planning. Our contracts provide flexibility to our customers with regard toutilization and the commencement of billing. Anchor customers with large-scale commitments usually move in over 12 to 24 months, whereas enterprisecustomers usually move in over a period of three to six months. During the period when customers are moving into our data centers, we bill our customers forservices based on a fixed amount which is the higher of actual utilization and minimum contractual customer commitments. See “—Contracts Terms andPricing.” Once data center resource becomes billable, customers are charged a fixed price over the life of the contract for colocation services and managedservices. In certain contracts, the customers are also charged for actual power consumed. Area committed is included in area utilized when we commencegenerating revenue from the customer under the terms of the contract. For our in-service data centers, we aim to maintain high levels of long-term utilization. As of December 31, 2018, our commitment rate was 94.9% ofaggregate net floor area in service, while our utilization rate was 67.6%. The difference between commitment rate and utilization rate reflects the contractswhich were still in the process of moving into our data centers. If we secure pre-commitments from customers, particularly large-scale capacity commitmentsfrom anchor customers, we expect that our utilization rate will continue to lag our commitment rate due to the longer time taken to move in associated withthese types of contracts. Our business model provides us with high levels of revenue visibility due to the long-term nature of our customer contracts and substantial backlog.We endeavor to provide high levels of customer service, support, and satisfaction so as to maintain long-term customer relationships and high rates ofcontract renewals for our services. 57 Table of Contents Our Data Centers Our data centers are large-scale, highly reliable and highly efficient facilities that provide a flexible, modular and secure operating environment inwhich our customers can house, power and cool the computer systems and networking equipment that support their mission-critical IT infrastructure. Weinstall large power capacity, together with engineering technologies to optimize power usage efficiency, enabling our customers to deploy their ITinfrastructure more efficiently and reduce their operating and capital costs. Our data centers are located in close proximity to the corporate headquarters andkey operations centers of many large enterprises, providing convenient access for our customers, as well as in areas where there are extensivetelecommunications networks enabling our customers to enhance the performance and lower the cost of connectivity to our data centers. Our data centers arestrategically located in Shanghai, Beijing, Shenzhen, Guangzhou and Chengdu, which are the primary financial, commercial, industrial and communicationshubs in each region of China, and where demand is concentrated. In 2018, we developed and now operate a new data center campus in Hebei province,China. We continue to source and secure additional data center resources in China’s primary economic hubs. Moreover, in 2018, we commenced theconstruction of two new data centers located in Kunshan, which are expected to be delivered in 2020. The new data centers have an aggregate capacity ofapproximately 11,400 sqm of IT area, which has been 100% pre-committed by our strategic hyper-scale customers for their cloud expansion requirements. The following table presents certain information relating to our data center portfolio as of December 31, 2018: (Sqm)Areain service Area underconstruction Area held fordevelopmentLocationShanghai56,68529,5059,185Shenzhen30,1546,8217,334Guangzhou22,178014,000Beijing21,41828,87519,881Hong Kong region95307,061Chengdu14,512021,506Hebei province14,45600 Total160,35665,20178,967TypeSelf-developed150,51765,20178,967Third party9,83900 Total160,35665,20178,967 As of December 31, 2018, our total area committed was 183,743 sqm, of which 152,163 sqm and 31,580 sqm related to data centers in service anddata centers under construction, respectively. Self-developed Data Centers As of December 31, 2018, we operated twenty-six self-developed data centers with an aggregate net floor area of 150,517 sqm in service. We alsooperated capacity at approximately eighteen third-party data centers with an aggregate net floor area of 9,839 sqm in service, which we lease on a wholesalebasis and use to provide colocation and managed services to our customers. As of the same date, we had a further nine new self-developed data centers, andmultiple phases of existing two data centers, which collectively have an aggregate net floor area of 65,201 sqm, under construction. In addition, we had anestimated aggregate developable net floor area of approximately 79,000 sqm held for future development and had entered into a memorandum ofunderstanding for leasing of three data center shell buildings that we expect to provide us with additional net floor area of approximately 30,000 sqm. High-Performance Features. Our self-developed data centers generally feature: · High Availability. Our data centers are equipped with redundant delivery paths for power, cooling and other critical systems, sufficient tosatisfy or exceed the Tier III standard as defined by the Uptime Institute. High availability data centers are suitable for housing mission-criticalIT infrastructure. We operate our facilities so as to deliver the levels of service availability required by the most demanding customers. 58 Table of Contents · High Power Density. Our self-developed data centers in service and under construction have an average power density of approximately 2.0kW/m. High power density enables customers to deploy their IT infrastructure more efficiently and to optimize their IT infrastructureperformance. · High Power Efficiency. Our self-developed data centers are designed to achieve high power efficiency, which is expressed conversely by a lowPUE ratio. Our self-developed data centers had around 1.4 times power usage effectiveness, or PUE on average in stabilized operation, comparedwith an average of 1.7 times for data centers built from 2011 to mid-2013 in China and a PUE of more than 2.0 times for some older data centers,according to the MIIT. High power efficiency reduces operating costs, for the benefit of our customers and ourselves. In addition to the high-performance features described above, our data centers provide flexible fit-out, sufficient floor load bearing strength andclear slab-to-slab height to support dense deployment of IT hardware, multiple layers of physical security, early fire detection monitoring and fire suppressionsystems, diverse connectivity, and other amenities. This combination of high availability, high power density, high power efficiency and other features enables us to serve the most sophisticated anddemanding users of data center services who seek cost efficient solutions for their requirements, without compromise on performance across multipleoperating parameters. Types of Data Centers. We have a diversified and flexible approach to developing our data center portfolio. We categorize our data centers into thefollowing two types: · Purpose-Built. Purpose-built data centers are facilities which are designed and constructed specifically for use as data centers. Our purpose-built facilities comprise those that we design ourselves and for which we directly oversee the construction and fit out, as well as certain of thefacilities that we lease or have acquired from third-parties. Purpose-built facilities represent approximately 47.9% by aggregate net floor area ofour self-developed data centers in service and under construction as of December 31, 2018. · Converted. Conversion involves repurposing existing industrial buildings for use as data centers. We undertake conversions in order to fulfilldemand where time-to-market and site opportunity do not allow us to purpose-build. We carefully select such buildings based on theirsuitability for use as data centers. We design and construct to the same high technical specifications as our purpose-built data centers, so as toensure that the end-product is of a comparable standard. Converted facilities represent approximately 52.1% by aggregate net floor area of ourself-developed data centers in service and under construction as of December 31, 2018. Data Center Tenure. We hold our data centers either through direct ownership or lease. In China, land cannot be owned outright, but is securedthrough land use rights. For self-developed data centers that we own, we have rights to use the underlying land for up to 43 years, which is close to thelongest permissible period, plus ownership of the buildings and other fixed assets comprising the data center. For self-developed data centers that we lease,we enter into long-term leases with the owners of the building generally for periods of fifteen to twenty years, which is the longest permitted lease periodunder PRC law. For third-party data centers where we lease capacity on a wholesale basis, we typically enter into leases for fixed terms of three to ten years. Stage of Development. We categorize our data centers, and the corresponding net floor area, according to the following stages of development: · In Service. Data centers are categorized as in service once the construction of the building is complete, critical systems have been installed, thefacility has passed rigorous integrated system testing, and one or more modules have been equipped and fitted out ready for utilization bycustomers. Once this stage has been reached, we categorize the net floor area of the data center as area in service, including the net floor areawhich may require additional capex for equipping and fitting out prior to utilization by customers. 592 Table of Contents · Under Construction. Data centers are categorized as under construction once we have secured control of the site, obtained the necessaryconstruction and other permits, established the design, and building and engineering works are in progress. When we successfully secure pre-commitments from customers, we calculate pre-commitment rate based on the area under construction. · Held for Future Development. Area held for future development consist of the estimated data center net floor area that we expect to be able todevelop on land which we have secured, at buildings which we have constructed or leased and pursuant to development or lease agreements wehave entered into, but which, in each case, are not under construction. The developable net floor area estimates are subject to a number ofcontingencies and uncertainties. Self-Developed Data Centers in Service: The following table sets forth additional details concerning our portfolio of self-developed data centers inservice as of December 31, 2018: Market Data center Date ready forservice(HHYY) Type Tenure Area in serviceArea committedCommitment rateArea utilizedUtilization rateShanghaiKS12H10Purpose-BuiltOwned6,5466,34797%6,14494%SH12H11Purpose-BuiltLeased6,4326,23897%6,09595%SH22H15Purpose-BuiltLeased7,7127,65399%7,37296%SH32H16Purpose-BuiltLeased7,9507,83299%7,14690%SH42H17Purpose-BuiltLeased8,4158,02795%4,70756%SH5 (Phase 1)1H18ConvertedLeased2,0402,040100%1,05952%SH62H18Purpose-BuiltLeased7,5403,54647%00%SH82H18ConvertedLeased4,9244,27487%2,35448%SH111H18ConvertedLeased4,2144,214100%1,88545%ShenzhenSZ12H14ConvertedLeased4,2864,22599%4,21898%SZ21H16ConvertedLeased4,3084,308100%4,294100%SZ32H16ConvertedLeased2,6782,32387%2,17781%SZ4 (Phase 1)2H17ConvertedLeased4,6774,52897%2295%SZ5 (Phase 1)1H17ConvertedLeased5,0005,000100%5,000100%SZ5 (Phase 2)1H18ConvertedLeased7,8587,858100%6,45882%GuangzhouGZ11H16ConvertedLeased6,5216,521100%6,521100%GZ22H17ConvertedLeased6,1316,131100%5,95997%GZ3 (Phase 1)1H18Purpose-BuiltLeased7,6487,648100%7,33896%BeijingBJ12H15ConvertedLeased2,4352,431100%2,38698%BJ22H17ConvertedLeased5,8165,66497%4,81083%BJ32H17ConvertedLeased3,1443,144100%2,81990%BJ5 (Phase 1)2H18ConvertedLeased5,2745,274100%00%HebeiHB11H18Purpose-BuiltLeased5,1325,132100%4,18582%HB22H18Purpose-BuiltLeased4,6624,662100%2,95863%HB32H18Purpose-BuiltLeased4,6624,662100%2,05044%ChengduCD11H17Purpose-BuiltOwned6,2626,248100%3,56757%CD2 (Phase 1)2H18Purpose-BuiltOwned8,2508,250100%00% (1) The ratio of area committed to area in service.(2) The ratio of area utilized to area in service.(3) We are developing our SH5, SZ4, SZ5, GZ3, BJ5 and CD2 data centers in phases. The categorization of data centers by stage of development is applied to each phase of the SH5, SZ4, SZ5, GZ3, BJ5 and CD2 project. As of December 31, 2018, we had invested an aggregate RMB9,983.4 million (US$1,452.0 million) in our data centers in service and expect toinvest approximately an additional RMB243.7 million (US$35.4 million) to complete fitting out these data centers. 60(1)(2) (3) (3) (3) (3) (3) (3) (3) Table of Contents Self-Developed Data Centers Under Construction. The following data table presents certain information relating to our self-developed data centersunder construction as of December 31, 2018: Market Data center Estimated dateready for service(HHYY) Type Tenure Area underconstruction Area pre-committed Pre-commitmentrate ShanghaiKS21H20Purpose-BuiltOwned6,1206,120100%KS31H20Purpose-BuiltOwned5,2905,290100%SH72H19Purpose-BuiltLeased7,07100%SH91H19ConvertedLeased3,8803,880100%SH102H19ConvertedLeased3,49100%SH122H19Purpose-BuiltLeased3,6533,653100%ShenzhenSZ5 (Phase 3)1H19ConvertedLeased6,82100%BeijingBJ41H19ConvertedLeased4,50000%BJ5 (Phase 2)1H19ConvertedLeased8,0927,63794%BJ62H19ConvertedLeased5,16700%BJ72H19ConvertedLeased11,1165,00045% (1) The ratio of area pre-committed divided by the area under construction.(2) We are developing our SZ5 and BJ5 data centers in phases. The categorization of data centers by stage of development is applied to each phase of SZ5and BJ5 development. As of December 31, 2018, we had invested RMB466.2 million (US$67.8 million) in our data centers under construction and expect to investapproximately an additional RMB3,532.8 million (US$513.8 million) to complete construction in these data centers. Self-Developed Data Center Resources Held for Future Development. We have also secured data center resources that we classify as held for futuredevelopment. We have entered into leases and development agreements or secured land which could potentially be developed into data centers with anestimated aggregate developable net floor area of approximately 79,000 sqm. Self-developed data center resources held for future development include:(i) SZ4 (Phase 2), an existing building in Shenzhen which we have leased and which we are developing in two phases; (ii) a site in Beijing for a purpose-builtfacility that is subject to the local power bureau relocating overhead power supply lines which affect the use of the site; (iii) CD2 (Phase 2) for which we havesecured land use rights and which we are developing in two phases; (iv) a site in Chengdu adjacent to CD1 and CD2 for which we have secured land userights; (v) SH5 (Phase 2), extension of an existing building in Shanghai which we have leased and are developing in two phases; (vi) SH13, a building underconstruction by the developer in Shanghai which we have leased, but not yet taken delivery; (vii) SZ6, an existing building in Shenzhen which we havesecured; (viii) GZ4 and GZ5, two existing buildings in Guangzhou which we have leased; (ix) BJ8, an existing building adjacent to BJ7 in Beijing which wehave leased; (x) HK1, a site in Hong Kong for which we have secured land use rights. In early 2019, we have reached agreement to renew a memorandum of understanding, previously entered into in September 2016, with a propertydevelopment company for the lease of three data center shell buildings to be built-to-suit in phases on a site in the Shanghai Waigaoqiao Free Trade Zone inclose proximity to our existing data centers. Once the built-to-suit lease agreements are finalized, we expect these buildings to provide us with additionaldata center net floor area of approximately 30,000 sqm. In January 2019, we entered into an agreement with the local government to acquire the land use right for a parcel of land in Guangzhou for thedevelopment of three data centers with additional data center net floor area of approximately 34,200 sqm, and we have paid the entire consideration for thepurchase price. We are in the process of obtaining the relevant land use right certificate for such parcel of land. Between August 2018 and February 2019, we have entered into several framework agreements or equivalent legal documents with relevant localgovernments and development agencies with a view to potentially acquiring the land use rights for certain parcels of land for the development of data centersin (i) Changshu, located approximately 70 kilometers from Shanghai city center, and Langfang, located approximately 50 kilometers from Beijing citycenter, (ii) Chengdu, which is approximately 65 kilometers from our existing data centers in Chengdu, and (iii) Chongqing, which is a new core market forour company. The acquisition of such land use rights is subject to execution of definitive agreements. We expect that consummation of these acquisitionswould provide us with additional developable net floor area of approximately 200,000 sqm. The developable net floor area estimates are subject to a numberof contingencies and uncertainties. 61 (1) (2) (2) Table of Contents Third-party data centers In addition to operating and providing services in our self-developed data centers, we also provide data center services with respect to net floor areathat we lease from third-party data center providers on a wholesale basis and use to provide colocation and managed services to our customers. As ofDecember 31, 2018, we operated capacity at approximately eighteen third-party data centers with an aggregate net floor area of 9,839 sqm in service. The third-party data centers where we lease capacity on a wholesale basis were not purpose-built or converted according to our design and technicalspecification. However, on a selective basis, we may carry out improvement work at third-party data centers in order to attain the performance levels requiredto serve our customers. In particular, one of our third-party data centers is a facility in which we leased increasing amounts of space over time, so that we nowlease the entire data center. As we accumulated leased data center space in the data center over time, and we never conducted any comprehensive conversionor repurposing of the facility, we continue to categorize that data center as a third-party data center. Lease Agreements Relating to Our Data Centers We enter into leases in connection with our self-developed data centers. In addition, certain third-party data centers in which we lease capacity on awholesale basis are subject to property lease agreements. Under relevant PRC laws and regulations, lease agreements are required to be registered or filed withthe relevant housing authorities. Among the data centers that we lease, including those under construction, a majority of the lease agreements have not beenfiled with relevant authorities in accordance with the applicable PRC laws and regulations. The failure to register or file the lease will not affect the legalvalidity of the lease agreements but may subject us to fines. In order to address the situations where the relevant leases have not been registered by the lessors,we have communicated with the relevant lessors with regard to completing the registration of the relevant lease agreements to the extent practicable.However, there is no guarantee that the lessors will respond to our requests or take remedial action with regard to the lack of registration and filing, and we, orthe third-party lessors, may be liable if timely rectifications are not made. A portion of any such losses will be recoverable from the lessors according to theterms of certain of the lease agreements. See “Item 3. Key Information—D. Risk Factors—Risk Factors Relating to Our Business and Industry—Our failure tocomply with regulations applicable to our leased data centers may materially and adversely affect our ability to use such data centers.” Our Services We offer a broad range of services including colocation services and managed services, which includes managed hosting services and managedcloud services. We also provide certain other services, including consulting services. Colocation Services We offer our customers a highly secure, reliable and fault-tolerant environment in which to house their servers and related IT equipment. Our corecolocation services primarily comprise the provision of critical facilities space, customer-available power, racks and cooling. Our customers have severalchoices for hosting their servers, networking and storage equipment. They can place their equipment in a shared or private space that can be customized totheir requirements. We offer a variety of power options to suit individual customer requirements, including high power density racks. In some instances,colocation customers will request that we provide IT equipment for their use in our data centers. In such cases, we will sell such IT equipment to thecolocation customer. 62 Table of Contents Managed Services Managed Hosting Services. Our managed hosting services comprise a broad range of value-added services, covering each layer of the data center ITvalue chain. Our suite of managed hosting services includes business continuity and disaster recovery, or BCDR, solutions, network management services,data storage services, system security services, operating system services, database services and server middleware services. Our managed hosting services aretailored to meet the specific objectives of individual customers. We help our customers reduce their costs, re-engineer existing processes, improve the qualityof service delivery and realize a better return on their investment. Our network management services help our customers to design and maintain their private network systems. Our data storage services providestorage architecture design and customization for specific requirements. Our system security services include identity and access control, firewallmanagement, intrusion protection and vulnerability protection services. Our operating system services provide pro-active administration, management,monitoring and reporting across a wide range of operating systems. Our database services provide database customization and performance tuning operation,administration and monitoring services across a range of database platforms. Our server middleware services provide customization and performance tuningservices across a range of platforms. We also offer consulting services for customers who request additional know-how and guidance relating to disasterrecovery and other aspects of our managed hosting services. Our managed hosting services are provided on a continuous basis over the term of the contract. Managed Cloud Services. The adoption of cloud computing continues to rise and has become a key element of IT strategy for enterprises globally.We believe that our data centers are well-suited for the hosting of cloud platforms. As a result, we have succeeded in attracting a number of the largest PRCcloud service providers to colocate their public cloud platforms in our data centers, including those operated by Aliyun, the cloud computing unit ofAlibaba. The presence in our data centers of major public cloud platforms enables us to offer our enterprise customers efficient and reliable access to the highcapacity cloud resources of their choosing. On a reciprocal basis, we are able to assist our cloud service provider customers to access the enterprise customerswhich are present in our data centers. We believe that this established presence in our data centers creates a network effect which will attract other cloudservice providers, as well as additional enterprise customers, to colocate in our data centers. Large enterprises are increasingly deploying a combination of multiple private, hosted, or public cloud services, a configuration known as hybridcloud. We expect that hybrid clouds will become increasingly prevalent in China. While this configuration can provide enterprises with greater flexibility,scalability, security and cost efficiency, it also presents new challenges in integrating and operating multiple systems. Leveraging our long track record as aprovider of IT managed services, we are developing an innovative service platform to assist our enterprise customers in the management of their hybridclouds, which we refer to as CloudConnect and CloudMix. CloudMix provides a robust management interface enabling enterprises to integrate and controlevery aspect of their hybrid cloud computing environment across their private servers and one or more public cloud service providers. We also architectcloud-based solutions tailored to the unique requirements of each customer. CloudConnect provides direct private connection to major public cloudplatforms hosted in our data centers and across our network infrastructure. In addition, as part of our managed cloud services we also offer consulting servicesfor customers who request additional know-how and assistance concerning the implementation of cloud-based solutions, such as migration from physical tocloud-based hosting. Data Center Sourcing and Development We believe that the size, location, and quality of our facilities are key to maintaining our competitiveness. We apply the same rigor to the process ofsourcing, design and construction as we do to our operations. We have a substantial in-house team dedicated to sourcing, feasibility analysis, technicaldesign, costing and project management. The process is comprised of the following steps: 63 Table of Contents · Planning and Sourcing. Our strong customer and industry relationships, combined with our data center presence in key markets in each regionand direct sales force, afford us insight into the size, timing, and location of future demand. We incorporate this insight into a multi-yearresource plan for each of the key markets. Our in-house team begins sourcing potential sites up to three or more years in advance of planneddelivery. We seek to secure sites both in close proximity to central business districts or to areas where there is a concentration of enterpriseoperations centers so as to satisfy the location preferences of our target customer segments. We consider both greenfield sites when available,and also existing industrial buildings suitable for conversion. We require security of tenure for a minimum of ten years. Our team works closelywith local government authorities to obtain necessary permits and approvals, with electric utilities to obtain sufficient power infrastructure andsupply, and with telecommunications carriers to ensure multi-carrier connectivity to our data centers. We generally seek to secure sites that cansupport a net floor area of at least 5,000 square meters per data center building and sufficient power capacity to fulfill the requirements of thecustomer segments which we expect to serve in the facility. · Design and Construction. We undertake the technical design, specification and costing in-house as we believe that these are important toensuring the data center meets our strategic requirements. This also enables us to achieve a level of design standardization. We continuouslystudy new engineering and technologies to maintain an advanced design. Our in-house team also takes responsibility for construction projectmanagement, which includes scheduling, vendor selection, procurement, budget control and cost analysis, and quality supervision andassurance. We believe that these elements are important to ensuring the project is completed on time, within budget and to the required qualitystandard. · Commissioning and Fit Out. After the shell and core of a building are completed, we work with our contractors and suppliers to make the datacenter ready for service, or RFS. This involves: (i) obtaining necessary operating permits and approvals; (ii) equipping and fitting out thecritical facilities area for utilization by customers; and, (iii) pre-operational testing, also referred to as commissioning, to ensure that the facilityis fully functioning and capable of providing the required service levels. We have a team dedicated to testing and commissioning beforeoperations commence. Operations We have separate teams for data center operations and service delivery. Our data center operations team is responsible for directing, coordinatingand monitoring the daily operation of our data center facilities. Our service delivery team is responsible for delivery of the services which we provide tocustomers on a 24/7 basis. Our teams are deployed in regional operations centers, as well as on site, in order to provide two layers of management andsupport. We undertake in-house all technical functions which impact data center performance, including floor planning, equipment lifecycle management,optimizing data center efficiency, surveillance of the critical facilities environment and network performance, incident response management andrectification. We also undertake in-house all activities which have a direct bearing on customers, including support for set up of customer IT equipment,remote hands services, outsourced IT operations, incident and compliance reporting, and response to customer requests. We have developed a proprietary Data Center Operation Management Platform which provides real-time information on many aspects of data centeroperating performance and enables us to streamline our data center management processes. We also have developed robust operating procedures, protocolsand standards which enable us to meet or exceed the performance and quality levels specified in our service level agreements, or SLAs, with the mostsophisticated customers. We have been certified ISO9001, ISO20000 and ISO27001 for almost 10 years, and received certification for ISO 22301 inSeptember 2016. In October 2016, the Uptime Institute, an unbiased advisory organization focused on improving the performance, efficiency, and reliabilityof business critical infrastructure, awarded five of our data centers with their “Management and Operations (“M&O”) Approved Site” awards. As of the date ofthis annual report on Form 20-F, four data centers are re-awarded with such “M&O Approved Site” awards and one data center in the process of renewing. Weare also in the process of applying for such awards to be granted to certain of our other data centers in 2019. We believe that our standard of data centeroperations, which reflects our history and culture as an IT service provider, set us apart from many data center service providers in China. 64 Table of Contents Our Customers We consider our customers to be the end users of our data center services. We may enter into contracts directly with our end user customers orthrough intermediate contracting parties. We have long-standing relationships with all the major PRC telecommunications carriers who are both partnersproviding network services to our customers as well as intermediate contracting parties for the sale of colocation services to our customers. Because wenegotiate with, maintain and support each of the end users of our services, even where the actual data center contract is made with the telecommunicationscarrier, we consider the end user to be our end customer. The end user customer generally has separate decision-making authority and a services procurementbudget that is distinct from that of the telecommunications carriers with whom we contract. We currently serve approximately 590 customers, including cloud service providers and large Internet companies, a diverse community of PRC andforeign financial institutions as well as telecommunications and IT service providers and large domestic private sector and multinational corporations, manyof which are leaders in their respective industry verticals. We host a number of the largest cloud service providers operating in China, including Aliyun, thecloud computing unit of Alibaba, which are present in several of our data centers. Our cloud service provider, large Internet and financial institution end user customers accounted for 71.3%, 16.0% and 7.9% of our total areacommitted as of December 31, 2018, respectively. Our four largest end user customers accounted for 27.9%, 24.2%, 11.4% and 10.3%, respectively, of ourtotal area committed as of December 31, 2018. No other end user customer accounted for 10% or more of our total area committed as of that date. The following table presents the total area committed of our top five end user customers, all of which are cloud service providers or large Internetcompanies, as of December 31, 2018: End UserCustomer Total areacommitted(sqm) Total areacommitted(%) Customer 151,30427.9%Customer 244,42924.2%Customer 320,91111.4%Customer 418,95710.3%Customer 55,2522.9% (1) Includes data center area for which we have entered into non-binding agreements or letters of intent, or have received other confirmations from, certaincustomers. We endeavor to establish strategic relationships with key customers, particularly large Internet companies and cloud service providers who havelarge data center capacity requirements and who can help enhance the value of our data center ecosystem. Contract Terms and Pricing Pricing in our contracts is for a fixed amount which usually includes a stated amount of space, power commitment and other bundled services.Certain contracts with our customers charge variable considerations that are primarily based on the customers’ usage of such services. Power commitmentmeans the right to use a stated amount of power. Pricing is generally flat over the contract term but subject to adjustments when power tariffs change. Wherepower tariffs change, we adjust the pricing to reflect the change in power cost going forward. For some customers, we charge for actual power consumed. Asubstantial majority of our customer contracts are multi-year contracts. Contracts for our cloud service provider and large Internet customers typically haveterms of three to ten years, while contracts with our financial institution and enterprise customers are for between one to five years. Our typical servicecontract provides a notice period of one to six months for early termination, and in certain cases, we are entitled to a substantial amount of early terminationdamages equivalent to up to 12 months’ service fee, in addition to payment for our services already provided before such early termination. 65(1) Table of Contents Sales and Marketing Sales. Our sales activities are mainly conducted through our direct sales force. We organize our direct sales force into four geographic regions,Northern China, Southern China, Eastern China and Western China. We incentivize our sales force to meet their annual targets through performance-basedbonuses. For new customers, our sales cycle typically begins with creating a sales plan for a particular region or industry and then identifying new customersin these regions or industries. We also receive referrals from our vendors and other relationships, and often our reputation attracts customers to our serviceswithout any directed sales efforts. For our existing customers, our sales team focuses on identifying upsell opportunities. Many of our customer contracts are won through a competitive bidding process. For new customers, the bidding process begins with evaluation ofthe potential customer’s requirements. We formulate a service proposal based on these requirements. Our team representing multiple departments prepares aproposal to meet the required service scope and level. We negotiate the contract and service details. Marketing. To support our sales effort and to actively promote our brand, we conduct wide-ranging marketing programs. Our marketing strategiesinclude active public relations and ongoing customer communications programs. We participate in a variety of IT industry and financial services industryconferences and workshops to raise awareness about the value of data center services. We also build our brand recognition by participating in industry andgovernment workshops and industry standard-setting bodies, such as the China National Institute of Standardization Committee on Disaster Recovery forInformation Systems. Technology and Intellectual Property We rely on a combination of copyright, trademark, trade secrets and other intellectual property laws, nondisclosure agreements and other measuresto protect our intellectual property, such as our proprietary storage and management system, for which we have registered a copyright. We also promoteprotection through contractual prohibitions, such as requiring our employees to enter into confidentiality and non-compete agreements which are applicableto selected employees. We derive most our revenues in China and use , our figure trademark, in a majority of our services. We have registered the figuretrademark in China in several categories that cover our service areas and we plan to register the figure trademark in China in certain additional categories. Wehave also registered the pure text of “GDS” as a trademark in several categories that cover our services areas, however, a third party has also registered thepure text of “GDS” as a trademark in certain IT-related services. It is our belief, based on our industrial experience, that our business is different from theservices for which the third party registered its trademark. Nevertheless, since the services for which the third party trademark is registered are also IT-relatedand could be deemed as similar to ours to some extent, we cannot assure you that a government authority or court will hold the same view with us that suchsimilarity will not cause confusion in the market. In such a case, if we are to use the pure text of GDS as our trademark, we may be required to explore thepossibility of acquiring this trademark, or entering into an exclusive licensing agreement with the third party, which will cause us to incur additional cost.See “Item 3. Key Information—D. Risk Factors—Risk Factors Relating to Our Business and Industry—We may be subject to third-party claims of intellectualproperty infringement.” Competition We offer a broad range of data center services and, as a result, we may compete with a wide range of data center service providers for some or all ofthe services we offer. We face competition from the state-owned telecommunications carriers, namely China Telecom, China Unicom and China Mobile. One of the mainpurposes for which these carriers develop data centers is in order to facilitate the sale of related telecommunications services. In locations outside of the keyeconomic hubs, these three carriers may sometimes be the only available provider of data center services. We distinguish ourselves from these carriersbecause we are carrier-neutral, enabling our customers to connect within our facilities with all three carriers based on their cost and/or network andapplication requirements. We compete on the basis of our data center quality, operating track record and differentiated managed and cloud servicecapabilities. Although we compete with carriers for colocation customers, our customers also rely on the connectivity that carriers provide. We believe thatwe also have a mutually beneficial relationship with these carriers since our data center services often help carriers attract more customers for theirtelecommunications services. 66 Table of Contents We also compete with other carrier-neutral data center service providers, including: · Domestic carrier-neutral data center service providers. We compete with domestic carrier-neutral data center service providers with a presencein some of our markets, such as Sinnet, Dr. Peng, Baosight, AtHub and 21Vianet. We believe that we are well positioned in terms of ouroperational track record and our ability to: deliver high-performance data center services in all key markets; maintain consistently high facilityand service quality; continue capacity expansion in all key markets to accommodate growing demand; and provide differentiated managedservice offerings with a unique value proposition. · International carrier-neutral data center service providers. We compete to a lesser extent with foreign carrier-neutral data center serviceproviders such as Equinix, KDDI and NTTCom, each of which has a presence in Shanghai and/or Beijing and primarily serve their internationalcustomers. We believe that we distinguish ourselves by our larger capacity and more extensive market presence across the key economics hubsin China, deep operating knowledge and long track record in the China market, and long-term relationships with the telecommunicationscarriers. Employees and Training We had 609, 740 and 893 employees as of December 31, 2016, 2017 and 2018, respectively. The following table sets forth the number of ouremployees by function as of December 31, 2018: Number ofEmployees % of Total Colocation services44049.3%Managed services9911.1%Sales and marketing829.2%Management, finance and administration27230.4%Total893100.0% To maintain the highest level of service, employee training and certification is essential to ensure that our employees meet and exceed industryrequirements. Many of our engineering employees have received training and certifications from globally-recognized IT service organizations, such as IBMAS/400 certifications, CCIE Safety Certified qualifications, Vmware VCP and CISP Certificates. We pay most of our employees a base salary and performance-based bonuses and provide welfare and other benefits required by law. In addition, weplan to provide some of our employees with stock option to align their interests more closely with our shareholders. We believe that our compensation andbenefits packages are competitive within our industry. We have not had any labor disputes that materially interfered with our operations and we believe thatour employee relations are good. We also outsource certain operations, primarily on-site security, to reputable third-party service providers. Facilities Our headquarters are located at 2/F, Tower 2, Youyou Century Place, 428 South Yanggao Road, Pudong, Shanghai 200127, People’s Republic ofChina. We have additional offices in Beijing, Suzhou, Shenzhen, Guangzhou, Hong Kong and Chengdu. 67 Table of Contents Our offices are located on leased premises totaling approximately 8,700 sqm across China. We lease our office premises from unrelated third parties. Insurance We have in place insurance coverage up to a level which we consider to be reasonable and which covers the type of risks usually insured bycompanies on the same or similar types of business as ours in China. Our insurance broadly falls under the following four categories: business interruption forlost profits, property and casualty, public liability, and commercial employee insurance. Legal Proceedings We may become subject to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. On August 2, 2018, a securities class action lawsuit was filed against GDS Holdings Limited, our Chief Executive Officer William Huang, and ourChief Financial Officer Daniel Newman by Hamza Ramzan, a GDS shareholder. The complaint purports to assert claims on behalf of a class comprisingpurchasers of GDS’s ADS shares during the proposed class period from March 29, 2018 to July 31, 2018. The lawsuit was filed in the United States DistrictCourt for the Eastern District of Texas. On October 26, 2018 the Court appointed GDS shareholder Yuanli He as the lead plaintiff in the lawsuit, and onDecember 24, 2018 plaintiffs filed a consolidated amended complaint. The amended complaint alleges, among other things, that GDS made materialmisstatements and omissions in its 2017 Form 20-F Annual Report with respect to the commitment rate and utilization rate at GDS’s GZ1 data center, andinflated the purchase prices for its acquisitions of the GZ2, GZ3, and SZ5 data centers. The complaint alleges violations of Section 10(b) of the Exchange Act,15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder by the SEC, against GDS, our Chief Executive Officer William Huang, and our Chief FinancialOfficer Daniel Newman, and also alleges control person claims under Section 20(a) of the Exchange Act against our Chief Executive Officer William Huangand our Chief Financial Officer Daniel Newman. The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, prejudgmentand postjudgment interest, costs and expenses. We believe we have meritorious defenses to each of the claims in this lawsuit and we are prepared tovigorously defend against its allegations. On February 22, 2019, GDS, our Chief Executive Officer William Huang and our Chief Financial Officer DanielNewman, filed a motion to dismiss the amended complaint and, alternatively, to transfer venue to the United States District Court for the Southern District ofNew York. There can be no assurance, however, that we will be successful. As of the date of this annual report on Form 20-F, this lawsuit is in its preliminarystages; at present, we cannot reasonably assess the likelihood of any unfavorable outcome, nor can we reasonably estimate the amount, or range, of potentiallosses, if any, related to the lawsuit. Accordingly, we have not recorded any liabilities in respect of this lawsuit. Other than as described above, we are not currently a party to, nor are we aware of, any legal proceeding, investigation or claim which, in the opinionof our management, could have a material adverse effect on our business, financial condition or results of operation. Regulatory Matters The following is a summary of the material laws and regulations or requirements that affect our business activities in China or the rights of ourshareholders to receive dividends and other distributions from us. Our Internet data center businesses are classified as value-added telecommunication businesses by the PRC government. Current PRC laws, rules andregulations restrict foreign ownership in value-added telecommunication services. As a result, we operate our Internet data center businesses through ourconsolidated VIEs, each of which is owned by PRC citizens and certain of which hold the licenses associated with these businesses. As the development ofthe Internet and telecommunications industry in China is still evolving, new laws and regulations may be adopted from time to time that will require us toobtain additional licenses and permits in addition to those that we currently have, and to address new issues that arise from time to time. As a result,substantial uncertainties exist regarding the interpretation and implementation of current and future Chinese laws and regulations applicable to the datacenter services industry. See “Item 3. Key Information—D. Risk Factors—Risk Relating to Doing Business in the People’s Republic of China.” 68 Table of Contents Regulation on Foreign Investment Restrictions Investment activities in the PRC by foreign investors are principally governed by the Industry Catalog Relating to Foreign Investment, or theCatalog, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission.The Catalog divides industries into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally deemed asconstituting a fourth “permitted” category and open to foreign investment unless specifically restricted by other PRC regulations. Industries such as value-added telecommunication services, including Internet data center services, are restricted to foreign investment. In June 2018, MOFCOM and NDRC promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment, or theNegative List, which took effective in July 2018. The Negative List expands the scope of industries in which foreign investment is permitted by reducing thenumber of industries that fall within the Negative List. Foreign investment in value-added telecommunications services (other than e-commerce), includingInternet data center services, still falls within the Negative List. According to the Administrative Regulations on Foreign-Invested Telecommunications Enterprises issued by the PRC State Council onDecember 11, 2001 and amended on September 10, 2008 and February 6, 2016 respectively, foreign-invested value-added telecommunications enterprisesmust be in the form of a Sino-foreign equity joint venture. The regulations restrict the ultimate capital contribution percentage held by foreign investor(s) in aforeign-invested value-added telecommunications enterprise to 50% or less and require the primary foreign investor in a foreign invested value-addedtelecommunications enterprise to have a good track record and operational experience in the VATS industry. In July 2006, the MIIT issued the Circular of the Ministry of Information Industry on Strengthening the Administration of Foreign Investment inValue-added Telecommunications Business, or the MIIT Circular, according to which, a foreign investor in the telecommunications service industry of Chinamust establish a foreign invested enterprise and apply for a telecommunications businesses operation license. The MIIT Circular further requires that: (i) PRCdomestic telecommunications business enterprises must not, through any form, lease, transfer or sell a telecommunications businesses operation license to aforeign investor, or provide resources, offices and working places, facilities or other assistance to support the illegal telecommunications services operationsof a foreign investor; (ii) value-added telecommunications business enterprises or their shareholders must directly own the domain names and trademarksused by such enterprises in their daily operations; (iii) each value-added telecommunications business enterprise must have the necessary facilities for itsapproved business operations and to maintain such facilities in the regions covered by its license; and (iv) all VATS providers are required to maintainnetwork and Internet security in accordance with the standards set forth in relevant PRC regulations. If a license holder fails to comply with the requirementsin the MIIT Circular and cure such non-compliance, the MIIT or its local counterparts have the discretion to take measures against such license holder,including revoking its value-added telecommunications business operation license. In light of the above restrictions and requirements, we conduct our value-added telecommunications businesses through our consolidated VIEs. Regulations Related to Value-Added Telecommunications Business Among all of the applicable laws and regulations, the Telecommunications Regulations of the People’s Republic of China, or the TelecomRegulations, promulgated by the PRC State Council in September 2000 and amended on July 29, 2014 and February 6, 2016 respectively, is the primarygoverning law, and sets out the general framework for the provision of telecommunications services by domestic PRC companies. Under the TelecomRegulations, telecommunications service providers are required to procure operating licenses prior to their commencement of operations. The TelecomRegulations distinguish “basic telecommunications services” from “VATS.” VATS are defined as telecommunications and information services providedthrough public networks. 69 Table of Contents The Telecom Catalogue, was issued as an attachment to the Telecom Regulations to categorize telecommunications services as either basic or value-added. In February 2003 and December 2015, the Telecom Catalogue was updated respectively, categorizing online data and transaction processing, on-demand voice and image communications, domestic Internet virtual private networks, Internet data centers, message storage and forwarding (including voicemailbox, e-mail and online fax services), call centers, Internet access and online information and data search and etc. as VATS. The “Internet data center”business is categorized as a value-added telecommunications business and is defined under the Telecom Catalogue as a business that (i) uses relevantinfrastructure facilities in order to render outsourcing services for housing, maintenance, system configuration and management services for clients’ Internetor other network related equipment such as servers, (ii) provides the leasing of equipment, such as database systems or servers, and the storage space housingthe equipment and (iii) provides lease agency services of connectivity lines and bandwidth of infrastructure facilities and other application services.Also, Internet resources collaboration services business is incorporated into the definition of Internet data center business under the 2015 Telecom Catalogue(which took effect from March 1, 2016), and defined as “the data storage, Internet application development environment, Internet application deploymentand running management and other services provided for users through Internet or other networks in the manners of access at any time and on demand,expansion at any time and coordination and sharing, by using the equipment and resources built on database centers”. Under the 2015 Telecom Catalogue,“fixed network domestic data transmission services” is categorized as a basic telecommunications business and is defined as “a domestic end-to-end datatransfer business by wired mode under fixed-net, except for the Internet data transfer business,” and the “domestic Internet virtual private networks service” iscategorized as a value-added telecommunications business and is defined as “a customization business of Internet closed user group network for domesticusers by self-owned or leased Internet network resources of the operators and adopting TCP/IP agreement.” On March 1, 2009, the MIIT promulgated the Administrative Measures for Telecommunications Business Operating License, or the Telecom LicenseMeasures, which took effect on April 10, 2009. The Telecom License Measures set forth the types of licenses required to provide telecommunicationsservices in China and the procedures and requirements for obtaining such licenses. With respect to licenses for value-added telecommunications businesses,the Telecom License Measures distinguish between licenses for business conducted in a single province, which are issued by the provincial-levelcounterparts of the MIIT and licenses for cross-regional businesses, which are issued by the MIIT. The licenses for foreign invested telecommunicationsbusiness operators need to be applied with MIIT. An approved telecommunications services operator must conduct its business in accordance with thespecifications stated on its telecommunications business operating license. Pursuant to the Telecom License Measures, cross-regional VATS licenses shall beapproved and issued by the MIIT with five-year terms. On July 3, 2017, the MIIT amended the Telecom License Measures, which took effect on September 1,2017. The amendment mainly includes, among others, (i) the establishment of a telecommunications business integrated management online platform;(ii) provisions allowing the holder of a telecommunications business license (including the IDC license) to authorize a company, of which such licenseholder holds at least 51% of the equity interests indirectly, to engage in the relevant telecommunications business; and (iii) the cancellation of therequirement of an annual inspection of telecommunications business licenses, instead requiring license holders to complete an annual report. On December 1, 2012, the MIIT issued the Circular of the Ministry of Industry and Information Technology of the People’s Republic of China onFurther Standardizing the Market Access-related Work for Businesses Concerning Internet Data Centers and Internet Service Providers which clarifies theapplication requirements and verification procedures for the licensing of IDC and Internet service provider, or ISP, businesses and states that entitiesintending to engage in the IDC or ISP business could apply for a license since December 1, 2012. On May 6, 2013, the Q&A was published on the website of China Academy of Telecom Research. The Q&A, although not an official law orregulation, is deemed by the market as a guideline in practice which reflected the attitude of MIIT as to the application for VATS licenses, especially as toIDC services. To comply with the above restrictions and requirements, GDS Beijing has obtained a cross-regional value-added telecommunications license whichpermits it to provide data center services across six cities in China: Beijing, Chengdu, Shanghai, Shenzhen, Suzhou and Guangzhou, and GDS Shanghai hasobtained a cross-regional telecommunications license which permits it to provide data center services across five cities in China: Beijing, Chengdu,Shanghai, Shenzhen and Suzhou. 70 Table of Contents On January 17, 2017, the MIIT issued the Circular of the Ministry of Industry and Information Technology on Clearing up and Regulating theInternet Access Service Market, or the 2017 MIIT Circular, according to which the MIIT determined to clear up and regulate the Internet access servicemarket nationwide from the issuance date of the 2017 MIIT Circular until March 31, 2018. The 2017 MIIT Circular provides, among others, that (i) anenterprise that holds the corresponding telecom business license, including the relevant VAT license, shall not provide, in the name of technical cooperationor other similar ways, qualifications or resources to any unlicensed enterprises for their illegal operation of the telecom business, (ii) if an enterprise with itsIDC license obtained prior to the implementation of 2015 Telecom Catalogue issued on March 1, 2016, has actually carried out Internet resourcescollaboration services, it shall make a written commitment to its original license issuing authority before March 31, 2017 to meet the relevant requirementsfor business licensing and obtain the corresponding telecom business license by the end of 2017, failure of which will result in such enterprise not being ableto continue operating the business of Internet resources collaboration services as it currently does as of January 1, 2018, and (iii) without the approval of theMIIT, enterprises are not allowed to carry out cross-border business operations by setting up on its own or leasing private network circuits (including virtualprivate networks, or VPNs) or other information channels. In 2017, we received approvals from the MIIT to expand the scope of GDS Beijing’s IDC licenses to cover Internet resources collaboration services,fixed network domestic data transmission services and domestic Internet virtual private networks service which, among other things, enable us to provideconnectivity services over our own network to cloud and enterprise customers colocated in all of our data centers. Regulations Related to Information Technology Outsourcing Services Provided to Banking Financial Institutions On June 4, 2010, the CBRC issued the Guidelines on the Management of Outsourcing Risks of Banking Financial Institutions, or the Guidelines,which requires that the banking financial institutions should manage risks in relation to outsourcing services, and thus, outsourcing services providers shouldmeet the relevant standards and requirements with respect to their technical strength, service capacity, emergency response capacity, familiarity to thebanking industry and etc., to pass the due diligence investigations conducted by the banking financial institutions pursuant to the Guidelines, and shouldalso make commitments as to fulfilling reporting, cooperating, or other obligations as may be required by the banking financial institutions under theGuidelines. On February 16, 2013, the CBRC issued the Circular of the China Banking Regulatory Commission on Printing and Distributing the Guidelines forthe Regulation of Information Technology Outsourcing Risks of Banking Financial Institutions, or Circular 5. According to Circular 5, the CBRC isresponsible for supervising banking financial institutions in their access management of information technology outsourcing service providers, organizingrelevant banking financial institutions to establish service management records for such service providers, and conducting risk assessment and rating of them.For the outsourcing services providers, including those that are engaged in providing outsourcing services of system operation and maintenance, such asoutsourcing of operation and maintenance of data centers, disaster recovery centers, machine room ancillary facilities, and etc., a banking financialinstitution shall submit a report to the CBRC or the local CBRC office 20 business days before entering into an outsourcing contract, and the CBRC or thelocal CBRC office may take measures, such as risk alert, interview or regulatory inquiry, for outsourcing risks of the banking financial institution.Outsourcing service providers may not subcontract material services to others. In certain circumstances, including, among others, where the outsourcingservice provider (i) commits a serious violation of applicable PRC laws, regulations or regulatory policies, (ii) fails to make rectification within prescribedtime period for identified defects or insufficiency in service, (iii) engages in repeated occurrences of service interruption of important information systems ordata destruction, loss or divulgence due to such service provider’s negligence in management, (iv) provides low quality services which causes losses tomultiple banking financial institutions, and fails to make rectification after being warned repeatedly, or (v) there is an occurrence of other severe informationtechnology risk incident as determined by the CBRC, the CBRC may prohibit the banking financial institutions from engaging the services of suchoutsourcing service provider for a period of at least two years, and such prohibition period may be extended if such outsourcing service provider has notmade rectification within two years. 71 Table of Contents In addition, the CBRC promulgated the Notice of the General Office of China Banking Regulatory Commission on Strengthening the Managementof Risks Involved in the Offsite and Centralized Information Technology Outsourcing of Banking Financial Institutions on July 1, 2014, and the Circular ofthe General Office of the China Banking Regulatory Commission on Performing Supervision over and Evaluation on Offsite and Centralized InformationTechnology Outsourcing of Banking Financial Institutions on December 2, 2014. Pursuant to these regulations, in order to further administrate and supervisethe offsite and centralized information technology outsourcing provided by the outsourcing services providers to the banking financial institutions, theCBRC requires the contracts between the outsourcing services providers and the banking financial institutions specify, among other things, that outsourcingservices providers should comply with the laws and regulations and other regulatory requirements, and accept the supervision and review as conducted bythe CBRC. Outsourcing service providers can voluntarily apply to CBRC to incorporate their services into the supervision and evaluation scope of CBRCand such service providers, if they pass the inspection of CBRC, may have priority in being selected to provide outsourcing services to banking financialinstitutions. However, failure to comply with these regulatory requirements and other incidents, including, among others, (i) violation of applicable PRClaws, regulations or regulatory policies, (ii) failure to make rectification within the prescribed time period for identified defects or insufficiency in services,(iii) repeated occurrences of service interruption of important information systems or data destruction, loss or divulgence due to the service provider’snegligence in management, (iv) low quality services which cause losses to multiple banking financial institutions, or breaches of undertakings or obligationspertinent to such application to CBRC, and failure to make rectification after repeated warning, or (v) complaints from three or more banking financialinstitutions about negligence in management or low service quality, would cause such outsourcing services providers to be disqualified for incorporatingtheir services into the supervision and evaluation scope of CBRC, and CBRC will not accept their applications for incorporating their outsourcing servicesinto its supervision and evaluation scope within five years. Banking financial institutions are required to gradually terminate their cooperation with any suchdisqualified service providers. Regulations Related to Land Use Rights and Construction On June 11, 2003, the Ministry of Land and Resources, or the MLR promulgated the Regulation on Grant of State-owned Land Use Rights byAgreement, which became effective on August 1, 2003. According to such regulation, the land use rights (excluding land use rights of properties to be usedfor business purposes, such as commercial, tourism, entertainment and commodity residential properties, which land use rights must be granted by way oftender, auction or listing-for-sale according to relevant laws and regulations) may be granted by way of agreement. The local land bureau and the intendeduser will negotiate the land premium which shall not be lower than the minimum price approved by the relevant government and enter into the grant contract.Upon signing of the contract for the grant of land use rights, the grantee is required to pay the land premium pursuant to the terms of the contract and thecontract is then submitted to the relevant local land bureau for the issue of the land use right certificate. Upon expiration of the term of grant, the grantee mayapply for renewal of the term. Upon approval by the relevant local land bureau, a new contract shall be entered into to renew the grant, and a grant premiumshall be paid. If two or more entities are interested in the land use rights proposed to be granted, such land use rights shall be granted by way of tender, auction orlisting-for-sale. Furthermore, according to the Provisions on the Grant of State-owned Construction Land Use Right by Way of Tender, Auction and Listing-for-Sale, which is effective from November 1, 2007, land use rights for properties for commercial use, tourism, entertainment and commodity residentialpurposes can only be granted through tender, auction and listing-for-sale. After land use rights relating to a particular area of land have been granted by the State, unless any restriction is imposed, the party to whom suchland use rights are granted may transfer (for a term not exceeding the term which has been granted by the State), lease or mortgage such land use rights on theconditions provided by laws and regulations. Upon a transfer of land use rights, all rights and obligations contained in the contract pursuant to which theland use rights were originally granted by the State are assigned from the transferor to the transferee. According to the Land Registration Regulations promulgated by the State Land Administration Bureau, the predecessor of the MLR, onDecember 28, 1995 and implemented on February 1, 1996, all land use rights which are duly registered are protected by the law, and the land registration isachieved by the issue of a land use right certificate by the relevant authority to the land user. 72 Table of Contents Under the Administration Law of Urban Real Property of the People’s Republic of China, which was most recently amended by the StandingCommittee of the National People’s Congress on August 27, 2009, the land must be developed in line with the purposes of the land and the deadline forcommencement of construction as stipulated in the grant contract. Where construction does not commence within one year of commencement of constructionas stipulated in the grant contract, an idle land fee may be charged at a rate of not more than 20% of the fee for the grant of land use rights. Whereconstruction does not commence within two years, land use rights may be forfeited without compensation, except where the commencement of constructionis delayed due to force majeure, an act of the government or relevant government departments, or preliminary work necessary for the commencement ofconstruction. Recently new regulations, policies and controls have been published with respect to the construction or development of new data centers, andrebuilding or expansion of existing data centers. For example, on January 21, 2019, MIIT, National Government Office Administration and National EnergyAdministration jointly published their Guidance on Promotion of Green Data Center Construction, pursuant to which authorities encourage data centers toadhere to certain average levels of energy conservation and aim to reach several goals including, among others, maintaining the PUE of newly constructedlarge and extra large data centers at or below 1.4 from the year 2022 onward. On September 6, 2018, the General Office of the People’s Government of BeijingMunicipality, or the GOPGB, issued the Beijing Municipality’s Catalogue for the Prohibition and Restriction of Newly Increased Industries (2018 Edition),or the 2018 Catalogue, which is a revised edition of the catalogue GOPGB issued in 2015. The 2018 Catalogue prohibits new construction or expansionwithin Beijing’s municipal boundaries of data centers which are involved in providing Internet data services or information processing and storage supportservices, except for cloud computing data centers with PUE lower than 1.4. In addition, new construction or expansion of data centers which are involved inproviding Internet data services or information processing and storage support services with PUE lower than 1.4 is also prohibited within the boundaries ofBeijing’s Dongcheng District, Xicheng District, Chaoyang District, Haidian District, Fengtai District, Shijingshan District and Tongzhou New Town. Regulations Related to Information Security and Confidentiality of User Information Internet activities in China are regulated and restricted by the PRC government and are subject to penalties under the Decision Regarding theProtection of Internet Security. The Ministry of Public Security, or the MPS, has promulgated measures that prohibit use of the Internet in ways that, among other things, divulgegovernment secrets or disseminate socially destabilizing content. The MPS and its local counterparts have authority to supervise and inspect domesticwebsites to implement its measures. Internet information service providers that violate these measures may have their licenses revoked and their websites shutdown. On June 22, 2007, the MPS, the State Secrecy Administration and other relevant authorities jointly issued the Administrative Measures for theHierarchical Protection of Information Security, which divides information systems into five categories and requires the operators of information systemsranking above Grade II to file an application with the local Bureau of Public Security within 30 days of the date of its security protection grade determinationor since its operation. The PRC government regulates the security and confidentiality of Internet users’ information. The Administrative Measures on Internet InformationService, the Regulations on Technical Measures of Internet Security Protection and the Provisions on Protecting Personal Information ofTelecommunication and Internet Users set forth strict requirements to protect personal information of Internet users and require Internet information serviceproviders to maintain adequate systems to protect the security of such information. Personal information collected must be used only in connection with theservices provided by the Internet information service provider. Moreover, the Rules for Regulating the Order in the Market for Internet Information Servicealso protect Internet users’ personal information by (i) prohibiting Internet information service providers from unauthorized collection, disclosure or use oftheir users’ personal information and (ii) requiring Internet information service providers to take measures to safeguard their users’ personal information. The Cyber Security Law of the People’s Republic of China, or the Cyber Security Law, which was approved by the Standing Committee of theNational People’s Congress came into effect on June 1, 2017, which provides certain rules and requirements applicable to network service providers in China.The Cyber Security Law requires network operators to perform certain functions related to cyber security protection and strengthening network informationmanagement by taking technical and other necessary measures as required by laws and regulations to safeguard the operation of networks, effectivelyaddressing network security, preventing illegal and criminal activities, and maintaining the integrity, confidentiality and usability of network data. Inaddition, the Cyber Security Law imposes certain requirements on network operators of critical information infrastructure, including that such networkoperators with operations in the PRC shall store personal information and important data collected and produced within the territory of PRC, and shallperform certain security obligations as required under the Cyber Security Law. 73 Table of Contents Regulations Related to Leases According to the Contract Law of the People’s Republic of China promulgated by the National People’s Congress on March 15, 1999 and effectivefrom October 1, 1999, the lease agreement shall be in writing if its term is over six months, and the term of any lease agreement shall not exceed twenty years.During the lease term, any change of ownership to the leased property does not affect the validity of the lease contract. The tenant may sub-let the leasedproperty if it is agreed by the landlord and the lease agreement between the landlord and the tenant is still valid and binding. When the landlord is to sell aleased housing under a lease agreement, it shall give the tenant a reasonable advance notice before the sale, and the tenant has the priority to buy such leasedhousing on equal conditions. The tenant must pay rent on time in accordance with the lease contract. In the event of default of rental payment withoutreasonable cause, the landlord may ask the tenant to pay within a reasonable period of time, failing which the landlord may terminate the lease. The landlordhas the right to terminate the lease agreement if the tenant sub-lets the property without consent from the landlord, or causes loss to the leased propertiesresulting from its using the property not in compliance with the usage as stipulated in the lease agreement, or defaults in rental payment after the reasonableperiod as required by the landlord, or other circumstances occurs allowing the landlord terminate the lease agreement under relevant PRC laws andregulations, or otherwise, if the landlord wishes to terminate the lease before its expiry date, prior consent shall be obtained from the tenants. On December 1, 2010, Ministry of Housing and Urban-Rural Development promulgated the Administrative Measures for Leasing of CommodityHousing, which became effective on February 1, 2011. According to such measures, the landlords and tenants are required to enter into lease contracts whichmust contain specified provisions, and the lease contract should be registered with the relevant construction or property authorities at municipal or countylevel within 30 days after its conclusion. If the lease contract is extended or terminated or if there is any change to the registered items, the landlord and thetenant are required to effect alteration registration, extension of registration or deregistration with the relevant construction or property authorities within 30days after the occurrence of the extension, termination or alteration. Regulations Related to Intellectual Property Rights The State Council and the National Copyright Administration, or the NCAC, have promulgated various rules and regulations relating to theprotection of software in China. Under these rules and regulations, software owners, licensees and transferees may register their rights in software with theNCAC or its local branches and obtain software copyright registration certificates. Although such registration is not mandatory under PRC law, softwareowners, licensees and transferees are encouraged to go through the registration process to enjoy the better protections afforded to registered software rights. The PRC Trademark Law, adopted in 1982 and revised in 1993, 2001 and 2013 respectively, with its implementation rules adopted in 2002 andrevised in 2014, protects registered trademarks. The PRC Trademark Office of the State Administration for Industry and Commerce, handles trademarkregistrations and grants a protection term of ten years to registered trademarks. The MIIT amended its Administrative Measures on China Internet Domain Names in 2004 and replaced these measures with the AdministrationMeasures of Internet Domain Names, which took effect on November 1, 2017. According to these measures, the MIIT is in charge of the overalladministration of domain names in China. The registration of domain names in PRC is on a “first-apply-first-registration” basis. A domain name applicantwill become the domain name holder upon the completion of the application procedure. 74 Table of Contents On March 12, 1984, the Standing Committee of the National People’s Congress promulgated the Patent Law, which was amended in 1992, 2000 and2008. On June 15, 2001, the State Council promulgated the Implementation Regulation for the Patent Law, which was amended on January 9, 2010.According to these laws and regulations, the State Intellectual Property Office is responsible for administering patents in the PRC. The Chinese patent systemis premised upon the “first to file” principle, which means that where more than one person files a patent application for the same invention, a patent will begranted to the person who filed the application first. To be patentable, invention or utility models must meet three conditions: novelty, inventiveness andpractical applicability. A patent is valid for 20 years in the case of an invention, and for 10 years in the case of utility models and designs. A third-party usermust obtain consent or a proper license from the patent owner in order to use the patent. One of our consolidated VIEs obtained three utility models in 2016. Regulations Related to Employment On June 29, 2007, the Standing Committee of the National People’s Congress, or SCNPC, adopted the Labor Contract Law, or LCL, which becameeffective as of January 1, 2008 and was revised in 2012. The LCL requires employers to enter into written contracts with their employees, restricts the use oftemporary workers and aims to give employees long-term job security. Pursuant to the LCL, employment contracts lawfully concluded prior to the implementation of the LCL and continuing as of the date of itsimplementation will continue to be performed. Where an employment relationship was established prior to the implementation of the LCL but no writtenemployment contract was concluded, a contract must be concluded within one month after the LCL’s implementation. According to the Social Insurance Law promulgated by SCNPC which became effective from July 1, 2011 and was amended on December 29, 2018,the Regulation of Insurance for Work-Related Injury, the Provisional Measures on Insurance for Maternity of Employees, Regulation of UnemploymentInsurance, the Decision of the State Council on Setting Up Basic Medical Insurance System for Staff Members and Workers in Cities and Towns, the InterimRegulation on the Collection and Payment of Social Insurance Premiums and the Interim Provisions on Registration of Social Insurance, an employer isrequired to contribute the social insurance for its employees in the PRC, including the basic pension insurance, basic medical insurance, unemploymentinsurance, maternity insurance and injury insurance. Under the Regulations on the Administration of Housing Funds, promulgated by the State Council on April 3, 1999 and as amended on March 24,2002, an employer is required to make contributions to a housing fund for its employees. Regulations Related to Foreign Currency Exchange and Dividend Distribution Foreign Currency Exchange The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, as amended inAugust 2008. Under this regulation, the Renminbi is freely convertible for current account items, including the trade and service-related foreign exchangetransactions and other current exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments andinvestments in securities, unless the prior approval of the SAFE is obtained and prior registration with the SAFE is made. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange promulgated on June 20, 1996 by the People’s Bankof China, foreign-invested enterprises in China may purchase or remit foreign currency for settlement of current account transactions without the approval ofthe SAFE. Foreign currency transactions under the capital account are still subject to limitations and require approvals from, or registration with, the SAFEand other relevant PRC governmental authorities. In addition, the Notice of the General Affairs Department of SAFE on The Relevant Operation Issues Concerning the Improvement of theAdministration of Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, which was promulgated onAugust 29, 2008 by SAFE, regulates the conversion by foreign-invested enterprises of foreign currency into Renminbi by restricting how the convertedRenminbi may be used. Circular 142 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested enterprise mayonly be used for purposes within the business scope approved by the relevant government authority and may not be used to make equity investments in PRC,unless specifically provided otherwise. The SAFE further strengthened its oversight over the flow and use of Renminbi funds converted from the foreigncurrency-denominated capital of a foreign-invested enterprise. The use of such Renminbi may not be changed without approval from the SAFE, and may notbe used to repay Renminbi loans if the proceeds of such loans have not yet been used. Any violation of Circular 142 may result in severe penalties, includingsubstantial fines. 75 Table of Contents In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on ForeignDirect Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various specialpurpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, thereinvestment of Renminbi proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-investedenterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be openedin different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions onForeign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies thatthe administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banksshall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and itsbranches. In July 2014, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and capitaloperations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the AdministrationModel of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas, or Circular 36, on August 4, 2014. This circularsuspends the application of Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas to use the Renminbi capitalconverted from foreign currency registered capital for equity investments within the PRC. On March 30, 2015, SAFE released the Notice on the Reform of the Management Method for the Settlement of Foreign Exchange Capital ofForeign-invested Enterprises, or Circular 19, which has made certain adjustments to some regulatory requirements on the settlement of foreign exchangecapital of foreign-invested enterprises, lifted some foreign exchange restrictions under Circular 142, and annulled Circular 142 and Circular 36. However,Circular 19 continues to, prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitalsfor expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises. On June 9, 2016, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Controlover Foreign Exchange Settlement of Capital Accounts, or Circular 16, which took effect on the same day. Compared to Circular 19, Circular 16 not onlyprovides that, in addition to foreign exchange capital, foreign debt funds and proceeds remitted from foreign listings should also be subject to thediscretional foreign exchange settlement, but also lifted the restriction, that foreign exchange capital under the capital accounts and the correspondingRenminbi capital obtained from foreign exchange settlement should not be used for repaying the inter-enterprise borrowings (including advances by thethird party) or repaying the bank loans in Renminbi that have been sub-lent to the third party. In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign Exchange Administration and Optimizing Genuinenessand Compliance Verification, or Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domesticentities to offshore entities, including (i) under the principle of genuine transactions, banks shall check board resolutions regarding profit distribution,original copies of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses beforeremitting any profits. Moreover, pursuant to Circular 3, domestic entities shall make detailed explanations of their sources of capital and utilizationarrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with any outboundinvestments. 76 Table of Contents Circular 37 On July 4, 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ OffshoreInvestment and Financing and Roundtrip Investment through Special Purpose Vehicles, or Circular 37, which replaced the former circular commonly knownas Circular 75 promulgated by SAFE on October 21, 2005. Circular 37 requires PRC residents to register with local branches of SAFE in connection with theirdirect establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally ownedassets or equity interests in domestic enterprises or offshore assets or interests, referred to in Circular 37 as a “special purpose vehicle.” Circular 37 furtherrequires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease ofcapital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holdinginterests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibitedfrom making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purposevehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFEregistration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. On February 13, 2015, SAFE released the Notice on Further Simplifying and Improving Policies for the Foreign Exchange Administration of DirectInvestment, or Circular 13, which has amended Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its localbranch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. Share Option Rules Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchangematters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorizedbranch. Pursuant to Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications toSAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issuesconcerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companiesissued by SAFE on February 15, 2012, or the Share Option Rules, PRC residents who are granted shares or share options by companies listed on overseasstock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRCsubsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and otherprocedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection withtheir exercise of share options, purchase and sale of shares or interests and funds transfers. Dividend Distribution The principal regulations governing distribution of dividends of foreign holding companies include the Foreign Investment Enterprise Law, issuedin 1986 and amended in 2000 and 2016 respectively, and the Implementation Rules under the Foreign Investment Enterprise Law, issued in 1990 andamended in 2001 and 2014 respectively. Under these regulations, foreign investment enterprises in the PRC may pay dividends only out of theiraccumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, foreign investment enterprises in the PRCare required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends. A PRC company is not permitted to distribute anyprofits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profitsfrom the current fiscal year. 77 Table of Contents Regulations Related to Taxation Enterprise Income Tax Prior to January 1, 2008, entities established in the PRC were generally subject to a 30% national and 3% local enterprise income tax rate. Variouspreferential tax treatments promulgated by PRC tax authorities were available to foreign-invested enterprises. In March 2007, the National People’s Congress enacted the Enterprise Income Tax Law, which was amended in February 2017, and inDecember 2007 the State Council promulgated the Implementing Rules of the Enterprise Income Tax Law, or the Implementing Rules, both of which becameeffective on January 1, 2008. The Enterprise Income Tax Law (i) reduces the top rate of enterprise income tax from 33% to a uniform 25% rate applicable toboth foreign-invested enterprises and domestic enterprises and eliminates many of the preferential tax policies afforded to foreign investors, (ii) permitscompanies to continue to enjoy their existing tax incentives, subject to certain transitional phase-out rules and (iii) introduces new tax incentives, subject tovarious qualification criteria. The Enterprise Income Tax Law also provides that enterprises organized under the laws of jurisdictions outside China with their “de factomanagement bodies” located within China may be considered PRC resident enterprises and therefore be subject to PRC enterprise income tax at the rate of25% on their worldwide income. The Implementing Rules further define the term “de facto management body” as the management body that exercisessubstantial and overall management and control over the production and operations, personnel, accounts and properties of an enterprise. If an enterpriseorganized under the laws of jurisdiction outside China is considered a PRC resident enterprise for PRC enterprise income tax purposes, a number ofunfavorable PRC tax consequences could follow. First, it would be subject to the PRC enterprise income tax at the rate of 25% on its worldwide income.Second, a 10% withholding tax would be imposed on dividends it pays to its non-PRC enterprise shareholders and with respect to gains derived by its non-PRC enterprise shareholders from transfer of its shares. Prior to January 1, 2008, dividends derived by foreign enterprises from business operations in China were exempted from PRC enterprise income tax.However, such exemption was revoked by the Enterprise Income Tax Law and dividends generated after January 1, 2008 and payable by a foreign-investedenterprise in China to its foreign enterprise investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporationhas a tax treaty with China that provides for a preferential withholding arrangement. Pursuant to the Notice of the State Administration of Taxation onNegotiated Reduction of Dividends and Interest Rates, which was issued on January 29, 2008 and supplemented and revised on February 29, 2008, and theArrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of FiscalEvasion with Respect to Taxes on Income, which became effective on December 8, 2006 and applies to income derived in any year of assessmentcommencing on or after April 1, 2007 in Hong Kong and in any year commencing on or after January 1, 2007 in the PRC, such withholding tax rate may belowered to 5% if a Hong Kong enterprise is deemed the beneficial owner of any dividend paid by a PRC subsidiary by PRC tax authorities and holds at least25% of the equity interest in that particular PRC subsidiary at all times within the 12-month period immediately before distribution of the dividends.Furthermore, according to the Circular on Several Questions regarding the “beneficial owner” in Tax Treaties, which was issued by the State Administrationof Taxation on February 3, 2018 and became effective on April 1, 2018, when determining an applicant’s status as a “beneficial owner” regarding taxtreatments in connection with dividends, interest or royalties in the tax treaties, several factors, including without limitation, whether the applicant isobligated to pay more than 50% of his or her income in twelve months to residents in other countries or regions, whether the business operated by theapplicant constitutes actual business activities, and whether the country or region which is a counterparty to the tax treaty does not levy any tax, grants taxexemption on relevant income, or levies tax at an extremely low rate, will be taken into account. Such factors will be analyzed according to the actualcircumstances of each specific case. This circular further provides that applicants who intend to prove his or her status as a “beneficial owner” shall submitrelevant documents to the relevant tax bureau according to the Announcement on Issuing the Measures for the Administration of Non-Resident Taxpayers’Enjoyment of the Treatment under Tax Agreements issued by the State Administration of Taxation on August 27, 2015, and recently amended on June 15,2018. 78 Table of Contents Value-Added Tax and Business Tax Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay abusiness tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technologydevelopment and transfer, such business tax may be exempted subject to approval by the relevant tax authorities. Whereas, pursuant to the Provisional Regulations on Value-Added Tax of the PRC and its implementation regulations, unless otherwise specified byrelevant laws and regulations, any entity or individual engaged in the sales of goods, provision of processing, repairs and replacement services, sales ofservices, intangible assets and real properties, and importation of goods are generally required to pay a value-added tax, or VAT. In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Taxto Replace Business Tax. In March 2016, the Ministry of Finance and the State Administration of Taxation further promulgated the Notice on FullyPromoting the Pilot Plan for Replacing Business Tax by Value-Added Tax, which became effective on May 1, 2016. Pursuant to the pilot plan and relevantnotices, VAT is generally imposed in the modern service industries, including the VATS, on a nationwide basis. VAT of a rate of 6% applies to revenuederived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchasesagainst the output VAT chargeable on the modern services provided. In April 2018, the Ministry of Finance and the State Administration of Taxation jointly promulgated the Circular of the Ministry of Finance and theState Administration of Taxation on Adjustment of Value-Added Tax Rates, or Circular 32, according to which (i) for VAT taxable sales acts or importation ofgoods originally subject to value-added tax rates of 17% and 11%, respectively, such tax rates shall be adjusted to 16% and 10%, respectively; (ii) forpurchase of agricultural products originally subject to deduction rate of 11%, such deduction rate shall be adjusted to 10%; (iii) for purchase of agriculturalproducts for the purpose of production and sales or consigned processing of goods subject to tax rate of 16%, such tax shall be calculated at a deduction rateof 12%; (iv) for exported goods originally subject to tax rate of 17% and export tax refund rate of 17%, the export tax refund rate shall be adjusted to 16%;and (v) for exported goods and cross-border taxable acts originally subject to tax rate of 11% and export tax refund rate of 11%, the export tax refund rateshall be adjusted to 10%. Circular 32 became effective on May 1, 2018 and shall supersede existing provisions which are inconsistent with Circular 32. Regulations Related to M&A and Overseas Listings On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-owned Assets Supervision and Administration Commission, theState Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or CSRC, and the SAFE, jointly issued the Regulations onMergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amendedon June 22, 2009. The M&A Rules, among other things, require that (i) PRC entities or individuals obtain MOFCOM approval before they establish orcontrol a special purpose vehicle, or SPV, overseas, provided that they intend to use the SPV to acquire their equity interests in a PRC company at theconsideration of newly issued share of the SPV, or Share Swap, and list their equity interests in the PRC company overseas by listing the SPV in an overseasmarket; (ii) the SPV obtains MOFCOM’s approval before it acquires the equity interests held by the PRC entities or PRC individual in the PRC company byShare Swap; and (iii) the SPV obtains CSRC approval before it lists overseas. C. Organizational Structure Our Corporate Structure The following diagrams illustrate our corporate structure as of December 31, 2018. They omit certain entities that are immaterial to our results ofoperations, business and financial condition. Equity interests depicted in this diagram are held as to 100%. The relationships between each of GDS Shanghaiand GDS Beijing and GDS Management Company as illustrated in this diagram are governed by contractual arrangements and do not constitute equityownership. 79 Table of Contents (1) Includes 31 subsidiaries and consolidated entities (aside from EDSUZ (HK) Limited, shown above) incorporated in Hong Kong, 23 of which hold ourPRC-incorporated data center companies, and four additional subsidiaries incorporated in the British Virgin Islands, Macau and Singapore, but excludesdormant or immaterial entities with no material business. See the chart below for details on the data center holding companies.(2) Includes 26 additional subsidiaries and consolidated entities incorporated in China. See the chart below for details on the data center companies.(3) GDS Management Company also holds equity interests of 9 subsidiaries and consolidated entities incorporated in China. See the below chart for detailson the data center companies.(3) Holds equity interests of 99.90% in GDS Shanghai, and of approximately 99.97% in GDS Beijing.(4) Holds equity interests of 0.10% in GDS Shanghai, and of approximately 0.03% in GDS Beijing.(5) GDS Beijing holds equity interests of 1% in Zhangbei Yuntong, and GDS Suzhou holds equity interests of 99% in Zhangbei Yuntong. 80 Table of Contents Weiteng Construction, Weiteng Network, Weiteng Data, Shenzhen Yaode, EDC Shanghai Waigaoqiao, Shanghai Cai Tuo and Zhangbei Yuntongoperate the GZ1, GZ2, GZ3, SZ5, SH1, SH11 and HB1/2/3 data centers, respectively. Other data centers are operated by the data center companies indicatedin the diagram above, which in turn are held by data center holding companies indicated in the diagram above. The following diagram illustrates thestructure of these data center holding companies and their data center companies: (1) GDS Management Company holds 95% equity interest in Shanghai Shulan.(2) GDS Management Company holds 98% equity interest in Beijing Shou Rong Yun, and Linkdc Pte. Ltd. holds 2% equity interest in BeijingShou Rong Yun. 81 Table of Contents The following table sets forth the full legal names of the data center holding companies and corresponding project companies: Data center holdingcompany Data center company Data centerEDS (HK) LimitedShenzhen Yungang EDC Technology Co., Ltd., or EDC ShenzhenShenzhen data centers SZ1, SZ2 and SZ3EDB (HK) LimitedBeijing Wanguo Shu’an Science & Technology DevelopmentCo., Ltd., or EDC Beijing Wanguo Shu’anSite in Beijing for future developmentEDB II (HK) LimitedBeijing Hengpu’an Data Technology Development Co., Ltd., orEDC Beijing Heng Pu AnBeijing data centers BJ1 and BJ2Beijing Hengchang Data Technology Co., Ltd., or EDC BeijingHengchangBeijing data center BJ3FEP (HK) LimitedGuojin Technology (Kunshan) Co., Ltd., or EDC GuojinKunshan data center KS2 and KS3EDE I (HK) LimitedShanghai Yungang EDC Technology Co., Ltd., or EDC ShanghaiYungangShanghai data center SH2 and SH3EDKS (HK) LimitedShenzhen Pingshan New Area Global Data Science & TechnologyDevelopment Co., Ltd., or EDC Shenzhen PingshanShenzhen data center SZ4EDC China Holdings LimitedEDC Technology (Suzhou) Co., Ltd., or EDC Suzhou—EDC (Chengdu) Industry Co., Ltd., or EDC ChengduChengdu data center CD1, CD2 and CD3EDC Technology (Kunshan) Co., Ltd., or EDC KunshanKunshan data center KS1EDH (HK) LimitedShanghai Shuchang Data Science & Technology Co., Ltd., orShanghai ShuchangShanghai data center SH4EDE II (HK) LimitedShanghai Wanshu Data Technology Co., Ltd., or EDC ShanghaiWanshuShanghai data center SH5EDCD (HK) LimitedShanghai Puchang Data Science & Technology Co., Ltd., orShanghai PuchangShanghai data centers SH6 and SH7EBSD (HK) LimitedShanghai Shuyao Data Technology Co., Ltd., or Shanghai ShuyaoShanghai data center SH8EDP (HK) LimitedShanghai Shuge Data Science & Technology Co., Ltd., orShanghai ShugeShanghai data center SH9, SH10EDSN (HK) LimitedShanghai Lingying Data Technology Co., Ltd., or ShanghaiLingyingShanghai data center SH12EBG (HK) LimitedBeijing Wan Qing Teng Science & Technology Co., Ltd., orBeijing Wan Qing TengBeijing data center BJ5EDKH (HK) LimitedGuangzhou Wanxu Technology Services Co., Ltd., or GuangzhouWanxuSite in Guangzhou for future developmentGDS Management CompanyShanghai Shulan Data Science & Technology Co., Ltd., orShanghai ShulanShanghai data center SH13Shou Xin Yun (Beijing) Science & Technology Co., Ltd., orBeijing Shou Xin YunBeijing data center BJ4Shou Rong Yun (Beijing) Science & Technology Co., Ltd., orBeijing Shou Rong YunBeijing data center BJ6Beijing Hua Wei Yun Science & Technology Co., Ltd, or BeijingHua Wei YunBeijing data center BJ7Beijing Wan Teng Yun Science & Technology Co., Ltd, orBeijing Wan Teng YunBeijing data center BJ8Guangzhou Wanzhuo Data &Technology Co., Ltd., orGuangzhou WanzhuoGuangzhou data centers GZ4 and GZ5 Contractual Arrangements with Our Affiliated Consolidated Entities Contractual Arrangements among GDS Management Company, GDS Beijing and GDS Shanghai Due to PRC legal restrictions on foreign ownership and investment in VATS, and IDC services in particular, we currently conduct these activitiesmainly through GDS Suzhou, an operating subsidiary of GDS Beijing that is now authorized by GDS Beijing to provide IDC services. Each of GDS Beijingand GDS Shanghai holds an IDC license which is required to operate our business. We effectively control GDS Beijing and GDS Shanghai through a series ofcontractual arrangements between these consolidated VIEs, their shareholders and GDS Management Company. These contractual arrangements allow us to: · exercise effective control over our consolidated VIEs, namely GDS Shanghai, GDS Beijing and GDS Beijing’s subsidiaries, namely EDCShanghai Waigaoqiao, GDS Suzhou, Kunshan Wanyu, Weiteng Construction, Beijing Yixin, Zhangbei Yuntong, Shenzhen Yaode, ShenzhenJinyao, Shanghai Jinkai Beijing Wan Chang Yun, Shanghai Cai Tuo, Guangzhou Weiteng Data and Guangzhou Weiteng Network; · receive substantially all of the economic benefits of our variable interest entities; and · have an exclusive option to purchase all or part of the equity interests in GDS Beijing and GDS Shanghai when and to the extent permitted byPRC law. 82 Table of Contents As a result of these contractual arrangements, we are the primary beneficiary of GDS Beijing, GDS Shanghai, and their subsidiaries. We haveconsolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP. The following is a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, GDS ManagementCompany, our consolidated VIEs, GDS Beijing and GDS Shanghai, and the shareholders of each of GDS Beijing and GDS Shanghai. Agreements that Provide us with Effective Control over our Consolidated VIEs Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of each of GDS Beijing and GDS Shanghaihas pledged all of his or her equity interest in GDS Beijing or GDS Shanghai as a continuing first priority security interest, as applicable, to respectivelyguarantee GDS Beijing’s and its shareholders’ performance of their obligations under the relevant contractual arrangement, which include the exclusivetechnology license and service agreement, loan agreement, exclusive call option agreement, and shareholder voting rights proxy agreement, as well as GDSShanghai’s and its shareholders’ performance of their obligations under the other relevant contractual arrangement, which include the exclusive technologylicense and service agreement, loan agreement, exclusive call option agreement, and shareholder voting rights proxy agreement, and intellectual propertyrights license agreement. If GDS Beijing or GDS Shanghai or any of its shareholders breaches their contractual obligations under these agreements, GDSManagement Company, as pledgee, will be entitled to certain rights regarding the pledged equity interests, including receiving proceeds from the auction orsale of all or part of the pledged equity interests of GDS Beijing and GDS Shanghai in accordance with PRC law. Each of the shareholders of GDS Beijing andGDS Shanghai agrees that, during the term of the equity interest pledge agreements, he or she will not dispose of the pledged equity interests or create orallow creation of any encumbrance on the pledged equity interests without the prior written consent of GDS Management Company. The equity interestpledge agreements remain effective until GDS Beijing and GDS Shanghai and its shareholders discharge all their obligations under the contractualarrangements. We have registered the equity pledge by both GDS Beijing and GDS Shanghai in favor of GDS Management Company with the relevant officeof the Administration for Industry and Commerce in accordance with the PRC Property Rights Law. Shareholder Voting Rights Proxy Agreement. Pursuant to the shareholder voting rights proxy agreements, each shareholder of GDS Beijing andGDS Shanghai has irrevocably appointed the PRC citizen(s) as designated by GDS Management Company to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting on all matters of GDS Beijing and GDS Shanghai requiring shareholder approval,and appointing directors and executive officers. GDS Management Company is also entitled to change the appointment by designating another PRCcitizen(s) to act as exclusive attorney-in-fact of the shareholders of GDS Beijing and GDS Shanghai with prior notice to such shareholders. Each shareholdervoting rights proxy agreement will remain in force for so long as the shareholder remains a shareholder of GDS Beijing or GDS Shanghai, as applicable. Agreements that Allow us to Receive Economic Benefits from our Consolidated VIEs Exclusive Technology License and Service Agreements. Under the exclusive technology license and service agreements, GDS ManagementCompany licenses certain technology to each of GDS Beijing and GDS Shanghai and GDS Management Company has the exclusive right to provide GDSBeijing and GDS Shanghai with technical support, consulting services and other services. Without GDS Management Company’s prior written consent, eachof GDS Beijing and GDS Shanghai agrees not to accept the same or any similar services provided by any third party. Each of GDS Beijing and GDS Shanghaiagrees to pay service fees on a yearly basis and at an amount equivalent to all of its net profits as confirmed by GDS Management Company. GDSManagement Company owns the intellectual property rights arising out of its performance of these agreements. In addition, each of GDS Beijing and GDSShanghai has granted GDS Management Company an exclusive right to purchase or to be licensed with any or all of the intellectual property rights of eitherGDS Beijing or GDS Shanghai at the lowest price permitted under PRC law. Unless otherwise agreed by the parties, these agreements will continue remainingeffective. Intellectual Property Rights License Agreement. Pursuant to an intellectual property rights license agreement between GDS Management Companyand GDS Shanghai, dated April 13, 2016, GDS Shanghai has granted GDS Management Company an exclusive license to use for free any or all of theintellectual property rights owned by GDS Shanghai from time to time, and without the parties’ prior written consent, GDS Shanghai cannot take any actions,including without limitation to, transferring or licensing outside its ordinary course of business any intellectual property rights to any third parties, whichmay affect or undermine GDS Management Company’s use of the licensed intellectual property rights from GDS Shanghai. The parties have also agreedunder the agreement that GDS Management Company should own the new intellectual property rights developed by it regardless whether such developmentis dependent on any of the intellectual property rights owned by GDS Shanghai. This agreement can only be early terminated by prior mutual consent of theparties and need to be renewed upon GDS Management Company’s unilateral request. Agreements that Provide Us with the Option to Purchase the Equity Interest in GDS Beijing and GDS Shanghai Exclusive Call Option Agreements. Pursuant to the exclusive call option agreements, each shareholder of GDS Beijing and GDS Shanghai hasirrevocably granted GDS Management Company an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, tothe extent permitted under PRC law, all or part of such shareholder’s equity interests in GDS Beijing and GDS Shanghai. The purchase price should equal tothe minimum price required by PRC law or such other price as may be agreed by the parties in writing. Without GDS Management Company’s prior writtenconsent, the shareholders of each of GDS Beijing and GDS Shanghai have agreed that each of GDS Beijing and GDS Shanghai shall not amend its articles ofassociation, increase or decrease the registered capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on itsassets or other beneficial interests, provide any loans, distribute dividends to the shareholders and etc. These agreements will remain effective until all equityinterests of GDS Beijing and GDS Shanghai held by their shareholders have been transferred or assigned to GDS Management Company or its designatedperson(s). 83 Table of Contents Loan Agreements. Pursuant to the loan agreements between GDS Management and the shareholders of each of GDS Beijing and GDS Shanghai,GDS Management has agreed to extend loans in an aggregate amount of RMB310.1 million to the shareholders of GDS Beijing and GDS Shanghai solely forthe capitalization of GDS Beijing and GDS Shanghai. Pursuant to the loan agreements, GDS Management Company has the right to require repayment of theloans upon delivery of thirty-day’s prior notice to the shareholders, and the shareholders can repay the loans by either sale of their equity interests in GDSBeijing and GDS Shanghai to GDS Management Company or its designated person(s) pursuant to their respective exclusive call option agreements, or othermethods as determined by GDS Management Company pursuant to its articles of association and the applicable PRC laws and regulations. In the opinion of King & Wood Mallesons, our PRC counsel: · the ownership structures of GDS Management Company, GDS Shanghai and GDS Beijing, currently do not violate any of the applicable PRClaws or regulations currently in effect; and · the contractual arrangements among GDS Management Company, GDS Shanghai, GDS Beijing, and the shareholders of GDS Shanghai andGDS Beijing, are governed by PRC law, and are currently valid, binding and enforceable in accordance with the applicable PRC laws orregulations currently in effect, and do not violate any of the applicable PRC laws or regulations currently in effect. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules. ThePRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC counsel. If the PRC regulatory authorities find thatthe agreements that establish the structure for providing our IDC services do not comply with PRC government restrictions on foreign investment in IDCservices, we could be subject to severe penalties, including being prohibited from continuing operations. Subsidiaries of GDS Holdings Limited An exhibit containing a list of our significant subsidiaries has been filed with this annual report. D. Property, Plants and Equipment Please refer to “B. Business Overview—Our Data Centers” for a discussion of our property, plants and equipment. ITEM 4A. UNRESOLVED STAFF COMMENTS None. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Unless otherwise stated, the discussion and analysis of our financial condition and results of operations in this section apply to our financialinformation as prepared in accordance with U.S. GAAP. You should read the following discussion and analysis of our financial position and results ofoperations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. Thisdiscussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differmaterially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report on Form 20-F. Overview We are a leading developer and operator of high-performance data centers in China. Our facilities are strategically located in China’s primaryeconomic hubs where demand for high-performance data center services is concentrated. Our data centers have large net floor area, high power capacity,density and efficiency, and multiple redundancy across all critical systems. We are carrier and cloud-neutral, which enables our customers to connect to allmajor PRC telecommunications carriers, and to access a number of the largest PRC cloud service providers, whom we host in our facilities. We offercolocation and managed services, including a unique and innovative managed cloud value proposition. We have an 18-year track record of service delivery,successfully fulfilling the requirements of some of the largest and most demanding customers for outsourced data center services in China. As ofDecember 31, 2018, we had an aggregate net floor area of 160,356 sqm in service, 94.9% of which was committed, and an aggregate net floor area of 65,201sqm under construction, 48.4% of which was pre-committed. We have experienced significant growth in recent years. Our net revenue grew from RMB1,056.0 million in 2016 to RMB 1,616.2 million in 2017,representing an increase of 53.1%, and further increased to RMB2,792.1 million (US$406.1 million) in 2018, representing an increase of 72.8%. Revenuesfrom colocation services grew from RMB770.1 million in 2016 to RMB1,219.1 million in 2017, and further grew to RMB2,104.3 million (US$306.1 million)in 2018, representing 72.9%, 75.4% and 75.4% of total net revenue, respectively. Our net revenues from managed services and consulting services wereRMB232.9 million, RMB372.8 million and RMB655.2 million (US$95.3 million) in 2016, 2017 and 2018, representing 22.1%, 23.1% and 23.4% of totalnet revenue over the same periods, respectively. Revenue from IT equipment sales decrease from RMB53.0 million in 2016 to RMB24.3 million in 2017, andincreased to RMB32.6 million (US$4.7 million) in 2018, representing 5.0%, 1.5% and 1.2% of total net revenue, respectively. Our adjusted EBITDAincreased from RMB270.5 million in 2016 to RMB512.3 million in 2017, and further increased to RMB1,046.5 million (US$152.2 million) in 2018. Our netloss increased from RMB276.4 million in 2016 to RMB326.9 million in 2017, and increased to RMB430.3 million (US$62.6 million) in 2018. As ofDecember 31, 2017 and 2018, our accumulated deficit was RMB1,185.6 million and RMB1,615.1 million (US$234.9 million), respectively. 84 Table of Contents Key Factors Affecting Our Results of Operations Our business and results of operations are generally affected by the development of China’s data center services market. We have benefited fromrapid growth in this market during recent years and any adverse changes in the data center services market in China may harm our business and results ofoperations. In addition, we believe that our results of operations are directly affected by the following key factors. Ability to Source and Develop Data Centers Our revenue growth depends on our ability to source and develop additional data centers. As it typically takes a minimum of twelve to eighteenmonths to develop a data center together with racks and equipment installed, we must commit to development in advance of realizing a benefit from ourinvestment. We endeavor to ensure continuous availability of data center capacity to satisfy customer demand by maintaining a supply of high-performancedata centers in various stages of development—from identified sites, to data centers under construction to available net floor areas in existing data centers.We expand our sourcing of new data center area by (i) acquiring or leasing property which we develop for use as data center facilities, whether throughconstructing on greenfield sites or converting existing industrial buildings, (ii) leasing existing data center capacity from third-party wholesale providers,and (iii) acquiring high-performance data centers from other companies. Our ability to maintain a growing supply of data center assets directly affects ourrevenue growth potential. If we are unable to identify suitable land or facilities for new data centers or to do so at an acceptable cost to us or experience delays or increasedcosts during the data center design and construction development process, our ability to grow our revenue and improve our results of operations would benegatively affected. Additionally, if demand slows unexpectedly or we source and develop data centers too rapidly, the resulting overcapacity wouldadversely affect our results of operations. Ability to Secure Commitments for Data Center Services from Our Customers and Minimize Move-in Periods Due to the lengthy time period required to build data centers and the long-term nature of these investments, if we overestimate market demand fordata center resources, our utilization rate, which is the ratio of area utilized to area in service would be reduced, which would adversely affect our results ofoperations. Our revenue growth depends on our ability to secure commitments for our data center services. We focus on obtaining these commitments duringthe construction phase by entering into pre-commitment agreements with customers and endeavor to maximize total area committed. While providingflexibility to customers, we also aim to minimize move-in period so as to provide billable services and to start generating revenue. Accordingly, our results ofoperations are highly influenced by our ability to maintain a high utilization rate. Our total area committed increased from 61,043 sqm as of December 31,2016 to 102,528 sqm as of December 31, 2017, and further to 183,743 sqm as of December 31, 2018, while area utilized increased from 37,082 sqm as ofDecember 31, 2016 to 61,713 sqm as of December 31, 2017, and further to 108,326 sqm as of December 31, 2018. Move-in periods, and minimumcommitments over the move-in period, vary significantly from customer to customer. We strive to optimize our customer mix to achieve high commitmentrates and utilization rates and a high proportion of long-term relationships. Pricing Structure and Power Costs Our results of operations will be affected by our ability to operate our data centers efficiently in terms of power consumption. Our data centersrequire significant levels of power supply to support their operations. Depending on the contract, we agree with our customer to either charge them for actualpower consumed or we factor it into a fixed price. The majority of our customers select pricing for a fixed amount over the contracts’ service period.Accordingly, the customer’s actual power usage during the life of the contract will affect its profitability to us. Optimal configuration of customers and powerusage within each data center will affect our results of operations. 85 Table of Contents Utilization of Existing Capacity Our ability to maximize profitability depends on attaining high utilization of data center net floor area and power capacity. A substantial majority ofour cost of revenue and operating expenses are fixed in nature. Such costs increase with each new data center and entail additional power commitment costs,depreciation from new property plant and equipment, rental costs on leased facilities, personnel costs and start-up costs. By adopting a modular developmentapproach, we aim to optimize resource utilization and maximize capital efficiency to improve profitability. Cost Structure Depending on Data Center Tenure and Location We hold our data centers through a mix of those that we own or lease. The leases typically range from three years for third-party data centers totwenty years for self-developed data centers, all with different renewal periods. The tenure of the leases and the periods during which the amount are fixed orcapped under the leases will affect our cost structure in the future. In addition, if many of our data centers continue to be located close to central businessdistricts, where rental costs are generally higher, our cost structure will also be affected. Data Center Development and Financing Costs Our revenue growth depends on our ability to develop data centers at commercially acceptable terms. We have historically funded data centerdevelopment through additional equity or debt financing. We expect to continue to fund future developments through debt financing or through theissuance of additional equity securities if necessary and when market conditions permit. Such additional financing may not be available, may not be oncommercially acceptable terms or may result in an increase to our financing costs. In addition, we may encounter development delays, excess developmentcosts, or challenges in attracting or retaining customers to use our data center services. We also may not be able to identify suitable land or facilities for newdata centers or at a cost or terms acceptable to us. Key Performance Indicators Our net revenue and results of operations are largely determined by the amount of data center area in service, the degree to which data center space iscommitted or pre-committed as well as its utilization. Accordingly, our management uses the following key performance indicators as measures to evaluateour performance: Area in service: the net floor area of data centers in service for which one or more modules have been equipped and fitted out ready for utilizationby customers. Area under construction: the net floor area of data centers which are under construction and are not yet ready for service. Area committed: the net floor area of data centers in service for which agreements from customers remain in effect. Area pre-committed: the net floor area of data centers under construction for which agreements from customers remain in effect. Total area committed: the sum of area committed and area pre-committed. Commitment rate: the ratio of area committed to area in service. Pre-commitment rate: the ratio of area pre-committed to area under construction. 86 Table of Contents Area utilized: the net floor area of data centers in service that is also revenue generating pursuant to customer agreements in effect. Utilization rate: the ratio of area utilized to area in service. The following table sets forth our key performance indicators as of December 31, 2016, 2017 and 2018. As of December 31, (Sqm, %)2016 2017 2018 Area in service60,982101,258160,356Area under construction25,05524,50565,201Area committed54,25892,961152,163Area pre-committed6,7859,56731,580Total area committed61,043102,528183,743Commitment rate89.0%91.8%94.9%Pre-commitment rate27.1%39.0%48.4%Area utilized37,08261,713108,326Utilization rate60.8%60.9%67.6% (1) Includes data center area for which we have entered into non-binding agreements or letters of intent with, or have received other confirmations from,certain customers. Description of Selected Statement of Operations Items The following table sets forth our net revenue, cost of revenue and gross profit, both in an absolute amount and as a percentage of net revenue, forthe years indicated. Year Ended December 31, 2016 2017 2018 RMB % of NetRevenue RMB % of NetRevenue RMB US$ % of NetRevenue (in thousands, except for percentages)Net revenueService revenue1,003,01595.01,591,86098.52,759,490401,35198.8IT equipment sales52,9455.024,3061.532,5874,7401.2Total1,055,960100.01,616,166100.02,792,077406,091100.0Cost of revenue(790,286)(74.8)(1,207,694)(74.7)(2,169,636)(315,560)(77.7)Gross profit265,67425.2408,47225.3622,44190,53122.3 Net Revenue We derive net revenue primarily from colocation services and, to a lesser extent, managed services, including managed hosting and managed cloudservices. In addition, from time to time, we also sell IT equipment on a stand-alone basis or bundled in a managed service contract arrangement to customersand provide consulting services. Substantially all of our service revenue is recognized on a recurring basis. Our colocation services primarily comprise the provision of space, power and cooling to our customers for housing servers and related IT equipment.Our customers have several choices for hosting their networking, server and storage equipment. They can place the equipment in a shared or private spacethat can be customized to their requirements. We offer power options customized to a customer’s individual power requirement. Colocation services areprovided to customers for a fixed amount over the contract service period. Revenue from colocation services is recognized ratably over the term of thecontractual service period. 87(1)(1)(1)(1)(1)(1)(1)(1)(1) Table of Contents Our managed services include managed hosting and managed cloud services. Our managed hosting services comprise a broad range of value-addedservices, covering each layer of the data center IT value chain. Our suite of managed hosting services includes technical services, network managementservices, data storage services, system security services, database services and server middleware services. The majority of our managed hosting servicesrevenue is provided to customers for a fixed amount over the contract service period and billed on a monthly or quarterly basis. Revenue from managedhosting services is recognized ratably over the term of the contractual service period. Our suite of managed cloud services includes direct private connectionto major cloud platforms, the provision of cloud infrastructure, including cloud resources, and the provision of solutions to assist our customers in managingtheir hybrid clouds. Certain contracts with our customers for provision of colocation services and managed hosting services charge variable considerations that areprimarily based on customers’ usage of such services. Revenues under such variable consideration contracts are recognized based on the agreed usage-basedfees as the services are rendered during the contract term. We are subject to VAT at a rate of 6% on the IDC services we provide, less any deductible VAT we have already paid or borne. We are also subject tosurcharges on VAT payments in accordance with PRC law. During the periods presented, we were not subject to business tax on the services we provide. We consider our customers to be the end users of our data center services. We may enter into contracts directly with our end user customers orthrough intermediate contracting parties. We have in the past derived, and believe that we will continue to derive, a significant portion of our total netrevenue from a limited number of customers. We had two end user customers that generated 18.6% and 14.6% of our total net revenue in 2016, one end usercustomer that generated 25.2% of our total net revenue in 2017, and two end user customers that generated 27.0% and 17.4% of our total net revenue in2018, respectively. No other end user customer accounted for 10% or more of our total net revenue during the periods. We expect our total net revenue willcontinue to be highly dependent on a limited number of end user customers who account for a large percentage of our total area committed. As ofDecember 31, 2018, we had four end user customers who accounted for 27.9%, 24.2%, 11.4% and 10.3%, respectively, of our total area committed. No otherend user customer accounted for 10% or more of our total area committed. Cost of Revenue Our cost of revenue consists primarily of utility costs, depreciation of property and equipment, rental costs, labor costs and others. Utility costs referprimarily to the cost of power needed to carry out our data center services. Depreciation of property and equipment primarily relates to depreciation of datacenter property and equipment, such as assets acquired under capital leases, leasehold improvements to data centers and other long-lived assets. Rental costsrelate to the data center space we lease and use in providing services to our customers. Labor costs refer to compensation and benefit expenses for ourengineering and operations personnel. These costs are largely fixed costs other than utility costs, for which there is a portion that varies proportionally toeach customer’s power and utility consumption and a fixed portion consisting of a monthly power commitment fee. When a new data center comes intoservice, we mainly incur a level of fixed utility costs that are not directly correlated with net revenue. We expect that our cost of revenue will continue to increase as our business expands and we expect that utility costs, depreciation and amortizationand rental costs will continue to comprise the largest portion of our cost of revenue. In addition, in any given period, the increase in our cost of revenue mayalso outpace the growth of our net revenue depending on the timing of the development of our data centers, our ability to secure customer contracts and theutilization rate of our data centers during the period. While we strive to both secure customer commitments to our data center services so that the most datacenter space will be utilized as possible and also to minimize the time as to when our data center area becomes operational and the customer occupies thatarea, these timing differences may result in fluctuation of our cost of revenue as a percentage of our net revenue between periods. Operating Expenses Our operating expenses consist of selling and marketing expenses, general and administrative expenses, and research and development expenses.The following sets forth our selling and marketing expenses, general and administrative expenses and research and development expenses, both in anabsolute amount and as a percentage of net revenue, for the years indicated. 88 Table of Contents Year Ended December 31, 2016 2017 2018 RMB % of NetRevenue RMB % of NetRevenue RMB US$ % of NetRevenue (in thousands, except for percentages)Selling and marketingexpenses71,5786.890,1185.6110,57016,0824.0General andadministrativeexpenses227,37021.5228,86414.2329,60147,93811.8Research anddevelopmentexpenses9,1000.97,2610.413,9152,0240.5Total operatingexpenses308,04829.2326,24320.2454,08666,04416.3 Selling and Marketing Expenses Our selling and marketing expenses consist primarily of compensation, including share-based compensation, and benefit expenses for our sellingand marketing personnel, business development and promotion expenses and office and traveling expenses. As our business grows, we intend to increase theheadcount of our selling and marketing staff and to continue to pursue aggressive branding and marketing campaigns and, as a result, our sales and marketingexpenses are expected to increase. General and Administrative Expenses Our general and administrative expenses consist primarily of compensation, including share-based compensation, and benefit expenses formanagement and administrative personnel, start-up costs incurred prior to the operation of new data centers, depreciation and amortization, office andtraveling expenses, professional fees and other fees. Depreciation relates primarily to our office equipment and facilities used by our management and staff inthe administrative department. Start-up costs consist of costs incurred prior to commencement of operations of a new data center, including rental costsincurred pursuant to operating leases of buildings during the construction of leasehold improvements and other miscellaneous costs. Professional fees relateprimarily to audit and legal expenses. We expect our general and administrative expenses to increase as we continue to increase our staff and office space asour business grows. In addition, as a public company, we have incurred increasing legal, accounting and other expenses, including costs associated with publiccompany reporting requirements. We have also incurred costs in order to comply with the Sarbanes-Oxley Act of 2002 and the related rules and regulationsimplemented by the SEC and Nasdaq. We expect that such compliance, together with the growth and expansion of our business, will cause our general andadministrative expenses to increase. Research and Development Expenses Research and development expenses consist primarily of compensation and benefit expenses for our research and development personnel. Share-Based Compensation The table below shows the effect of the share-based compensation expenses on our cost of revenue and operating expense line items, both in anabsolute amount and as a percentage of net revenues, for the years indicated. 89 Table of Contents Year Ended December 31, 2016 2017 2018 RMB % of NetRevenue RMB % of NetRevenue RMB US$ % of NetRevenue (in thousands, except for percentages)Cost of revenue2,1140.29,9410.618,0082,6190.6Selling and marketing6,5900.618,3901.125,2133,6670.9General andadministrative55,4095.230,8661.961,7078,9762.2Research anddevelopment520.06460.19491380.1Total share-basedcompensationexpenses64,1656.059,8433.7105,87715,4003.8 We incurred higher share-based compensation expenses in 2018 as compared to 2017 due to grants of 13,475,060 restricted shares and 12,941,952restricted shares in July 2017 and August 2018, respectively, to employees, officers and directors. We expect to continue to grant share options, restrictedshares and other share-based awards under our share incentive plans and incur further share-based compensation expenses in future periods. See “—Critical Accounting Policies—Share-based Compensation” in this section for a description of what we account for the compensation costfrom share-based payment transactions. Taxation Cayman Islands We are an exempted company incorporated in the Cayman Islands and conduct substantially all of our business through our PRC subsidiaries in thePRC. Under the current laws of the Cayman Islands, we are not subject to tax on income or capital gains. In addition, upon payment of dividends by us to ourshareholders, no Cayman Islands withholding tax will be imposed. British Virgin Islands Under the current laws of the British Virgin Islands, we are not subject to tax on income or capital gains. In addition, upon payments of dividends byus to our shareholders, no British Virgin Islands withholding tax will be imposed. Hong Kong Our subsidiaries in Hong Kong are subject to the Hong Kong Profits Tax rate of 16.5%. PRC Generally, our subsidiaries and consolidated VIEs in China are subject to enterprise income tax on their taxable income in China at a rate of 25%.The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. Dividends paid by our wholly foreign-owned subsidiaries in China to our intermediary holding companies in Hong Kong will be subject to awithholding tax rate of 10%, unless the relevant Hong Kong entity satisfies all the requirements under the Arrangement between Mainland China and theHong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income andreceives approval from the relevant tax authority. If our Hong Kong subsidiary satisfies all the requirements under the tax arrangement and receives approvalfrom the relevant tax authority, then the dividends paid to the Hong Kong subsidiary would be subject to withholding tax at the standard rate of 5%. 90 Table of Contents If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a “resident enterprise” under the PRCEnterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See “Item 3. Key Information—D. RiskFactors—Risks Related to Doing Business in the People’s Republic of China—We may be treated as a resident enterprise for PRC tax purposes under thePRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.” Critical Accounting Policies We prepare our financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions. Wecontinually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various otherassumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process,actual results could differ from our expectations as a result of changes in our estimates. An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highlyuncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accountingestimates that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following accountingpolicies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The followingdescriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial statements and otherdisclosures included in this annual report on Form 20-F. Consolidation of VIEs We account for entities qualifying as VIEs in accordance with Financial Accounting Standards Boards, or FASB, Accounting Standards CodificationTopic 810, Consolidation, or ASC 810. Our operations are primarily conducted through our VIEs, GDS Beijing and GDS Shanghai, to comply with relevantPRC laws and regulations, which prohibit foreign investment in companies that are engaged in data center-related businesses in those regions. Individualsacting as nominee equity holders hold the legal equity interests of GDS Beijing and GDS Shanghai on our behalf. The equity holders of GDS Beijing andGDS Shanghai are William Wei Huang, our chairman and chief executive officer, and Qiuping Huang. A series of contractual agreements, including equity interest pledge agreements, shareholder voting rights proxy agreements, exclusive technologylicense and service agreements, intellectual property rights license agreements, exclusive call option agreements and loan agreements, collectively, the VIEAgreements, were entered among our company, GDS Beijing, GDS Shanghai, and the equity holders of GDS Beijing and GDS Shanghai. Through theseagreements, the equity holders of GDS Beijing and GDS Shanghai have granted all their legal rights, including voting rights, dividends rights, anddisposition rights, of their equity interests in GDS Beijing and GDS Shanghai to us. Accordingly, the equity holders of GDS Beijing and GDS Shanghai donot have (i) rights to make decisions about the activities of GDS Beijing and GDS Shanghai or (ii) rights to receive the expected residual returns of GDSBeijing and GDS Shanghai. Under the terms of the VIE Agreements, we have (i) the right to receive service fees on a yearly basis at an amount equivalent to all of the net profitsof GDS Beijing and GDS Shanghai under the exclusive technology license and service agreements when such services are provided; (ii) the right to receiveall dividends declared by GDS Beijing and GDS Shanghai and the right to all undistributed earnings of GDS Beijing and GDS Shanghai; (iii) the right toreceive the residual benefits of the GDS Beijing and GDS Shanghai through its exclusive option to acquire 100% of the equity interests in GDS Beijing andGDS Shanghai, to the extent permitted under PRC law; and (iv) the right to require the shareholders of GDS Beijing and GDS Shanghai to appoint the PRCcitizen(s) as designated by us to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights, including, but not limited to, voting onall matters of GDS Beijing and GDS Shanghai requiring shareholder approval, disposing of all or part of the shareholder’s equity interest in GDS Beijing andGDS Shanghai, and appointing directors and executive officers. During the periods presented, we provided loans to GDS Beijing and GDS Shanghai tosupport their working capital requirements and for capitalization purposes. 91 Table of Contents In accordance with ASC 810, we have a controlling financial interest in GDS Beijing and GDS Shanghai because we have (i) the power to directactivities of GDS Beijing and GDS Shanghai that most significantly impact their economic performance; and (ii) the obligation to absorb the expected lossesand the right to receive expected residual return of GDS Beijing and GDS Shanghai that could potentially be significant to GDS Beijing and GDS Shanghai. The significant judgments used and assumptions made in our determination that we are the primary beneficiary of GDS Beijing and GDS Shanghaiwere the terms of the VIE Agreements and our financial support to GDS Beijing and GDS Shanghai. Accordingly, we have included the financial statementsof GDS Beijing and GDS Shanghai in our consolidated financial statements. Our PRC legal counsel, based on its understanding of the relevant laws and regulations, is of the opinion that each of the contracts among ourwholly-owned PRC subsidiaries, our consolidated VIEs and their shareholders is valid, binding and enforceable in accordance with its terms. However, thereare substantial uncertainties regarding the interpretation and application of PRC laws and future PRC laws and regulations. Any changes in PRC laws andregulations that affect our ability to control our PRC VIEs may preclude us from consolidating these companies in the future. Revenue Recognition We recognize revenue as we satisfy a performance obligation by transferring control over a good or service to a customer. For each performanceobligation satisfied over time, we recognize revenue over time by measuring progress toward complete satisfaction of that performance obligation. If we donot satisfy a performance obligation over time, the performance obligation is satisfied at a point in time. Revenue is measured as the amount of considerationto which we expect to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of thirdparties. For contracts with customers that contain multiple performance obligations, we account for individual performance obligations separately if they aredistinct or as a series of distinct obligations if the performance obligations meet the series criteria. Determining whether products and services are considereddistinct performance obligations that should be accounted for separately versus together may require significant judgment. The transaction price is allocatedto the separate performance obligation on a relative standalone selling price basis. The standalone selling price is determined based on overall pricingobjectives, taking into consideration market conditions, geographic locations and other factors. Other judgments include determining if any variableconsideration (such as price increases, for example), should be included in the total contract value of the arrangement. We derive revenue primarily from the delivery of colocation services and managed services, including managed hosting services and managed cloudservices. The remainder of our revenue is from IT equipment sales that are either sold on a stand-alone basis or bundled in a managed hosting service contractarrangement and consulting services. Colocation services are services where we provide space, power and cooling to customers for housing and operating their IT system equipment inour data centers. Colocation services are primarily provided to customers for a fixed consideration over the contract service period. Revenue from suchcolocation services, where services are provided to customers for a fixed amount over the contract service period, are recognized on a straight-line basis overthe term of the contract. We have determined that our performance pattern to be straight-line since the customer receives value as the services are renderedcontinuously during the term of the contract, the earning process is straight-line, and there is no other discernible performance pattern of recognition. Managed hosting services are services where we provide outsourced services to manage the customers’ data center operations, including datamigration, IT operations, security and data storage. Managed hosting services are primarily provided to financial institution customers as a businesscontinuity and disaster recovery solution, which are primarily provided to customers for a fixed consideration over the contract service period. Revenuesfrom such managed hosting services where services are provided to customers for a fixed amount over the contract service period are recognized on a straight-line basis over the term of the contract. We have determined that its performance pattern to be straight-line since the customer receives value as the servicesare rendered continuously during the term of the contract, the earning process is straight-line, and there is no other discernible performance pattern ofrecognition. 92 Table of Contents Certain contracts with customers for colocation services and managed hosting services provide for variable considerations that are primarily basedon the usage of such services. Revenues on such contracts are recognized based on the agreed usage-based fees as the services are rendered throughout thecontract term. In certain colocation and managed hosting service contracts, we agree to charge customers for their actual power consumption. Relevant revenue isrecognized based on actual power consumption during each period. In certain other colocation and managed hosting service contracts, we specify a fixedpower consumption limit each month for customers. If a customer’s actual power consumption is below the limit, no additional fee is charged, while if itsactual consumption is above the limit, we charge the customers additional power consumption fees calculated based on the portion of actual powerconsumption exceeding the limit, multiplied by a fixed unit price, which is determined based on market price and does not provide customers with materialrights to acquire additional goods or services that the customer would not receive without entering into that contract. Accordingly, relevant revenue isrecognized each month based on actual additional power consumption fees. Managed cloud services are services where we (i) distribute and deliver virtual storage services to customers, including offering direct privateconnection to major cloud platforms, or CloudConnect, and (ii) provide cloud infrastructure, including cloud resources, and solutions to assist customers inmanaging their hybrid clouds, or CloudMix. Services are provided to certain customers for a fixed amount over the contract period, usually ranging from oneto five years and are recognized on a straight-line basis over the contract period. Services are provided to remaining customers on a consumption basis, suchas the amount of storage used in a period and the revenue is recognized based on customer’s utilization of such resources and rate specified in the contractsover the related contractual term beginning on the date on which the platform is made available to the customer. Revenue recognized for colocation or managed hosting and cloud services delivered prior to billing is recorded within accounts receivable. Wegenerally bill the customer in equal instalments on a monthly or quarterly basis. Cash received in advance from customers prior to the delivery of the colocation or managed hosting and cloud services is recorded as deferredrevenue. The sale of IT equipment is recognized when the customer obtains control of the equipment, which is typically when delivery has occurred, thecustomer accepts the equipment and we have no further performance obligation after the delivery. In certain managed service contracts, we sell and deliver IT equipment such as servers and computer terminals prior to the delivery of the services.Since sale of equipment can be distinguished, and is separately identifiable from other promises in the contract and it is distinct within the context of thecontract, the sale of equipment is considered a separate performance obligation. Accordingly, the contract consideration is allocated to the equipment and themanaged services based on their relative standalone selling prices. Consulting services are provided to customers for a fixed amount over the service period, usually less than one year. We recognize revenues fromconsulting services over the period when the services were provided, since customers simultaneously receive and consume the benefit of the services. We usethe input method based on the pattern of service provided to the customers. Revenue is generally recognized on a gross basis as we are primarily responsible for fulfilling the contract, assume inventory risk and havediscretion in establishing the price when selling to the customer. To the extent we do not meet the criteria for recognizing revenue on a gross basis, we recordthe revenue on a net basis. 93 Table of Contents Leases Leases are classified at the lease inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the followingconditions exists: (a) ownership is transferred to the lessee by the end of the lease term, (b) there is a bargain purchase option, (c) the lease term is at least 75%of the property’s estimated remaining economic life, or (d) the present value of the minimum lease payments at the beginning of the lease term is 90% or moreof the fair value of the leased property to the lessor at the inception date. We record a capital lease as an asset and an obligation at an amount equal to thepresent value at the beginning of the lease term of minimum lease payments during the lease term. If at any time the lessee and lessor agree to amend the provisions of the lease, other than by renewing the lease or extending its term, in a manner thatwould have resulted in a different classification of the lease under the lease classification criteria had the amended provisions been in effect at the inceptionof the lease, the amended agreement shall be considered as a new agreement over its term, and the lease classification criteria shall be applied for purposes ofclassifying the new lease. We record an asset and related financing obligation for the estimated construction costs under build-to-suit lease arrangements where we areconsidered to be the owner for accounting purposes, to the extent we are involved in the construction of the building or structural improvements or we bearconstruction risk prior to commencement of a lease. Upon completion of the construction and commencement of the lease terms, we assess whether thesearrangements qualify for sales recognition under the deemed sale-leaseback transaction. If the arrangements do not qualify for sales recognition under thesale-leaseback accounting guidance, we continue to be the deemed owner of the build-to-suit assets for financial reporting purposes. We keep theconstruction costs of the assets on our balance sheet. In addition, lease payments less the portion considered to be interest expense decrease the financingliability on our balance sheet. Rental costs on operating leases are charged to expense on a straight-line basis over the lease term. Certain operating leases contain rent holidaysand escalating rent. Rent holidays and escalating rent are considered in determining the straight-line rent expense to be recorded over the lease term. Rentalcosts associated with building operating leases that are incurred during the construction of leasehold improvements and to otherwise ready the property forour intended use are recognized as rental expenses and are not capitalized. Goodwill Goodwill is an asset representing the future economic benefits arising from other assets acquired that are not individually identified and separatelyrecognized. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might beimpaired. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances changethat would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significantchange in the stock prices, business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of areporting unit. Application of the goodwill impairment test requires judgment, including the identification of the reporting unit, assignment of assets andliabilities to the reporting unit, assignment of goodwill to the reporting unit, and determination of the fair value of each reporting unit. We have the option to perform a qualitative assessment to determine whether it is more-likely-than not that the fair value of a reporting unit is lessthan its carrying value prior to performing the two-step goodwill impairment test. If it is more-likely-than-not that the fair value of a reporting unit is greaterthan its carrying amount, the two-step goodwill impairment test is not required. If the two-step goodwill impairment test is required, first, the fair value of thereporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carrying amount, an indicationof goodwill impairment exists for the reporting unit and we perform step two of the impairment test (measurement). Under step two, an impairment loss isrecognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value ofgoodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after thisallocation is the implied fair value of the reporting unit goodwill. We perform our annual impairment review of goodwill at December 31 of each year. 94 Table of Contents Impairment of Long-Lived Assets Long-lived assets, such as property and equipment, intangible assets subject to amortization and prepaid land use rights are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived assetor asset group be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to itscarrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment isrecognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discountedcash flow models, quoted market values and third-party independent appraisals, as considered necessary. Share-based Compensation We adopted an equity incentive plan in July 2014, or the 2014 share incentive plan, for the granting of share options to key employees, directorsand external consultants in exchange for their services. The total number of shares that may be issued under the 2014 share incentive plan is 29,240,000ordinary shares. We adopted a second equity incentive plan in August 2016, or the 2016 share incentive plan, for the granting of share options and other equityawards to key employees and directors in exchange for their services. The total number of shares that may be issued under the 2016 share incentive plan is56,707,560 ordinary shares. Options to Directors, Officers and Employees On May 1, 2016, we granted 11,084,840 share options under the 2014 share incentive plan to employees, officers and directors. These share optionswere fully vested upon the date of grant for past services and had an exercise price of US$0.7792 (RMB5.0328) per option. The options have a contractualterm of five years. Options to Non-employee Consultants In June 2018, we granted 500,000 fully vested share options under the 2014 share incentive plan to an external consultant at an exercise price ofUS$0.7792 per option. The options have a contractual term of five years. There were no forfeitable and unvested non-employee options as of December 31,2017 and 2018. The fair value of such options granted and immediately vested was determined to be approximately the difference between the grant dateshare price and the exercise price. A summary of the share option activities is as follows: Number ofoptionsOptions outstanding at January 1, 201617,193,534Granted11,551,507Forfeited(155,259)Options outstanding at December 31, 201628,589,782Granted333,334Exercised(816,880)Forfeited(19,000)Options outstanding at December 31, 201728,087,236Granted500,000Exercised(3,614,464)Forfeited(193,340)Options outstanding at December 31, 201824,779,432 As of December 31, 2017 and 2018, 266,666 and nil forfeitable and unvested non-employee options were treated as unissued for accountingpurposes and were not included in the table above. 95 Table of Contents We estimated the fair value of share options granted in May 2016 using the binomial option-pricing model with the assistance from an independentvaluation firm. The fair value was estimated on the date of grant with the following assumptions. Grant date: May 2016Risk-free rate of return1.98%Volatility28.50%Expected dividend yield—Exercise multiple2.2Fair value of underlying ordinary shareUS$1.51Expected term5 yearsDiscount for lack of marketability9.00%Discount rate11.40% Determining the fair value of our ordinary shares required us to make complex and subjective judgments, assumptions and estimates, whichinvolved inherent uncertainty. Had we used different assumptions and estimates, the resulting fair value of our ordinary shares and the resulting share-basedcompensation expenses could have been different. The following table sets forth the fair value of our ordinary shares estimated with the assistance from an independent valuation firm. DateFair Value perOrdinaryShares Discount forLack ofMarketability Discount Rate Purpose of Valuation(US$)May 20161.519%11.4%Share options grant In determining the fair value of our ordinary shares, we applied the income approach / discounted cash flow, or DCF, analysis based on our projectedcash flow using management’s best estimate as of the valuation date. The determination of the fair value of our ordinary shares requires complex andsubjective judgments to be made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and ouroperating history and prospects at the time of valuation. The major assumptions used in calculating the fair value of ordinary shares include: · Weighted average cost of capital, or WACC: WACC of 11.4% was used for the date as of May 2016. The WACC was determined based on aconsideration of the factors including risk-free rate, comparative industry risk, equity risk premium, company size and non-systematic riskfactors. · Comparable companies: In deriving the WACC, which is used as the discount rates under the income approach, ten publicly traded companieswere selected for reference as our guideline companies. The guideline companies were selected based on the following criteria: (i) operate datacenters or providing Internet data center services and (ii) China-based companies that are publicly listed in the United States or United Statesbased and publicly listed companies. · Discount for lack of marketability, or DLOM: DLOM was quantified by the binominal option pricing model. The farther the valuation date isfrom an expected liquidity event, the higher the put option value and thus the higher the implied DLOM. The lower DLOM is used for thevaluation, the higher is the determined fair value of the ordinary shares. The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. However, these fairvalues are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent with our business plan. Theseassumptions include: no material changes in the existing political, legal and economic conditions in China; our ability to retain competent management, keypersonnel and staff to support our ongoing operations; and no material deviation in market conditions from economic forecasts. These assumptions areinherently uncertain. The risk associated with achieving our forecasts were assessed in selecting the appropriate discount rates. 96 Table of Contents Restricted shares to directors, officers and employees In December 2016, July 2017 and August 2018, we granted 12,910,080, 13,475,060 and 12,941,952 non-vested restricted shares, respectively, toemployees, officers and directors. The restricted share awards were granted subject to service and market conditions, or service and performance conditions,which are tied to our financial performance. For restricted shares granted, the value of the restricted shares was determined by the fair value of the restrictedshares on the acquisition date, on which all criteria for establishing the grant dates were satisfied. The value of restricted shares subject to service conditionsis recognized as a compensation expense using the graded-vesting method. The value of restricted shares subject to performance conditions is recognized as acompensation expense using the graded-vesting method only when achievement of the performance conditions becomes probable. The fair value of the restricted shares was determined by the closing sale price of the shares as quoted on the stock exchange market on the grantdate. The total fair value of restricted shares granted during the years ended December 31, 2016, 2017 and 2018 was RMB77.4 million, RMB73.3 million andRMB191.8 million (US$27.9 million), respectively, based on the fair value of the respective vesting dates. A summary of the restricted share activity is as follows: Number ofSharesUnvested at January 1, 2016—Granted13,787,480Vested(877,400)Forfeited—Unvested at December 31, 201612,910,080Granted13,977,060Vested(2,123,120)Forfeited(238,400)Unvested at December 31, 201724,525,620Granted13,202,512Vested(7,326,620)Forfeited(891,008)Unvested at December 31, 201829,510,504 We recognized restricted share related share-based compensation expenses of RMB4.7 million, RMB56.2 million and RMB89.8 million (US$13.1million) for the years ended December 31, 2016, 2017 and 2018, respectively. As of December 31, 2018, total unrecognized compensation expense relatingto the unvested shares was RMB179.8 million (US$26.2 million). The expense is expected to be recognized over a weighted average period of 1.71 yearsusing the graded-vesting attribution method. We did not capitalize any of the share-based compensation expenses as part of the cost of any asset for the yearsended December 31, 2016, 2017 and 2018. The fair value of the restricted shares granted is estimated on the date of grant using the Monte Carlo simulation model with the followingassumptions used. Grant date:December 2016 July 2017 August 2018 Risk-free rate of return0.68~1.65%1.29~1.63%2.047% ~ 2.418%Volatility22.35~24.80%20.43~21.48%71.85%Expected dividend yield———Share price at grant dateUS$1.24US$1.191US$3.125(RMB8.6)(RMB8.0)(RMB21.3)Expected term1~5 years2~4 years2~4 years 97 Table of Contents (1) Volatility Expected volatility is assumed based on the historical volatility of our comparable companies in the period equal to the expected term of each grant.(2) Risk-free interest rateRisk-free rate equal to the implied yield of zero-coupon United States Government Bond as obtained from Bloomberg, for a term equal to the remainingexpected term.(3) Dividend yieldWe estimated the dividend yield based on our expected dividend policy over the expected terms of the restricted shares. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating lossand tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. We recognize the effect of income tax positions only if those positions are more likelythan not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes inrecognition or measurement are reflected in the period in which the change in judgment occurs. We record interest related to unrecognized tax benefits ininterest expense and penalties in general and administrative expenses. In the fourth quarter of 2016, we early adopted Accounting Standards Update No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classificationof Deferred Taxes, and our financial statements for prior periods were not retrospectively adjusted. Uncertainties exist with respect to how the current income tax law in the PRC applies to our overall operations, and more specifically, with regard totax residency status. The Enterprise Income Tax Law includes a provision specifying that legal entities organized outside the PRC are considered residentsfor Chinese income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the Enterprise Income TaxLaw provide that non-resident legal entities are considered PRC residents if substantial and overall management and control over the manufacturing andbusiness operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting from the limited PRC taxguidance on the issue, we do not believe that the legal entities organized outside the PRC should be treated as residents for Enterprise Income Tax Lawpurposes. If the PRC tax authorities subsequently determine that we and our subsidiaries registered outside the PRC are deemed resident enterprises, we andour subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%. If we were to be non-resident for PRC tax purposes, dividends paid to us from profits earned by the PRC subsidiaries after January 1, 2008 would besubject to a withholding tax. The PRC Corporate Income Tax, or CIT law, and its relevant regulations impose a withholding tax at 10%, unless reduced by atax treaty or agreement, for dividends distributed by a PRC-resident enterprise to its non-PRC-resident corporate investor for earnings generated beginningon January 1, 2008. Undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. We have not recognized any deferredtax liability for the undistributed earnings of the PRC-resident enterprise as of December 31, 2016, 2017 and 2018, as we plan to permanently reinvest theseearnings in the PRC. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the People’s Republic of China—Dividendspayable to our foreign investors and gains on the sale of our ADSs or Class A ordinary shares by our foreign investors may become subject to PRC tax” and“—We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets attributed to aChinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies.” 98 Table of Contents Recently Issued Accounting Standards In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensusof the FASB Emerging Issues Task Force), which clarifies the accounting for implementation costs incurred in a hosting arrangement that is a service contract.Capitalization of these implementation costs are accounted for under the same guidance as implementation costs incurred to develop or obtain internal-usesoftware and recorded as a prepaid asset. These capitalized costs are to be expensed ratably over the hosting arrangement term as an operating expense, alongwith the service fees. The guidance is effective for periods beginning after December 15, 2019. Early adoption is allowed. We do not plan to early adopt thisguidance and are evaluating the impact of the new standard. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the DisclosureRequirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820. Under this ASU, key provisionsinclude new, eliminated and modified disclosure requirements. The guidance is effective for periods beginning after December 15, 2019. Early adoption isallowed. We do not plan to early adopt this guidance and are evaluating the impact of the new standard. In June 2018, FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting. The ASU expands the scope of Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation, to include share-basedpayment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of ASC 718 to nonemployee awardsexcept for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based paymentawards vest and the pattern of cost recognition over that period). The amendments specify that ASC 718 applies to all share-based payment transactions inwhich a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendmentsalso clarify that ASC 718 does not apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunctionwith selling goods or services to customers as part of a contract accounted for under ASC 606, Revenue from Contracts with Customers. The amendments inthis ASU are effective for us for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of thisstandard is not expected to have a significant impact on our consolidated financial statements. In January 2017, FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ThisASU simplifies the subsequent measurement of goodwill. The ASU eliminates step 2 from the goodwill impairment test and the requirements for anyreporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwillimpairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test isnecessary. This ASU should be applied on a prospective basis. The amendments in this ASU are effective for us for our annual or any interim goodwillimpairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed ontesting dates after January 1, 2017. We are currently evaluating the impact that the adoption of this standard will have on our consolidated financialstatements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on FinancialInstruments. This ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected tobe collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the netcarrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based on relevant informationabout past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reportedamount. This ASU eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an entity’s current estimate of all expectedcredit losses. The amendments in this ASU are effective for us for our fiscal years beginning after December 15, 2019, including interim periods within thosefiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Theadoption of this standard is not expected to have a significant impact on our consolidated financial statements. 99 Table of Contents In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued subsequent amendments to the initial guidance within ASU 2017-13, ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20, collectively referred to as “ASC 842”. Under the new guidance, lessees will be required torecognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessee’s obligation tomake lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right touse, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvementswere made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidance simplified the accounting forsale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASC 842 is effective for us on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leasesexisting at the date of initial application. An entity may choose to use either (i) its effective date or (ii) the beginning of the earliest comparative periodpresented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leasesalso apply to leases entered into between the date of initial application and the effective date. The entity must also recast its comparative period financialstatements and provide the disclosures required by the new standard for the comparative periods. We expect to use the effective date of January 1, 2019 as thedate of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be providedfor dates and periods before January 1, 2019. ASC 842 provides a number of optional practical expedients in transition. We will elect the package of the transition practical expedients, including(i) not to reassess whether any expired or existing contracts, including land easements that were not previously accounted for as leases, are or contain leases,(ii) not to reassess the lease classification for any expired or existing leases, (iii) not to reassess initial direct costs for any existing leases. ASC 842 is expected to have a material effect on our consolidated financial statements. While continuing to assess all of the effects of adoption, wecurrently believe that the most significant effects relate to the recognition of right-of-use, or ROU, assets and lease liabilities on our balance sheet foroperating leases and the derecognition of existing assets and liabilities for certain assets under construction in build-to-suit lease arrangements that we willlease when construction is complete. Upon adoption, our company currently expects to: 1) Recognize additional operating liabilities and ROU assets of approximately RMB483.6 million and RMB514.0 million and derecognizeintangible assets of RMB44.6 million. 2) Derecognize other financing obligations and construction in progress of approximately RMB331.9 million and RMB336.7 million,respectively, and recognize prepaid expenses of RMB4.8 million, for assets under construction in build-to-suit lease arrangements. Upon completion ofconstruction, new ROU assets and lease liabilities are expected to be recognized on the consolidated balance sheet for the associated leases. ASC 842 also provides practical expedients for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognitionexemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes notrecognizing ROU assets or lease liabilities for existing short-term leases of those assets. We also currently expect to elect the practical expedient to notseparate lease and non-lease components for all of the leases. 100 Table of Contents A. Results of Operations Selected Consolidated Financial Information The following table sets forth a summary of our consolidated results of operations for the years ended December 31, 2016, 2017 and 2018. Thisinformation should be read together with our audited consolidated financial statements as of December 31, 2017 and 2018 and for the years endedDecember 31, 2016, 2017 and 2018 and related notes included elsewhere in this annual report on Form 20-F. The operating results in any period are notnecessarily indicative of the results that may be expected for any future period. Year Ended December 31, 2016 2017 2018 RMB % RMB % RMB US$ % (in thousands, except for percentages)ConsolidatedStatements ofOperations Data:Net revenue1,055,960100.01,616,166100.02,792,077406,091100.0Cost of revenue(790,286)(74.8)(1,207,694)(74.7)(2,169,636)(315,560)(77.7)Gross profit265,67425.2408,47225.3622,44190,53122.3Operating expensesSelling and marketingexpenses(71,578)(6.8)(90,118)(5.6)(110,570)(16,082)(4.0)General andadministrativeexpenses(227,370)(21.5)(228,864)(14.2)(329,601)(47,938)(11.8)Research anddevelopmentexpenses(9,100)(0.9)(7,261)(0.4)(13,915)(2,024)(0.5)(Loss) Income fromoperations(42,374)(4.0)82,2295.1168,35524,4876.0Other income(expenses)Net interest expense(263,164)(24.9)(406,403)(25.1)(636,973)(92,644)(22.8)Foreign currencyexchange gain (loss),net18,3101.7(12,299)(0.8)20,3062,9530.8Government grants2,2170.23,0620.23,2174680.1Others, net2840.04350.05,4367910.2Loss before incometaxes(284,727)(27.0)(332,976)(20.6)(439,659)(63,945)(15.7)Income tax benefits8,3150.86,0760.49,3911,3660.3Net loss(276,412)(26.2)(326,900)(20.2)(430,268)(62,579)(15.4) Effect of Acquisition of GZ1 On May 19, 2016, we, through GDS Beijing, acquired all of the equity interest in Weiteng Construction from a third party for a cash consideration ofRMB129.5 million. Cash consideration of RMB25.9 million was outstanding as of December 31, 2016 which was paid in 2017. Weiteng Construction is alimited liability company organized and existing under PRC law and owns a data center in Guangzhou. As of the date of the acquisition, the data center hadjust commenced operation. After the acquisition, Weiteng Construction has been consolidated with our results of operations. Weiteng Construction had a netrevenue of RMB36.9 million and a net loss of RMB2.9 million for the period from May 20, 2016 to December 31, 2016, which is included in our results ofoperations for the year ended December 31, 2016. 101 Table of Contents Effect of Acquisition of SZ5 On June 29, 2017, we consummated an acquisition of all the equity interests in a target group comprising two onshore entities (Shenzhen Yaode andShenzhen Jinyao) and an offshore entity (RDTJ, which has an onshore subsidiary, Guangzhou Yunlan) from third parties for an aggregate contingentpurchase price of RMB312.0 million, of which RMB242.2 million and RMB124.5 million (US$18.1 million) was outstanding as of December 31, 2017 and2018, respectively. As of the date of the acquisition, the data center had just commenced operations. After the acquisition, this target group had a net revenueof RMB42.1 million and a net loss of RMB23.9 million for the period from June 30, 2017 to December 31, 2017, which is included in our results ofoperations for the year ended December 31, 2017. Effect of Acquisition of GZ2 On October 9, 2017, we consummated an acquisition of all the equity interests in a target group, comprising an onshore entity (Weiteng Network)and an offshore entity (Raojin, which has an onshore subsidiary, Wan Qing Teng) from third parties for an aggregate cash consideration of RMB234.0million. Cash consideration of RMB49.8 million was outstanding as of December 31, 2017, which amount was paid in 2018. The target group owns a datacenter project in Guangzhou, China. As of the date of the acquisition, the data center was fully operational. After the acquisition, this target group had a netrevenue of RMB26.6 million and a net income of RMB2.7 million for the period from October 10, 2017 to December 31, 2017, which is included in ourresults of operations for the year ended December 31, 2017. Effect of Acquisition of GZ3 On May 2, 2018, we consummated an acquisition of all the equity interests in a target group, comprising an onshore entity (Weiteng Data) and anoffshore entity (PSDC, which has an onshore subsidiary, Qian Hai Wan Chang) from third parties for an aggregate purchase price of RMB262.2 million(US$38.1 million), subject to adjustment, if any, pursuant to the terms of conditions of the equity purchase agreement, of which, RMB133.6 million (US$19.4million) was outstanding as of December 31, 2018. As of the date of the acquisition, the data center had just commenced operations. After the acquisition,this target group had a net revenue of RMB85.3 million (US$12.4 million) and a net loss of RMB11.7 million (US$1.7 million) for the period from May 3,2018 to December 31, 2018, which is included in our results of operations for the year ended December 31, 2018. Effect of Acquisition of SH11 On June 1, 2018, we consummated an acquisition of all the equity interests in a target company (Shanghai Cai Tuo) from third parties for anaggregate purchase price of RMB320.0 million (US$46.5 million), subject to adjustment, if any, pursuant to the terms of conditions of the equity purchaseagreement of which, RMB14.0 million (US$2.0 million) was outstanding as of December 31, 2018. The target company owns a data center project inShanghai, China. As of the date of the acquisition, the data center was fully operational. After the acquisition, this target group had a net revenue ofRMB35.5 million (US$5.2 million) and a net loss of RMB2.9 million (US$0.4 million) for the period from June 2, 2018 to December 31, 2018, which isincluded in our results of operations for the year ended December 31, 2018. Year Ended December 31, 2018 Compared to Year Ended December 31, 2017 Net Revenue Our net revenue increased by 72.8% to RMB2,792.1 million (US$406.1 million) in 2018 from RMB1,616.2 million in 2017. This increase was dueto increases in service revenue and IT equipment sales of RMB1,167.6 million and RMB8.3 million, respectively. The increase in service revenue consistedof an increase in revenue from colocation services of RMB885.1 million, an increase in revenue from managed services of RMB274.9 million and an increasein revenue from consulting services of RMB7.6 million. These increases in service revenue were mainly due to (i) an increase in area utilized from 61,713sqm as of December 31, 2017 to 108,326 sqm as of December 31, 2018, as customers with commitments moved into the data center area, (ii) the signing ofnew service contracts by customers who commenced utilizing services during the period, (iii) the commencement of operations of new data centers sinceDecember 31, 2017 and (iv) the acquisition of two data centers in Shenzhen and Guangzhou in 2017, and two data centers in Guangzhou and Shanghai in2018, respectively. 102 Table of Contents Cost of Revenue Our cost of revenue increased by 79.7% to RMB2,169.6 million (US$315.6 million) in 2018 from RMB1,207.7 million in 2017. This increase wasprimarily due to an increase of 80.6% in utility costs to RMB656.1 million (US$95.4 million) in 2018 from RMB363.3 million in 2017, and an increase of97.0% in depreciation and amortization costs to RMB680.3 million (US$98.9 million) in 2018 from RMB345.4 million in 2017. Increases in both utilitycosts and depreciation and amortization costs were largely a result of an increase in new data center facilities. In addition, the increase in cost of revenue wasalso due to (i) an increase of RMB66.0 million in rental expense for operating lease and service fees for third party data centers, (ii) an increase in personnelcosts of RMB36.8 million in connection with more data centers coming into service, (iii) an increase of RMB13.1 million for network cost, (iv) an increase ofRMB8.0 million for cost of equipment sold and (v) an increase of RMB210.3 million for maintenance and other costs. Cost of revenue as percentage of netrevenue increased to 77.7% in 2018 from 74.7% in 2017. Operating Expenses Our total operating expenses increased by 39.2% to RMB454.1 million (US$66.0 million) in 2018 as compared to RMB326.2 million in 2017. Theincrease was primary due to an increase in share-based compensation expenses of RMB38.0 million, personnel cost of RMB28.2 million, depreciation andamortization expenses of RMB28.4 million and professional service fees of RMB11.8 million. Our total operating expenses as a percentage of our netrevenue decreased to 16.3% in 2018 from 20.2% in 2017. Selling and Marketing Expenses. Our selling and marketing expenses increased by 22.7% to RMB110.6 million (US$16.1 million) in 2018 from RMB90.1million in 2017. This increase was primarily attributable to (i) an increase in personnel costs of RMB13.3 million, related to bonuses and the hiring of salespersonnel, and (ii) an increase in share-based compensation expenses of RMB6.8 million. General and Administrative Expenses. Our general and administrative expenses increased by 44.0% to RMB329.6 million (US$47.9 million) in 2018 fromRMB228.9 million in 2017. This increase was primarily a result of (i) an increase in share-based compensation expenses of RMB30.8 million, (ii) an increasein depreciation and amortization expenses of RMB28.4 million, (iii) an increase in personnel costs of RMB14.0 million and (iv) an increase in professionalservice fees of RMB11.8 million due to the expansion of our business. Research and Development Expenses. Our research and development expenses increased by 91.6% to RMB13.9 million (US$2.0 million) in 2018 fromRMB7.3 million in 2017, which was primarily due to an increase in research and development projects to enhance our existing operations. Other Income (Expenses) Interest Income. Our interest income increased by 243.1% to RMB19.2 million (US$2.8 million) in 2018 from RMB5.6 million in 2017. Theincrease was primarily a result of an increase in cash balance raised from our public offering and issuance of convertible bonds. Interest Expenses. Our interest expenses increased by 59.3% to RMB656.2 million (US$95.4 million) in 2018 from RMB412.0 million in 2017.This increase was primarily a result of an increase of borrowings, capital lease and other financing obligations and convertible bonds payable. Government Grants. Income from government grants increased by 5.1% to RMB3.2 million (US$0.5 million) in 2018 from RMB3.1 million in2017. 103 Table of Contents Foreign Currency Exchange Gain (Loss), net. Changes in currency rates resulted in a gain of RMB20.3 million (US$3.0 million) in 2018 ascompared to a loss of RMB12.3 million in 2017, primarily due to the appreciation of the U.S. dollar relative to Renminbi. Income Tax Benefits. Income tax benefits increased to RMB9.4 million (US$1.4 million) in 2018 from RMB6.1 million in 2017. This increase wasprimarily due to the realization of deferred tax liabilities arising from acquisitions. Net Loss. As a result of the foregoing, net loss increased to RMB430.3 million (US$62.6 million) in 2018 from RMB326.9 million in 2017. Year Ended December 31, 2017 Compared to Year Ended December 31, 2016 Net Revenue Our net revenue increased by 53.1% to RMB1,616.2 million in 2017 from RMB1,056.0 million in 2016. This increase was due to an increase inservice revenue of RMB588.9 million, partially offset by a decrease in IT equipment sales of RMB28.7 million. The increase in service revenue consisted ofan increase in revenue from colocation services of RMB449.0 million, an increase in revenue from managed services of RMB139.8 million and an increase inrevenue from consulting services of RMB0.1 million. These increases in service revenue were mainly due to (i) an increase in area utilized from 37,082 sqmas of December 31, 2016 to 61,713 sqm as of December 31, 2017 as customers with commitments moved into the data center area, (ii) the signing of newservice contracts by customers who commenced utilizing services during the period, (iii) the commencement of operations of new data centers sinceDecember 31, 2016 and (iv) the acquisition of one data center in Guangzhou in May 2016, and two data centers in Shenzhen and Guangzhou in 2017,respectively. Cost of Revenue Our cost of revenue increased by 52.8% to RMB1,207.7 million in 2017 from RMB790.3 million in 2016. This increase was primarily due to anincrease of 60.5% in utility costs to RMB363.3 million in 2017 from RMB226.3 million in 2016, and an increase of 67.1% in depreciation and amortizationcosts to RMB345.4 million in 2017 from RMB206.7 million in 2016. Increases in both utility costs and depreciation and amortization costs were largely aresult of an increase in new data center facilities. In addition, the increase in cost of revenue was due to (i) an increase of RMB34.8 million in rental expensefor operating lease, (ii) an increase in personnel costs of RMB17.4 million in connection with more data centers coming into service, (iii) an increase ofRMB12.5 million for network cost, and (iv) an increase of RMB103.9 million for maintenance and other costs. The increase was partially offset by a decreasein cost of equipment sold of RMB26.9 million. Cost of revenue as percentage of net revenue slightly decreased to 74.7% in 2017 from 74.8% in 2016. Operating Expenses Our total operating expenses increased by 5.9% to RMB326.2 million in 2017 as compared to RMB308.0 million in 2016. The increase was primarydue to an increase in personnel cost of RMB16.6 million and an increase in office and traveling expenses of RMB13.5 million, which was partially offset bya decrease in share-based compensation expenses of RMB12.1 million. Our total operating expenses as a percentage of our net revenue decreased to 20.2% in2017 from 29.2% in 2016. Selling and Marketing Expenses. Our selling and marketing expenses increased by 25.9% to RMB90.1 million in 2017 from RMB71.6 million in 2016. Thisincrease was primarily attributable to (i) an increase in share-based compensation expenses of RMB11.8 million, and (ii) an increase in personnel costs ofRMB7.8 million, related to bonuses and the hiring of sales personnel. General and Administrative Expenses. Our general and administrative expenses increased by 0.7% to RMB228.9 million in 2017 from RMB227.4 million in2016. This increase was primarily a result of (i) an increase in personnel costs of RMB12.1 million, (ii) an increase in office and traveling expenses ofRMB12.1 million, and (iii) an increase in depreciation and amortization expenses of RMB12.3 million due to the expansion of our business. The increasewas partially offset by (i) a decrease in share-based compensation expenses of RMB24.5 million, (ii) a decrease in directors’ fees of RMB6.4 million and(iii) a decrease in start-up costs of RMB5.5 million. 104 Table of Contents Research and Development Expenses. Our research and development expenses decreased by 20.2% to RMB7.3 million in 2017 from RMB9.1 million in2016, which was primarily due to the decrease in research and development projects. Other Income (Expenses) Interest Income. Our interest income increased by 170.5% to RMB5.6 million in 2017 from RMB2.1 million in 2016. The increase was primarily aresult of an increase in cash balance. Interest Expenses. Our interest expenses increased by 55.3% to RMB412.0 million from RMB265.2 million in 2016. This increase was primarily aresult of an increase of borrowings and capital lease and other financing obligations. Government Grants. Income from government grants increased by 38.1% to RMB3.1 million in 2017 from RMB2.2 million in 2016. Foreign Currency Exchange Gain (Loss), net. Changes in currency rates resulted in a loss of RMB12.3 million in 2017 as compared to a gain ofRMB18.3 million in 2016, primarily due to the depreciation of the U.S. dollar relative to Renminbi. Income Tax Benefits. Income tax benefits decreased to RMB6.1 million in 2017 from RMB8.3 million in 2016. This decrease was primarily due toan increase in the valuation allowance of deferred tax assets. Net Loss. As a result of the foregoing, net loss increased to RMB326.9 million in 2017 from RMB276.4 million in 2016. B. Liquidity and Capital Resources Our primary sources of liquidity have been cash flow from short-term and long-term borrowings, including borrowings from related parties, andissuance of debt and equity securities, including in our initial public offering, follow-on public offering, private placement and convertible bonds, whichhave historically been sufficient to meet our working capital and substantially all of our capital expenditure requirements. Historically, we also have hadcapital lease and other financing obligations. As of December 31, 2018, we had cash of RMB2,161.6 million (US$314.4 million). In addition, as ofDecember 31, 2018, total short-term debt was RMB1,450.2 million (US$210.9 million), comprised of short-term borrowings and the current portion of long-term borrowings of RMB1,283.3 million (US$186.6 million) and the current portion of capital lease and other financing obligations of RMB166.9 million(US$24.3 million). As of the same date, total long-term debt was RMB11,342.7 million (US$1,649.7 million), comprised of long-term borrowings (excludingcurrent portion) of RMB5,203.7 million (US$756.8 million), the non-current portion of capital lease and other financing obligations of RMB4,134.3 million(US$601.3 million) and convertible bonds payable of RMB2,004.7 million (US$291.6 million). Based on our current level of operations and available cash, including the proceeds we received from our initial public offering, follow-on publicoffering and offering of convertible bonds, we believe our available cash, cash flows from operations, will provide sufficient liquidity to fund our currentobligations, projected working capital requirements, debt service requirements and capital spending requirements at least for the next 12 months. However,we may require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions wemay decide to selectively pursue. If our existing cash resources are insufficient to meet our requirements, we may seek to sell equity or equity-linkedsecurities, debt securities or borrow from banks. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, ifat all. The sale of additional equity securities, including convertible debt securities, would result in additional dilution to our shareholders. The incurrence ofindebtedness and issuance of debt securities would result in debt service obligations and could result in operating and financial covenants that restrict ouroperations and our ability to pay dividends to our shareholders. If we were unable to obtain additional equity or debt financing as required, our business,operations and prospects and our ability to maintain our desired level of revenue growth may suffer materially. 105 Table of Contents As a holding company with no material operations of our own, we are a corporation separate and apart from our subsidiaries and our consolidatedVIEs and, therefore, provide for our own liquidity. We conduct our operations primarily through our PRC subsidiaries in China. As a result, our ability to paydividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries. If our PRC subsidiaries, or any newly formed PRCsubsidiaries, incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition,our PRC subsidiaries are permitted to pay dividends to us only out of their respective retained earnings, if any, as determined in accordance with PRCaccounting standards and regulations. Under applicable PRC laws and regulations, our PRC subsidiaries are each required to set aside a portion of their after-tax profits each year to fund certain statutory reserves, and funds from such reserves may not be distributed to us as cash dividends except in the event ofliquidation of such subsidiaries. The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency outof China. We receive substantially all of our revenues in RMB. Under our current corporate structure, our company in the Cayman Islands may rely ondividend payments from our PRC subsidiaries to fund any of our cash and financing requirements. Under China’s existing foreign exchange regulations, ourPRC subsidiaries are able to make payments of current accounts, such as dividends, to their offshore holding companies, in foreign currencies, without priorapproval from SAFE, by complying with certain procedural requirements. However, approval from appropriate government authorities will be required whereRMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreigncurrencies. There is no requirement imposed on investors to complete registration or obtain approval from appropriate government authorities before they canreceive dividend payments from our company in the Cayman Islands. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business inthe People’s Republic of China—Restrictions on currency exchange may limit our ability to utilize our net revenue effectively.” These statutory limitationsaffect, and future covenant debt limitations might affect, our PRC subsidiaries’ ability to pay dividends to us. As of December 31, 2018, our cash and restricted cash were deposited in major financial institutions located in PRC, Hong Kong, United States andSingapore. We currently believe that such limitations will not impact our ability to meet our ongoing short-term cash obligations although we cannot assureyou that such limitations will not affect our ability in the future to meet our short-term cash obligations and to distribute dividends to our shareholders. See“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the People’s Republic of China—We rely to a significant extent ondividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements” and “—StatutoryReserves.” We do not plan for our PRC subsidiaries to pay dividends in the foreseeable future and we intend for those subsidiaries to retain any future earningsfor use in the operation and expansion of our business in China. Accordingly, our ability to pay dividends and finance debt will be affected by this currentplan. In the future, we may take advantage of financing options available to us in connection with any dividend payments we may make or repayments of anyoffshore indebtedness we may incur. For example, we may fund dividend payments through offshore debt, whether unsecured or secured by the assets of ouronshore consolidated entities. In order to service offshore debt, we may rely upon financing options through the capital markets, including issuances ofequity or debt securities, the proceeds of which we may use to service offshore debt. Pursuant to the PRC Enterprise Income Tax Law, a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident enterprise” toa foreign enterprise investor, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for preferential taxtreatment. Accordingly, if in the future our PRC subsidiaries that are considered “resident enterprises” pay dividends to the Hong Kong subsidiary that holdssuch PRC subsidiary, any such dividend may be subject to a withholding tax of 10%. Such withholding tax rate may be lowered to 5% if a Hong Kongresident enterprise owns no less than 25% of a PRC enterprise. However, the 5% withholding tax rate does not automatically apply and certain requirementsmust be satisfied. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the People’s Republic of China—We may not be ableto obtain certain benefits under the relevant tax treaty on dividends paid by our PRC subsidiary to us through our Hong Kong subsidiary.” 106 Table of Contents As a result of these laws, rules and regulations relating to statutory reserves, foreign exchange conversion and withholding taxes described above,our subsidiaries incorporated in China are restricted in their ability to transfer a portion of their respective net assets to their offshore holding companies asdividends, loans or advances. As of December 31, 2018, we had restricted assets of RMB4,768.7 million (US$693.6 million), which mainly consisted ofregistered capital. The following table sets forth a summary of our cash flows for the years indicated. For the Year Ended December 31,2016(As Adjusted) 2017(As Adjusted) 2018RMB RMB RMB US$(in thousands) Net cash used in operating activities(128,980)(167,816)(12,910)(1,877)Net cash used in investing activities(1,147,064)(2,005,054)(4,733,050)(688,393)Net cash provided by financing activities2,128,6142,355,7284,876,806709,301Effect of exchange rate changes on cash and restricted cash55,499(74,250)206,30230,005Net increase in cash and restricted cash908,069108,608337,14849,036Cash and restricted cash at beginning of year930,9231,838,9921,947,600283,267Cash and restricted cash at end of year1,838,9921,947,6002,284,748332,303 (1) We adopted Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1, 2018 andretrospectively adjusted the consolidated statements of cash flows for each period prior to January 1, 2018 by excluding the movement of restricted cashof (i) RMB21.2 million for the year ended December 31, 2016, which was entirely related to operating activities, and (ii) RMB46.5 million, comprisingthe cash outflow of operating activities of RMB9.8 million, the cash outflow of investment activities of RMB3.6 million and the cash outflow offinancing activities of RMB33.1 million, for the year ended December 31, 2017. (2) We adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments on January 1, 2018. As aresult, the consolidated statement of cash flows for the year ended December 31, 2017 has been retrospectively adjusted by reclassifying the paymentsof contingent consideration for acquisition of subsidiaries, which amounted to RMB27.1 million, from investing activities to operating activities in theamount of RMB3.0 million and financing activities in the amount of RMB24.1 million, respectively. The adoption of this standard does not have anyimpact on our consolidated financial statements for the year ended December 31, 2016. Operating Activities Cash used in operating activities was RMB12.9 million (US$1.9 million) in 2018, primarily due to a net loss of RMB430.3 million (US$62.6million), adjusted for (i) depreciation and amortization of RMB741.5 million (US$107.8 million), primarily relating to our data center property andequipment; (ii) share-based compensation expenses of RMB105.9 million (US$15.4 million), (iii) amortization of debt issuance cost and debt discount ofRMB61.4 million (US$8.9 million), (iv) deferred tax benefits of RMB36.6 million (US$5.3 million), (v) net loss on disposal of property and equipment ofRMB2.2 million (US$0.3 million), (vi) allowance for doubtful accounts of RMB0.2 million (US$35.1 thousand) and (vii) changes in working capital.Adjustments for changes in working capital primarily consisted of (i) an increase in accounts receivable of RMB157.7 million (US$22.9 million) due toincreased revenue, (ii) an increase in VAT recoverable of RMB221.4 million (US$32.2 million) as a result of the expansion of our business, (iii) a decrease inaccrued expenses and other payables of RMB56.7 million (US$8.2 million) mainly due to the settlement of interest expenses in the period and (iv) increasesin other current assets and other non-current assets of RMB11.5 million (US$1.7 million) and RMB37.0 million (US$5.4 million), respectively, mainly due tothe increase in rental and other deposits, partially offset by (i) an increase in accounts payable of RMB25.3 million (US$3.7 million) for operating expenses,and (ii) an increase in deferred revenue of RMB17.5 million (US$2.5 million) due to the increase in sales. 107(1) (2)(1) (2)(1) (2)(1) Table of Contents Cash used in operating activities was RMB167.8 million in 2017, primarily due to a net loss of RMB326.9 million, adjusted for (i) depreciation andamortization of RMB378.1 million, primarily relating to our data center property and equipment; (ii) share-based compensation expenses of RMB59.8million, (iii) amortization of debt issuance cost and debt discount of RMB48.1 million, (iv) deferred tax benefits of RMB11.6 million, and (v) changes inworking capital. Adjustments for changes in working capital primarily consisted of (i) an increase in accounts receivable of RMB134.6 million due toincreased revenue, (ii) an increase in VAT recoverable of RMB194.3 million as a result of the expansion of our business, and (iii) a decrease in accruedexpenses and other payables of RMB83.3 million mainly due to the settlement of interest in the period, partially offset by (i) an increase in other long-termliabilities of RMB59.1 million primarily for the interest of the convertible bonds before conversion into ordinary shares in November 2017, (ii) an increase inaccounts payable of RMB33.9 million for operating expenses, and (iii) a decrease in other current assets of RMB11.5 million primary for receipt of deposits. Cash flow used in operating activities was RMB129.0 million in 2016, primary due to a net loss of RMB276.4 million, adjusted for (i) depreciationand amortization of RMB227.4 million, primarily relating to our data center property and equipment; (ii) deferred tax benefit of RMB10.6 million, (iii) stockcompensation expenses of RMB64.2 million mainly as a result of increases in personnel as our operations expanded, and (iv) changes in working capital.Adjustments for changes in working capital primarily consisted of (i) an increase of VAT recoverable of RMB94.6 million due to an increase in payment ofVAT as a result of the increase in construction activities that allows input VAT from construction to be deductible, (ii) an increase of accounts receivable ofRMB79.4 million due to increased sales and (iii) increase in other current assets of RMB20.5 million and other non-current assets of RMB24.8 million,respectively, due to an increase in various kinds of deposits paid, partially offset by (i) an increase in accounts payable of RMB43.8 million due to increasein purchases, (ii) an increase in accrued expenses and other liabilities of RMB22.0 million due to the increase in interests and utilities expenses, and (iii) anincrease in other long-term liabilities of RMB23.8 million due to the increase in interests which are contractually due after one year. Investing Activities Net cash used in investing activities was RMB4,733.1 million (US$688.4 million) in 2018, which was primarily due to the payments for purchase ofproperty and equipment of RMB4,258.0 million (US$619.3 million) for the development of our data centers and payments for acquisitions of RMB475.1million (US$69.1 million). Net cash used in investing activities was RMB2,005.1 million in 2017, which was primarily due to the deposits and payments for purchase ofproperty and equipment of RMB1,760.2 million for the development of our data centers and payments related to acquisitions of RMB244.9 million. Net cash used in investing activities was RMB1,147.1 million in 2016, which was primarily due to payments for purchase of property andequipment of RMB987.8 million in the development of our data centers and payments related to acquisitions of RMB159.4 million. Financing Activities Net cash provided by financing activities was RMB4,876.8 million (US$709.3 million) in 2018, which was primarily due to proceeds fromborrowings and convertible bonds, net of issuance cost, of RMB5,533.5 million (US$804.8 million), net proceeds from issuance of ordinary shares ofRMB1,283.3 million (US$186.6 million), partially offset by repayment of short-term and long-term borrowings of RMB1,610.4 million (US$234.2 million),payment under capital lease and other financing obligations of RMB190.7 million (US$27.7 million) and payment of contingent consideration foracquisitions of RMB155.7 million (US$22.7 million). Net cash provided by financing activities was RMB2,355.7 million in 2017, which was primarily due to proceeds from short-term and long-termborrowings, net of issuance cost, of RMB3,577.4 million and net proceeds from issuance of ordinary shares to CyrusOne of RMB649.8 million, partiallyoffset by repayment of short-term and long-term borrowings of RMB1,782.1 million, payment under capital lease and other financing obligations ofRMB68.7 million and payment of contingent consideration for acquisitions of RMB24.1 million. 108 Table of Contents Net cash provided by financing activities was RMB2,128.6 million in 2016, which was primarily due to proceeds from short-term and long-termborrowings, net of issuance cost, of RMB1,552.3 million, proceeds from issuance of bonds payable of RMB327.6 million and net proceeds from issuance ofshares in connection with our initial public offering of RMB1,221.5 million, which was partially offset by repayment of short-term and long-term borrowingsof RMB806.9 million, payment of preferred shares dividends of RMB76.5 million, repayment of a related party loan of RMB65.5 million and payment undercapital lease and other financing obligations of RMB23.9 million. Statutory Reserves Under applicable PRC laws and regulations, foreign-invested enterprises in China are required to provide for certain statutory reserves, namely ageneral reserve, an enterprise expansion fund and a staff welfare and bonus fund. Pursuant to such laws and regulations, we may pay dividends only out of ourafter-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Further, we are required to allocate at least 10% of ourafter-tax profits to fund the general reserve until such reserve has reached 50% of our registered capital. In addition, we may also set aside, at our or ourBoard’s discretion, a portion of our after-tax profits to fund the employee welfare and bonus fund. These reserves may only be used for specific purposes andare not distributable to us in the form of loans, advances, or cash dividends. As of December 31, 2016, 2017 and 2018, we had nil, RMB0.2 million and RMB0.6 million (US$0.1 million), respectively, in our statutory reserves. Capital Expenditures We had capital expenditures, excluding payments related to acquisitions, of RMB987.8 million, RMB1,760.2 million and RMB4,258.0 million(US$619.3 million) in 2016, 2017 and 2018, respectively. Our capital expenditures were primarily for the purchase of equipment as well as land use rightsand leasehold-improvement of data centers. Our capital expenditures have been primarily funded by net cash provided by financing activities. Convertible Bonds and Convertible Notes On December 30, 2015 and January 29, 2016, we issued and sold convertible and redeemable bonds due in 2019 in an initial aggregate principalamount of US$150.0 million, which bonds were subscribed by Ping An Insurance and STT GDC, as to US$100.0 million and US$50.0 million, respectively. On November 17, 2017, the full principal amount of the outstanding US$150.0 million convertible bonds was voluntarily converted into ordinaryshares by Ping An Insurance and STT GDC at a set conversion price of US$1.675262 per ordinary share, or US$13.40 per ADS. Upon conversion of theprincipal amount of and interest accrued on the convertible bonds, we issued approximately 97.9 million additional Class A ordinary shares, representing10.4% of our enlarged issued share capital. On June 5, 2018, we issued and sold convertible senior notes due in 2025 in an aggregate principal amount of US$300 million, which notes bearinterest at a rate of 2% per year, payable on June 1 and December 1 of each year, beginning on December 1, 2018. The convertible senior notes will mature onJune 1, 2025, unless earlier redeemed, repurchased or converted in accordance with their terms. The convertible senior notes may be converted into our ADSs,at the option of the holders, at an initial conversion rate of 19.3865 of our ADSs per US$1,000 principal amount of notes, or approximately 5,815,950 ADSs,representing 46,527,600 Class A ordinary shares, assuming conversion of the entire US$300 million aggregate principal amount at the initial conversion rate. Loans and borrowings As of December 31, 2017 and 2018, we had short-term borrowings of RMB462.9 million with weighted average interest rate of 7.93% andRMB684.8 million (US$99.6 million) with weighted average interest rate of 7.01%, respectively, and long-term borrowings (including current portion) ofRMB3,787.3 million with weighted average interest rate of 6.93% and RMB5,802.2 million (US$843.9 million) with weighted average interest rate of7.42%, respectively. 109 Table of Contents Our company, through one or more of our subsidiaries, entered into secured loan agreements with various financial institutions for projectdevelopment and working capital purpose with terms ranging from 1 to 13 years. More specifically, the terms of these secured loan facility agreements generally include one or more of the following conditions. If any of the belowconditions were to be triggered, we could be obligated to notify the lender or repay any loans outstanding immediately or on an accelerated repaymentschedule. See “Item 3. Key Information—D. Risk Factors—Risk Factors Relating to Our Business and Industry—Our substantial level of indebtedness couldadversely affect our ability to raise additional capital to fund our operations, expose us to interest rate risk to the extent of our variable rate debt and preventus from meeting our obligations under our indebtedness.” · STT Communications Ltd. ceases to, directly or indirectly, own at least 50.1% of equity interests of STT GDC; · STT GDC (a) is not or ceases to, directly or indirectly, be the beneficial owner of at least 30%, in certain cases, 25%, of the issued share capitalof our company, or (b) does not or ceases to have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) tocast, or control the casting of, at least 30%, in some cases, 25%, of the votes that may be cast at a meeting of the board of directors (or similargoverning body) of our company, or (c) is not or ceases to be the single largest shareholder of our company; · our company and GDS Management Company are not or ceases to be, directly or indirectly, the legal and beneficial owner of 100% of equityinterests of, and have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to control, GDS ManagementCompany (in the case of our company), GDS Beijing, GDS Suzhou and the relevant borrowing subsidiaries; · William Wei Huang ceases to, directly or indirectly, own at least 99.9% of the equity interests of and have the power to control GDS Beijing orGDS Suzhou; · GDS Beijing, GDS Suzhou and the relevant borrowing subsidiaries cease to, directly or indirectly, be the legal and beneficial owner of 100% ofequity interests of, and have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to control, theirconsolidated subsidiaries; · there are changes in the shareholding structure of a principal operating subsidiary of ours, as defined in the relevant loan facility agreement; and · the IDC license of GDS Beijing or the borrowing subsidiaries, or the authorization by GDS Beijing to one such subsidiary to operate the datacenter business and provide IDC services under the auspices of the IDC license held by GDS Beijing, is cancelled or fails to be renewed on orbefore the expiry date. There are certain other events in the loan facility agreements the occurrence of which could obligate us to notify the lender or repay any loansoutstanding immediately or on an accelerated repayment schedule, including, among others, if our borrowing subsidiary fails to use the loan in accordancewith the use of proceeds as provided in the loan facility agreement, the borrowing subsidiary violates or fails to perform any of its commitments under theloan facility agreement, or if we are delisted before the maturity date under the relevant loan facility agreement. In addition, the terms of these loanagreements include financial covenants that limit certain financial ratios, such as the interest coverage ratio and gross leverage ratio, during the relevantperiod, as defined in the agreements. The terms of these loan agreements also include cross default provisions which could be triggered if our company failsto repay any financial indebtedness in an aggregate amount exceeding US$4.5 million, or, in some cases, RMB50 million (US$7.3 million), when due orwithin any originally applicable grace period. As of December 31, 2018, our company was in compliance with all of the abovementioned covenants. 110 Table of Contents As of December 31, 2018, we had total working capital and project financing credit of RMB8,134.0 million (US$1,183.0 million) from various financialinstitutions, of which the unused amount was RMB1,497.5 million (US$217.8 million). As of December 31, 2018, we had drawn down RMB6,636.6 million(US$965.2 million) under these loan facilities, of which RMB684.8 million (US$99.6 million), net of debt issuance costs of RMB2.1 million (US$0.3million), was recorded in short-term loans and borrowings and RMB5,802.2 million (US$843.9 million), net of debt issuance costs of RMB147.4 million(US$21.4 million), was recorded in long-term loans and borrowings, respectively. Drawdowns from these credit facilities are subject to the approval of therelevant lending financial institution and are subject to the terms and conditions of each loan agreement. Below is a summary of the material terms of the abovementioned secured borrowings: DataCentersFacility Type FacilityAmount as ofDecember 31,2018(RMB (US$)Million) DrawdownAmount as ofDecember 31,2018(RMB (US$)Million)Interest RateDate of OriginalFacilityAgreementFinal Facility MaturityDateKS1Term Loan128.8 (18.7) 128.8 (18.7)PBOC 5 yearsJuly 2009December 20223rd Party Financing200.0 (29.1) 200.0 (29.1)Fixed at 9.7%November 2017January 2023SH1-3Term Loan507.2 (73.8) 507.2 (73.8)PBOC 5 years*130%September 2016July 2021Term Loan420.9 (61.2) 420.9 (61.2)PBOC 5 years*130%September 2016September 2021Revolving CreditFacility50.0 (7.3) 10.4 (1.5)PBOC 1 year*130%September 2016September 2021SH5Term Loan100.0 (14.5) 100.0 (14.5)PBOC 5 years*120%December 2017December 2027SH6Term Loan231.0 (33.6) 107.5 (15.6)Fixed at 6.8%September 2018June 2023Revolving CreditFacility40.0 (5.8) —PBOC 1 year*130%September 2018June 2023SH8Term Loan220.0 (32.0) 179.3 (26.1)PBOC 5 years*110%July 2018August 2028SH11Term Loan191.9 (27.9) 191.9 (27.9)PBOC 5 years*135%August 2018August 2023Revolving CreditFacility28.0 (4.1) 4.0 (0.6)PBOC 1 year*135%August 2018August 2023BJ1-3Term Loan396.6 (57.7) 396.6 (57.7)Fixed at 6.3%September 2017September 2022Term Loan214.4 (31.2) 214.4 (31.2)PBOC 5 years*130%September 2017September 2022Revolving CreditFacility26.0 (3.8) 9.8 (1.4)Fixed at 6.3%September 2017September 2022Revolving CreditFacility14.0 (2.0) 5.3 (0.8)PBOC 1 year*130%September 2017September 2022BJ5Term Loan484.0 (70.4) 158.2 (23.0)Fixed at 6.3%December 2018December 2023Revolving CreditFacility60.0 (8.7) 5.0 (0.7)Fixed at 6.3%December 2018December 2023HB1-3Term Loan500.0 (72.7) 500.0 (72.7)PBOC 1 year*135%March 2018April 2019GZ1Term Loan177.0 (25.7) 177.0 (25.7)PBOC 5 years*132%November 2018November 2025GZ2Term Loan152.0 (22.1) 152.0 (22.1)PBOC 5 years*130%November 2017November 2022Revolving CreditFacility20.0 (2.9) —PBOC 1 year*130%November 2017November 2022GZ3Term Loan447.0 (65.0) 447.0 (65.0)PBOC 5 years*130%June 2018June 2023Revolving CreditFacility41.0 (6.0) 23.7 (3.4)PBOC 1 year*130%June 2018June 2023SZ1-3Term Loan373.2 (54.3) 373.2 (54.3)LPR+2.07%November 2017December 2023SZ5Term Loan907.2 (131.9) 601.4 (87.5)Fixed at 6.3%June 2017December 2023Revolving CreditFacility60.0 (8.7) 18.6 (2.7)Fixed at 6.3%June 2017December 2023CD1-2Term Loan1010.0 (146.9) 845.0 (122.9)PBOC 5 years+2.45%December 2017December 2024CorporateTerm Loan80.0 (11.6) 80.0 (11.6)LPR+0.92%February 2018February 2019Term Loan50.0 (7.3) 50.0 (7.3)Fixed at 5.7%March 2018March 2020Term Loan50.0 (7.3) 50.0 (7.3)Fixed at 5.7%May 2018May 2020 DataCentersFacility Type Facility Amountas of December31, 2018(US$ Million) DrawdownAmount as ofDecember 31,2018(US$ Million)Interest RateDate of OriginalFacilityAgreementFinal Maturity DateGZ2Term Loan22.222.24.25%+Libor 3MOctober 2017April 2021CorporateTerm Loan100.060.04.85%+Libor 3MApril 2018April 2021 Notes:(a) Revolving Credit Facility allows our company to borrow, repay and reborrow over its term.(b) Drawdown amount does not deduct debt issuance costs of RMB149.5 million (US$21.7 million) in total.(c) LPR refers to Loan Prime Rate. 111(b)(a)(a)(a)(a)(a)(a)(a)(a)(a)(b) Table of Contents C. Research and Development, Patents and Licenses, etc. Sourcing and Development See “Item 4. Information on the Company—B. Business Overview—Data Center Sourcing and Development.” Intellectual Property See “Item 4. Information on the Company—B. Business Overview—Technology and Intellectual Property.” D. Trend Information Please refer to “—A. Results of Operations” for a discussion of the most recent trends in our services, sales and marketing by the end of 2018. Inaddition, please refer to discussions included in such Item for a discussion of known trends, uncertainties, demands, commitments or events that we believeare reasonably likely to have a material effect on our net sales and operating revenues, income from continuing operations, profitability, liquidity or capitalresources, or that would cause reported financial information to be not necessarily indicative of our future operating results or financial condition. E. Off-Balance Sheet Arrangements Other than the obligations set forth in the table below, we have not entered into any financial guarantees or other commitments to guarantee thepayment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’sequity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferredto an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in anyunconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and developmentservices with us. F. Tabular Disclosure of Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2018: 112 Table of Contents Payment due by periodTotal Less than 1Year 1-3 Years 3-5 Years More than 5Years(in thousands of RMB)Short-term borrowings and interests700,756700,756———Long-term borrowings and interests7,183,1731,018,0663,142,7052,596,635425,767Capital lease and other financing obligations7,922,323389,674928,132800,3915,804,126Operating lease commitments702,47595,082117,61382,710407,070Capital commitments1,017,325972,50241,3733,340110Other liabilities272,157189,99582,162——Total17,798,2093,366,0754,311,9853,483,0766,637,073 (1) The interests are calculated using the effective interest rate as of December 31, 2018 for each loan.(2) Represent minimum lease payments.(3) Capital commitments primarily represent purchases of equipment and maintenance services.(4) Other liabilities represent consideration payables for the acquisition of SZ5, GZ3 and SH11. G. Safe Harbor This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties, including statements based on our currentexpectations, assumptions, estimates and projections about us and our industry. These statements involve known and unknown risks, uncertainties and otherfactors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-lookingstatements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”“estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The forward-looking statements included inthis annual report on Form 20-F relate to, among others: · our goals and strategies; · our expansion plans; · our future business development, financial condition and results of operations; · the expected growth of the data center and cloud services market; · our expectations regarding demand for, and market acceptance of, our services; · our expectations regarding keeping and strengthening our relationships with customers; and · general economic and business conditions in the regions where we operate. The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which the statementsare made in this annual report on Form 20-F. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result ofnew information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You shouldread this annual report on Form 20-F and the documents that we reference in this annual report on Form 20-F and have filed as exhibits hereto with theunderstanding that our actual future results may be materially different from what we expect. You should not rely upon forward-looking statements aspredictions of future events. 113(1)(1)(2)(2)(3)(4) Table of Contents Other sections of this annual report on Form 20-F include additional factors that could adversely impact our business and financial performance.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 topredict 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 offactors, may cause actual results to differ materially from those contained in any forward-looking statements. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. Directors and Senior Management The following table sets forth certain information relating to our directors, executive officers and senior management. NameAgePosition/TitleWilliam Wei Huang‡51Chairman, Director and chief executive officerDaniel Newman58Chief financial officerJamie Gee Choo Khoo54Chief operating officerSio Tat Hiang†71Vice-chairman and DirectorSatoshi Okada‡60DirectorBruno Lopez†54DirectorLee Choong Kwong†62DirectorLim Ah Doo‡69Independent directorBin Yu°°49Independent directorZulkifli Baharudin59Independent directorChang Sun‡62Independent directorGary J. Wojtaszek‡52DirectorJudy Qing Ye48Independent directorJonathan King42Member of the executive committeeXu Wei46Senior vice president, salesYilin Chen48Senior vice president, product and serviceLiang Chen43Senior vice president, designYan Liang43Senior vice president, operation and delivery † Designated as an STT GDC appointee.‡ Designated as a Class B director nominee and subject to Class B 20-vote-per-share voting.°° Designated as a director subject to Class B 20-vote-per-share voting. Mr. William Wei Huang is our founder, chairman of our board of directors and, since 2002, has served as our chief executive officer. Since 2004,Mr. Huang has also served as a director of Haitong-Fortis Private Equity Fund Management Co., Ltd., a domestic private equity fund management companyin China. Prior to founding our company, he served as a senior vice president of Shanghai Meining Computer Software Co., Ltd., which operatesStockStar.com, a website primarily providing finance and securities related information and services in China, as a vice president of Ego ElectronicCommerce Co., Ltd., and as general manager of Shanghai Huayang Computer Co., Ltd. Mr. Daniel Newman has served as the chief financial officer of GDS since September 2011. Prior to joining us in this capacity, Mr. Newman acted asan advisor to GDS from 2009 to 2011. From 2008 to 2009, Mr. Newman served as a managing director at Bank of America Merrill Lynch with responsibilityfor investment banking clients in the telecom, media, and technology sectors in Asia. From 2005 to 2007, Mr. Newman acted as an advisor in the chairman’soffice of Reliance Communications in Mumbai, India. From 2001 to 2005, Mr. Newman served as a managing director at Deutsche Bank with responsibilityfor investment banking clients in the telecom and media sectors in Asia. Mr. Newman previously worked as an investment banker at Salomon Brothers (andits successors) from 1997 to 2001 and at S.G. Warburg (and its successors) from 1983 to 1997 in London and Hong Kong. Mr. Newman received hisbachelor’s degree in history from Bristol University in the UK in 1983. 114 Table of Contents Ms. Jamie Gee Choo Khoo has served as the chief operating officer of GDS since January 2019. Ms. Khoo joined the GDS senior management teamin 2014, serving as deputy chief financial officer. Previously Ms. Khoo worked at ST Telemedia for approximately 13 years, holding various managementroles in finance, accounting and treasury as well as having responsibility for designated overseas investment entities. Prior to ST Telemedia, she worked forABB (China) Holdings Limited, Ernst & Young (Singapore) and Baker Hughes (Singapore), mainly in finance and consulting roles. Ms. Khoo graduated fromthe National University of Singapore with a bachelor’s degree in accountancy and an MBA from the University of Hull. Ms. Khoo is a fellow member of theInstitute of Singapore Chartered Accountants and a member of the Singapore Institute of Directors. Mr. Sio Tat Hiang is vice-chairman of our board of directors and has been a director of our company since 2014. Mr. Sio is the chairman and directorof STT GDC as well as an advisor to ST Telemedia. Mr. Sio currently also sits on the Boards of U Mobile Sdn Bhd, Virtus HoldCo Limited and STT GlobalData Centres India Private Limited. Prior to ST Telemedia, Mr. Sio served as vice president of Corporate Finance at Singapore Technologies Pte. Ltd., wherehe oversaw its treasury and investment management functions. His role was later expanded to include director of Strategic Investment and Group Treasurer.He graduated with a bachelor’s degree in business administration with honors from the National University of Singapore and attended the London BusinessSchool Senior Management Programme. Mr. Satoshi Okada has been a director of our company since 2014. Mr. Okada previously served as executive vice president of the SOFTBANKGroup’s e-commerce business planning in Japan since April 2000. Prior to that, he held various management positions within the SOFTBANK Group. He alsoserves as a director of Alibaba Japan, which is engaged in the business of e-commerce services. Mr. Okada also represented the SOFTBANK Group as adirector on the board of Baozun Inc., a Nasdaq-listed company, and Alibaba.com while it was a public company in Hong Kong. Before joining theSOFTBANK Group, Mr. Okada served as chief executive officer and president of NetIQ KK. Mr. Okada is also renowned in the storage management industryfor his success in establishing Cheyenne Software KK and Computer Associates Japan as industry leaders in the Japanese market. Mr. Bruno Lopez has been a director of our company since 2014. Mr. Lopez is the group chief executive officer of ST Telemedia’s data centerbusiness—STT GDC. Since joining ST Telemedia in 2014, Mr. Lopez has led STT GDC in its strategy to build a large portfolio of integrated data centersacross a global platform in Singapore, UK, India and in China through GDS Holdings. He is a board member and the chairman of the executive committee inGDS Holdings as well as in all these other operational platforms owned by STT GDC. An industry veteran in the telecommunications and data center sectorswith more than 25 years of experience, Mr. Lopez was the chief executive officer and executive director of Keppel Data Centres where he was instrumental inleading the company’s growth and business expansion in Asia and Europe. He was also responsible for setting up Securus Data Property Fund, an investmentfund focused on developing data center assets in the Asia-Pacific region, Europe and the Middle East, which was eventually merged with Keppel DataCentres’ assets as part of the company’s SGX listing. He holds a bachelor’s degree with honors from the National University of Singapore and a master’sdegree in human resources from Rutgers University. Mr. Lee Choong Kwong has been a director of our company since 2014. Mr. Lee was ST Telemedia’s executive vice president for China. He wasresponsible for China investments and business development. Mr. Lee brings with him more than 20 years of China business experience. He played a key rolein ST Telemedia’s investments in China. Prior to joining ST Telemedia, Mr. Lee led ST Electronics & Engineering’s research and development team. Mr. Leeholds a bachelor’s degree in electrical and electronic engineering from the National University of Singapore, and a UCLA-NUS Executive MBA degree. Mr. Lim Ah Doo has been a director of our company since 2014. Mr. Lim is currently the chairman and independent non-executive director of OlamInternational Limited, as well as an independent non-executive director of ARACWT Trust Management (Cache) Limited, GP Industries Limited, SingaporeTechnologies Engineering Ltd (STE), STT GDC, STT—Global Data Centres India Private Limited, or GDC India, Virtus Holdco Ltd (VHL) and U Mobile SdnBhd. He also chairs the audit committees of ARA-CWT Trust Management (Cache), GP Industries, STT GDC, GDC India, VHL and U Mobile, and is also amember of the audit committee of STE. During his 18-year distinguished banking career in Morgan Grenfell, Mr. Lim held several key positions includingchairing Morgan Grenfell (Asia). He also chaired the Singapore Investment Banking Association in 1994. From 2003 to 2008, he was president and then vicechairman of the RGM group, a leading global resource-based group. Mr. Lim holds a bachelor’s degree in engineering with honors from the Queen MaryCollege, University of London, and an MBA from the Cranfield School of Management. 115 Table of Contents Ms. Bin Yu has served as our independent director since November 2016. She has served as the chief financial officer for Lingochamp InformationTechnology (Shanghai) Co., Ltd., a company engaged in AI driven education since September 2017. Ms. Yu has served as an independent director of BaozunInc., a Nasdaq-listed brand e-commerce solutions provider based in China, an independent director of Tian Ge Interactive Holdings Limited, a live socialvideo platform in China listed on the Hong Kong Stock Exchange, and an independent director of iDreamSky Technology Holdings Limited, a leadingmobile game publisher in China listed on the Hong Kong Stock Exchange. From 2015 to May 2016, she served as the chief financial officer of InnolightTechnology Corp. From 2013 to 2015, she served as a director and the chief financial officer of Star China Media Limited, a company engaged in theentertainment TV programs business. From 2012 to 2013, she was a senior vice president of Youku Tudou Inc., and had responsibility for the company’sinvestments in content production, mergers and acquisitions and strategic investments. She previously served as the chief financial officer from 2012 to2013, and the vice president of finance from 2010 to 2011, of Youku Tudou’s predecessor, Tudou Holdings Limited. Prior to that, she worked at KPMG from1999 to 2010 and was a senior manager of KPMG’s Greater China region. Ms. Yu received a master’s degree in accounting from the University of Toledo, andan EMBA from Tsinghua University and INSEAD, respectively. Ms. Yu is a Certified Public Accountant in the United States admitted by the AccountancyBoard of Ohio, a member of American Institute of Certified Public Accountants and a member of Chartered Global Management Accountant. Mr. Zulkifli Baharudin has served as our independent director since November 2016. He is currently the executive chairman of Indo-TransCorporation, a logistics and supply chain company. He also serves as a managing director of Global Business Integrators Pte Ltd. Mr. Zulkifli is the non-executive director on the Board of Virtus Holdco Limited and Omni Holdco, LLC. He is also the non-executive director at Ascott Residence TrustManagement Limited. Mr. Zulkifli serves as a director on the Board of Ang Mo Kio Thye Hua Kwan Hospital Ltd, Thye Hua Kwan Moral Charities Limitedand Thye Hua Kwan Nursing Home Limited. Mr. Zulkifli also serves as a trustee of the Singapore Management University and is Singapore’s Non-ResidentAmbassador to Kazakhstan and Uzbekistan. From 1997 to 2001, he also served as a nominated member of Parliament in Singapore. Mr. Zulkifli received hisbachelor’s degree in estate management from the National University of Singapore. Mr. Chang Sun has served as our independent director since April 2017. Mr. Sun is the managing partner for China at TPG, a global alternativeinvestment firm. Prior to joining TPG, he founded and was the chairman of Black Soil Group Ltd., an agriculture impact investing company. Prior to foundingBlack Soil, Mr. Sun was the chairman of Asia Pacific at Warburg Pincus, a global private equity firm, where he had served for 20 years. Mr. Sun also was thefounder and current honorary chairman of the China Venture Capital and Private Equity Association and the founder and executive vice chairman of theChina Real Estate Developers and Investor’s Association. He is also a member of the Asia Executive Board of the Wharton School and a member of the AsiaPacific Council of the Nature Conservancy. Mr. Sun received his bachelor of arts degree from the Beijing Foreign Studies University and completed a post-graduate international affairs program offered by the United Nations, where he worked as a staff translator in New York for three years. Mr. Sun earned a jointdegree of MA/MBA from the Joseph Lauder Institute of International Management and the Wharton School of the University of Pennsylvania. Mr. Gary J. Wojtaszek has served as our director since June 2018, and had been an observer of our board of directors since October 2017. He is thepresident and chief executive officer and has served as a member of the board of directors of CyrusOne since July 2012. Prior to becoming the president ofCyrusOne in August 2011, Mr. Wojtaszek served as chief financial officer of Cincinnati Bell Inc., where he had responsibility for the data center business andoversaw CyrusOne’s successful spin-off and IPO. Prior to joining Cincinnati Bell in July 2008, he was senior vice president, treasurer and chief accountingofficer for the Laureate Education Corporation in Baltimore, Maryland from 2006 to 2008. Prior to that, Mr. Wojtaszek worked from 2001 to 2008 at AgereSystems, the semiconductor and optical electronics communications division of Lucent Technologies, which was subsequently spunoff through an initialpublic offering. While at Agere Systems, Mr. Wojtaszek worked in a number of finance positions, ultimately serving as the vice president of corporatefinance, overseeing all controllership, tax and treasury functions. Mr. Wojtaszek started his career in General Motors Company’s New York treasury groupand joined Delphi Automotive Systems as the regional European treasurer in connection with the initial public offering and spin-off of Delphi AutomotiveSystems from General Motors. Mr. Wojtaszek serves on the foundation board of directors of the Baylor Health Care System, the executive board of the LyleSchool of Engineering at Southern Methodist University, and the advisory board of the Lyle School of Engineering’s Datacenter Systems Engineering (DSE)Program at Southern Methodist University. Mr. Wojtaszek previously served as a director of Cincinnati Bell Inc. 116 Table of Contents Ms. Judy Qing Ye has served as our independent director since October 2018. Ms. Judy Qing Ye is the founding partner for Yimei Capital, a globalalternative investment firm and has over 20 years of experience in investment. Prior to founding Yimei, Ms. Ye was the Head of Asia at EMA, a global privateequity firm. Prior to EMA, Ms. Ye served as director of strategic investments at Hewlett-Packard Company. In her earlier career, Ms. Ye worked as M&Aproject manager at PepsiCo, New York. Ms. Ye is also the co-founder and managing partner of NE Social Impact Fund (NESIF), a dedicated social impactinvesting fund in China. Ms. Ye is also the council member of United Way Worldwide, a global non-profit charitable organization. Ms. Ye received herbachelor of arts degree from Peking University and earned her MA from Tufts University, MBA from the Wharton School at University of Pennsylvania. Mr. Jonathan King has been a member of our executive committee since October 2016 and has been involved with our company since 2014, in hisrole as chief operating officer and head of investments of ST Telemedia’s data center business—STT GDC. In this role he is responsible for the performance ofSTT GDC’s existing platforms as well as leading its investment activities into new markets. From 2009 to 2014, Mr. King was the co-fund manager of SecurusData Property Fund, an investment fund focused on the acquisition and management of high quality data center assets in Asia-Pacific region and Europe.During that time, Mr. King played a key role in developing the portfolio of data centers that was eventually listed as Keppel DC REIT on the SingaporeExchange. From 2004 to 2009, Mr. King was an associate director with Macquarie Bank’s real estate group. He holds a bachelor’s degree in engineering fromthe University of Sydney and a graduate diploma in finance and investment from the Financial Services Institute of Australasia. Mr. Xu Wei joined our company in 2013 as our senior vice president of sales, and is responsible for sales operations and management. Prior tojoining us, Mr. Wei was a general manager of Beijing VPro Intellectual Technology Limited Company from 2011 to 2013, with responsibility for mobilevalue-added business promotion and software development. From 2005 to 2010, Mr. Wei served as a general manager of Shenzhen VPro Technology LimitedCompany, with responsibility for operations and software development and integration. From 1998 to 2005, Mr. Wei held various roles at Zhong Lian Group,including technical director, business development manager and division general manager, engaged in sales and management of core systems. From 1996 to1998, Mr. Wei served as an engineer at Beijing Electronic Office, with responsibility for network-building and management. Mr. Wei received a bachelor’sdegree in physics from Shandong University. Ms. Yilin Chen joined our company in 2008 and now serves as our senior vice president for product and service business. Prior to joining us,Ms. Chen held various roles in consulting, business planning and analysis, product and operations. Ms. Chen worked at HP China for 12 years, holdingleadership roles related to IT solutions and service, outsourcing, business development and management. From 1992 to 1995, Ms. Chen worked at the EastChina Institute of Computer and Science. She graduated from Shanghai Science and Technology University with a bachelor’s degree in computer science. Ms. Liang Chen joined our company in 2015 with responsibility for product strategy management and the delivery of data center projects, designand construction. Due to the rapid growth of our business, since September 2017, Ms. Chen responsibilities have focused on data center design and she isleading our company in designing and building multiple data centers. Prior to joining us, Ms. Chen worked with IBM Global Technology Service for 14years. Ms. Chen held several leadership roles in IBM, including manager of IBM’s China data center solution design team, general manager of IBM’s datacenter consulting and design department and service product line manager of IBM’s Greater China data center department. Prior to joining IBM, Ms. Chenspent seven years at the East China Architectural Design and Research Institute. Ms. Chen holds a bachelor’s degree in electrical and electronic engineeringfrom Shanghai University and a master’s degree in electrical and electronic engineering from Tongji University. 117 Table of Contents Ms. Yan Liang has served as our senior vice president of operation and delivery since 2010 with responsibility for establishing the operationgovernance system and management platform for data centers. Ms. Liang currently also serves on the China Data Center Committee as vice chairman withresponsibility for contributing to white papers for the operation and maintenance management technology of data centers and promoting maintenance andoperation in data center industry. Prior to joining us, Ms. Liang served as a director of operations and business development with COSCO’s global data centerbusiness where she had responsibility for information system centralization, construction of large data centers, establishment and promotion of ITILoperation management systems and global disaster recovery. Prior to COSCO, Ms. Liang was a distinguished lecturer at HP Management School. Ms. Liangreceived a bachelor’s degree from Shanghai Tie Dao University and an MBA from Fudan University. B. Compensation For the year ended December 31, 2018, we and our subsidiaries paid aggregate compensation of approximately US$4.3 million to our directors andexecutive officers as a group, of which, US$3.3 million was settled in cash and US$1.0 million was settled in restricted shares issued under our 2016 shareincentive plan. We did not pay any other cash compensation or benefits in kind to our directors and executive officers. We set aside an aggregate of US$0.1million for pensions, retirement or other benefits for our directors and executive officers in 2018. For information regarding options granted to our directors and executive officers, see “—Share Incentive Plans.” Share Incentive Plans 2014 Share Incentive Plan Our equity incentive plan adopted in 2014, or the 2014 share incentive plan, provides for the grant of options, share appreciation rights or othershare-based awards, which we refer to collectively as equity awards. Up to 29,240,000 ordinary shares upon exercise of equity awards may be granted underthe 2014 share incentive plan. We believe that the plan will aid us in recruiting, retaining and motivating key employees, directors and consultants ofoutstanding ability through the granting of equity awards. Administration The 2014 share incentive plan is administered by our board of directors (only with respect to options granted on the date of the completion of ourinitial public offering), the remuneration committee, or any subcommittee thereof to whom the board or the remuneration committee shall delegate theauthority to grant or amend equity awards. The plan administrator is authorized to interpret the plan, to establish, amend and rescind any rules andregulations relating to the plan, and to make any other determinations that it deems necessary or desirable for the administration of the plan, as well asdetermine the provisions, terms and conditions of each award consistent with the provisions of the plan. Change in Control In the event of a change in control, any outstanding awards that are unexercisable or otherwise unvested or subject to lapse restrictions, asdetermined by the plan administrator, will automatically be deemed exercisable or otherwise vested or no longer subject to lapse restrictions, as the case maybe, immediately prior to such change in control. The plan administrator may also, in its sole discretion, decide to cancel such awards for fair value, providefor the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted or provide thataffected options will be exercisable for a period of at least 15 days prior to the change in control but not thereafter. A “change in control” under the 2014share incentive plan is defined as (i) the sale of all or substantially all of our assets, (ii) any person or group (other than certain permitted holders) becomes thebeneficial owner of more than 50% of the total voting power of our voting stock or (iii) a majority of our board of directors ceases to be continuing directorsduring any period of two consecutive years. 118 Table of Contents Term Unless terminated earlier, the 2014 share incentive plan will continue in effect for a term of five years from the date of its adoption. Vesting Schedule In general, the plan administrator determines, or the award agreement specifies, the vesting schedule. Amendment and Termination of Plan Our board of directors may at any time amend, alter or discontinue the 2014 share incentive plan, subject to certain exceptions. Granted Options The total number of shares that may be issued under the 2014 share incentive plan is 29,240,000. As of the date of this annual report on Form 20-F,options to purchase 24,735,232 ordinary shares had been granted, all share options were fully vested and outstanding. The table below summarizes, as of the date of this annual report on Form 20-F, the options we have granted to our directors and executive officers. Name Position Number ofSecuritiesunderlyingunexercisedoptionsexercisable OptionExercise PriceGrant DateOptionExpirationDateWilliam Wei HuangChairman and chief executive officer4,186,253US$0.7792July 1, 2014July 1, 20197,114,840US$0.7792May 1, 2016May 1, 2021Daniel NewmanChief financial officer*US$0.7792July 1, 2014July 1, 2020Satoshi OkadaDirector*US$0.7792July 1, 2014July 1, 2019Xu WeiSenior vice president, sales*US$0.7792May 1, 2016May 1, 2021Yilin ChenSenior vice president, product and service*US$0.7792July 1, 2014July 1, 2019Yan LiangSenior vice president, operation and delivery*US$0.7792July 1, 2014July 1, 2019US$0.7792May 1, 2016May 1, 2021 * Less than 1% of our outstanding Class A ordinary shares.(1) Note: Fully vested. As of the date of this annual report on Form 20-F, individuals other than our directors and executive officers as a group held options to purchase atotal of 8,642,952 ordinary shares of our company, with an exercise price of US$0.7792 per ordinary share. 2016 Share Incentive Plan Our second equity incentive plan adopted in 2016, or the 2016 share incentive plan, provides for the grant of share options, share appreciationrights, restricted share units, restricted shares or other share-based awards, which we refer to collectively as equity awards. Up to 56,707,560 ordinary sharesmay be granted pursuant to equity awards under the 2016 share incentive plan. We believe that the 2016 share incentive plan will aid us in recruiting,retaining and motivating key employees and directors of outstanding ability through the granting of equity awards. 119(1) Table of Contents Administration The 2016 share incentive plan is administered by our board of directors (only with respect to equity awards granted on the date of the completion ofour initial public offering), the remuneration committee, or any subcommittee thereof to whom the board or the remuneration committee shall delegate theauthority to grant or amend equity awards. The plan administrator is authorized to interpret the plan, to establish, amend and rescind any rules andregulations relating to the plan, and to make any other determinations that it deems necessary or desirable for the administration of the plan, as well asdetermine the provisions, terms and conditions of each award consistent with the provisions of the plan. Change in Control In the event of a change in control (as defined below), if determined by the plan administrator in an award agreement or otherwise, any outstandingequity awards that are unexercisable or otherwise unvested or subject to lapse restrictions, will automatically be deemed exercisable or otherwise vested or nolonger subject to lapse restrictions, as the case may be, immediately prior to such change in control. The plan administrator may also, in its sole discretion,decide to cancel such equity awards for fair value, provide for the issuance of substitute awards that will substantially preserve the otherwise applicable termsof any affected awards previously granted or provide that affected share options or share appreciation rights will be exercisable for a period of at least 15 daysprior to the change in control and terminated upon the change in control if not previously exercised. A “change in control” under the 2016 share incentiveplan is generally defined as (i) the sale of all or substantially all of our assets to any person or group (other than certain permitted holders), unless the primarypurpose of the sale is to create a holding entity for us that will be directly or indirectly owned in substantially the same proportions by the same persons thatheld our shares immediately prior to the consummation of such sale, or (ii) one or more related transactions whereby any person or group (other than certainpermitted holders) becomes the beneficial owner of more than 50% of the total voting power of our voting shares and controls the composition of a majorityof our board of directors, unless the primary purpose of such transaction or transactions, as applicable, is to create a holding entity for us that will be directlyor indirectly owned in substantially the same proportions by the same persons that held our shares immediately prior to the consummation of suchtransaction. Term Unless terminated earlier, the 2016 share incentive plan will continue in effect for a term of ten years from the date of its adoption. Award Agreements Generally, equity awards granted under the 2016 share incentive plan are evidenced by an award agreement providing for the number of ordinaryshares subject to the award, and the terms and conditions of the award, which must be consistent with the 2016 share incentive plan. Vesting Schedule The plan administrator determines the vesting schedule of each equity award granted under the 2016 share incentive plan, which vesting schedulewill be set forth in the award agreement for such equity award. Amendment and Termination of Plan Our board of directors may at any time amend, alter or discontinue the 2016 share incentive plan, subject to certain exceptions. Granted Restricted Shares The total number of shares that may be issued under the 2016 share incentive plan is 56,707,560. In August 2016, we granted 877,400 restrictedshares to directors pursuant to equity awards under the 2016 share incentive plan. These restricted shares were fully vested upon the date of grant in lieu ofcash to our directors to settle a portion of their remuneration for services provided by the directors in the past. 120 Table of Contents In December 2016, July 2017 and August 2018, we granted 12,910,080, 13,475,060 and 12,941,952 non-vested restricted shares to employees,officers and directors, respectively. The restricted share awards were granted subject to service and market conditions, or service and performance conditions,which are tied to our financial performance. In May, August and November 2017, we issued an aggregate of 502,000 restricted shares to directors pursuant to equity awards under the 2016 shareincentive plan. In March, May, August and November 2018, we issued a total of 260,560 restricted shares to directors pursuant to equity awards under the2016 share incentive plan. These restricted shares were fully vested upon the date of grant, and were granted to our directors in lieu of cash to settle a portionof remuneration for their services previously rendered. The table below summarizes, as of the date of this annual report on Form 20-F, the restricted shares we have granted to our directors and executiveofficers: Name Position Numbers ofRestricted Shares Grant DateWilliam Wei HuangChairman and chief executiveofficer*December 5, 2016, July 17, 2017 andAugust 1, 2018Daniel NewmanChief financial officer*December 5, 2016, July 17, 2017 andAugust 1, 2018Jamie Gee KhooChief operating officer*December 5, 2016, July 17, 2017 andAugust 1, 2018Sio Tat HiangVice-chairman*August 29, 2016, May 9, 2017, August 8,2017, November 9, 2017, March 13, 2018,May 10, 2018, August 14, 2018 andNovember 13, 2018Satoshi OkadaDirector*August 29, 2016, May 9, 2017, August 8,2017, November 9, 2017, March 13, 2018,May 10, 2018, August 14, 2018 andNovember 13, 2018Bruno LopezDirector*August 29, 2016, May 9, 2017, August 8,2017, November 9, 2017, March 13, 2018,May 10, 2018, August 14, 2018 andNovember 13, 2018Lee Choong KwongDirector*August 29, 2016, May 9, 2017, August 8,2017, November 9, 2017, March 13, 2018,May 10, 2018, August 14, 2018 andNovember 13, 2018Lim Ah DooIndependent Director*August 29, 2016, May 9, 2017, August 8,2017, November 9, 2017, March 13, 2018,May 10, 2018, August 14, 2018 andNovember 13, 2018Bin YuIndependent Director*May 9, 2017, August 8, 2017, November 9,2017, March 13, 2018, May 10, 2018,August 14, 2018 and November 13, 2018Zulkifli BaharudinIndependent Director*May 9, 2017, August 8, 2017, November 9,2017, March 13, 2018, May 10, 2018,August 14, 2018 and November 13, 2018Chang SunIndependent Director*August 8, 2017, November 9, 2017, March 13,2018, May 10, 2018, August 14, 2018 andNovember 13, 2018Jonathan KingMember of the executivecommittee*May 9, 2017, August 8, 2017, November 9,2017, March 13, 2018, May 10, 2018,August 14, 2018 and November 13, 2018Xu WeiSenior vice president, sales*December 5, 2016, July 17, 2017 andAugust 1, 2018Yilin ChenSenior vice president, productand service*December 5, 2016, July 17, 2017 andAugust 1, 2018Liang ChenSenior vice president, productstrategy management and thedelivery of data center projects,design and construction*December 5, 2016, July 17, 2017 andAugust 1, 2018Yan LiangSenior vice president,operation and delivery*December 5, 2016, July 17, 2017 andAugust 1, 2018 121 Table of Contents * Less than 1% of our outstanding ordinary shares assuming conversion of all restricted shares into ordinary shares. As of the date of this annual report on Form 20-F, individuals other than our directors and executive officers as a group held a total of 17,156,488restricted shares of our company, subject to various vesting schedules and conditions. C. Board Practices Duties of Directors Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also havea duty to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care tous, our directors must ensure compliance with our Amended and Restated Memorandum and Articles of Association. A shareholder has the right to seekdamages if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others: · conducting and managing the business of our company; · representing our company in contracts and deals; · appointing attorneys for our company; · select senior management such as managing directors and executive directors; · providing employee benefits and pension; · managing our company’s finance and bank accounts; · exercising the borrowing powers of our company and mortgaging the property of our company; and · exercising any other powers conferred by the shareholders meetings or under our Amended and Restated Memorandum and Articles ofAssociation. Appointment, Nomination and Terms of Directors Pursuant to our amended articles of association, our board of directors are classified into three classes of directors designated as Class I, Class II andClass III, each generally serving a three-year term unless earlier removed and except as described below. The Class I directors consist of Gary J. Wojtaszek,Satoshi Okada and Bruno Lopez; the Class II directors consist of Lee Chong Kwong, Lim Ah Doo, Chang Sun, and Judy Qing Ye; and the Class III directorsconsist of William Wei Huang, Sio Tat Hiang, Bin Yu and Zulkifli Baharudin. Class I directors initially retired from office by rotation and were up for re-election or re-appointment one year after the completion of our initial public offering. Class II directors will initially retire from office by rotation and be upfor re-election or re-appointment two years after the completion of our initial public offering. Class III directors will initially retire from office by rotation andbe up for re-election three years after the completion of our initial public offering. 122 Table of Contents Our board currently consists of eleven (11) directors. Unless otherwise determined by us in a general meeting, our board will consist of not less thantwo (2) directors. There is no maximum number of directors unless otherwise determined by our shareholders in a general meeting, provided, however, that forso long as STT GDC has the right to appoint one or more directors to our board of directors, any change in the total number of directors on our board shallrequire the prior approval of the director or directors appointed by STT GDC. Our amended articles of association provide that for so long as STT GDC beneficially owns: not less than 25% of our issued and outstanding sharecapital, they may appoint three directors to our board of directors, including our vice-chairman; less than 25%, but not less than 15%, of our issued andoutstanding share capital, they may appoint two directors to our board of directors, including our vice-chairman; and less than 15%, but not less than 8%, ofour issued and outstanding share capital, they may appoint one director to our board of directors, including our vice-chairman, none of which appointmentswill be subject to a vote by our shareholders. In addition, the above rights of STT GDC may not be amended without the approval of STT GDC. Where STTGDC beneficially owns: less than 25%, but 15% or more, of our issued and outstanding share capital, then of the directors appointed by STT GDC, only twomay remain in office, and the other director, who shall be determined by STT, or failing which shall be the director whose term is due to expire soonest, shallretire at the expiry of his/her term; less than 15%, but 8% or more, of our issued and outstanding share capital, then of the directors appointed by STT GDC,only one may remain in office, and the other directors, who shall be determined by STT, or failing which shall be the directors whose terms are due to expiresoonest, shall retire at the expiry of their respective terms; less than 8% of our issued and outstanding share capital, then the directors appointed by STT GDCmay not remain in office and all shall retire at the expiry of their respective terms. Any director appointed by STT GDC who retires pursuant to the foregoingsentence may, in the sole discretion of our nominating and corporate governance committee, be re-nominated and subject to re-election at the next generalmeeting of our shareholders. Our amended articles of association further provide that for so long as there are Class B ordinary shares outstanding: (i) the Class B shareholdersshall be entitled to nominate one less than a simple majority, or five, of our directors (and such Class B shareholders shall have 20 votes per shares withrespect to the resolutions approving the appointment or removal of such directors); and (ii) the nominating and corporate governance committee shallnominate one director, which one shall satisfy the requirements for an “independent director” within the meaning of the Nasdaq Stock MarketRules including the requirements for audit committee independence. As of and after such time as there ceases to be any Class B ordinary shares outstanding,all of the directors nominated by Class B shareholders shall retire from office at the expiry of their respective terms, and, if re-nominated, be subject to re-election at a subsequent general meeting of shareholders. Prior to such time, if any of the directors nominated by or subject to election by Class Bshareholders at 20 votes per share (i) is not elected or (ii) ceases to be a director, then the Class B shareholders may appoint an interim replacement for eachsuch director. Any person so appointed shall hold office until the next general meeting of our shareholders and be subject to re-nomination and re-election atsuch meeting. Subject to the abovementioned appointment rights, we may nominate, and shareholders may by ordinary resolution elect (with Class A ordinaryshares and Class B ordinary shares each being entitled to one vote per share), any person to be a director to fill a casual vacancy on our board. Board Committees Our board of directors has established an audit committee, a compensation committee, a nominating and corporate governance committee and anexecutive committee. As a foreign private issuer, we are permitted to follow home country corporate governance practices under Nasdaq Stock Market Rules. 123 Table of Contents Audit Committee Our audit committee consists of Lim Ah Doo, Bin Yu and Zulkifli Baharudin. Lim Ah Doo is the chairman of our audit committee. All memberssatisfy the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC and satisfies the requirements for an “independentdirector” within the meaning of Nasdaq Stock Market Rules and meets the criteria for independence set forth in Rule 10A-3 of the Exchange Act. Our auditcommittee consists solely of independent directors. The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee isresponsible for, among other things: · selecting the independent auditor; · pre-approving auditing and non-auditing services permitted to be performed by the independent auditor; · annually reviewing the independent auditor’s report describing the auditing firm’s internal quality control procedures, any material issuesraised by the most recent internal quality control review, or peer review, of the independent auditors and all relationships between theindependent auditor and our company; · reviewing with the independent auditor any audit problems or difficulties and management’s response; · reviewing and, if material, approving all related person transactions on an ongoing basis; · reviewing and discussing the annual audited financial statements with management and the independent auditor; · reviewing and discussing with management and the independent auditors about major issues regarding accounting principles and financialstatement presentations; · reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments; · discussing earnings press releases with management, as well as financial information and earnings guidance provided to analysts and ratingagencies; · reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off-balance sheetstructures, on our financial statements; · discussing policies with respect to risk assessment and risk management with management, internal auditors and the independent auditor; · timely reviewing reports from the independent auditor regarding all critical accounting policies and practices to be used by our company, allalternative treatments of financial information within U.S. GAAP that have been discussed with management and all other material writtencommunications between the independent auditor and management; · establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internalaccounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionableaccounting or auditing matters; · annually reviewing and reassessing the adequacy of our audit committee charter; 124 Table of Contents · such other matters that are specifically delegated to our audit committee by our board of directors from time to time; · performing, at least annually, an evaluation of the performance of the audit committee; and · reporting regularly to the full board of directors. Compensation Committee Our compensation committee consists of Sio Tat Hiang, William Wei Huang and Zulkifli Baharudin. Sio Tat Hiang is the chairman of ourcompensation committee. Zulkifli Baharudin satisfies the requirements for an “independent director” within the meaning of Nasdaq Stock Market Rules. Our compensation committee is responsible for, among other things: · reviewing, evaluating and, if necessary, revising corporate goals and objectives with respect to the compensation of the chief executive officer; · reviewing and making recommendations to the board of directors regarding the compensation of our directors; · reviewing, approving or making recommendations to the board of directors with respect to our incentive—compensation plan and equity-basedcompensation plans; · administering our equity-based compensation plans in accordance with the terms thereof; and · such other matters that are specifically delegated to the compensation committee by our board of directors from time to time. Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of William Wei Huang, Sio Tat Hiang and Zulkifli Baharudin. William Wei Huang isthe chairman of our nominating and corporate governance committee. Zulkifli Baharudin satisfies the requirements for an “independent director” within themeaning of Nasdaq Stock Market Rules. The nominating and corporate governance committee is generally responsible for reviewing, evaluating and, if necessary, revising our corporategovernance guidelines, reviewing and evaluating any instance of deviation from our corporate governance guidelines, as well as issuing and reviewingnominations of persons to be appointed as certain of our directors as described herein and of our officers. The nominating and corporate governancecommittee shall have the right nominate three directors, all of whom shall satisfy the requirements for an “independent director” within the meaning of theNasdaq Stock Market Rules including the requirements for audit committee independence. If any of the directors nominated by the nominating and corporategovernance committee (i) is not elected or (ii) ceases to be a director, then nominating and corporate governance committee or the Class B holders, asapplicable, may appoint an interim replacement for such director. Any person so appointed shall hold office until the next general meeting of ourshareholders. These three directors shall be subject to election at general meetings of shareholders as described under “—Appointment, Nomination andTerms of Directors”. Executive Committee Our executive committee consists of Bruno Lopez, William Wei Huang, Judy Qing Ye and Jonathan King. Bruno Lopez is the chairman of ourexecutive committee. 125 Table of Contents The executive committee functions primarily as an advisory body to our board of directors to oversee the business of our group companies. Theexecutive committee shall also provide consultation and recommendations to our board of directors on operating and strategic matters for any of our groupcompanies, acting within authorities delegated to it by our board of directors. In addition, the executive committee shall have such other authority as may bedelegated to it by our board of directors from time to time. Our executive committee is responsible for, among other things, advising, providing consultationand recommendations to our board of directors on: · operational performance of any of our group companies; · appropriate strategies for any of our group companies; · strategic business and financing plans and annual budget of any of the group companies; · acquisitions, dispositions, investments and other potential growth and expansion opportunities for any of our group companies; · capital structure and financing strategy of our group companies, including but not limited to any debt, equity or equity-linked financingtransactions, as well as any issuance, repurchase, conversion or redemption of any equity interests or debt of any of our group companies; · any material litigation or other legal or administrative proceedings to which any of our group companies is a party; · entry into any material contracts exceeding the approval authority of our chief executive officer or its equivalent, the chief financial officer, andall the other executive officers of any of our group companies; · the approval of the incurrence of debt above certain thresholds; · reporting regularly to our board of directors; and · any other responsibilities as are delegated to the executive committee by our board of directors from time to time. Corporate Governance Our board of directors has adopted a code of business conduct, which is applicable to all of our directors, officers and employees. We have made ourcode of business conduct publicly available on our web site. In addition, our board of directors has adopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles withrespect to our board’s structure, procedures and committees. The guidelines are not intended to change or interpret any law, or our amended and restatedmemorandum and articles of association. Remuneration and Borrowing The directors may determine remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing andapproving the compensation structure for the directors. The directors may exercise all the powers of our company to borrow money, mortgage or charge itsundertaking, property and uncalled capital and issue debentures or other securities whether outright or as security for any debt obligations of our company orof any third party. Qualification There is no requirement for our directors to own any shares in our company in order for them to qualify as a director. 126 Table of Contents Employment Agreements We have entered into employment agreements with each of our executive officers. We may terminate their employment for cause at any time withoutremuneration for certain acts, such as a material breach of our company’s employment principles, policies or rules, a material failure to perform his or herduties or misappropriation or embezzlement or a criminal conviction. We may also terminate any executive officer’s employment without cause or due to achange of control event involving our company by giving written notice. In such cases, an executive officer is entitled to severance payments and benefits.An executive officer may terminate his or her employment at any time by giving written notice, in which case the executive officer will not be entitled to anyseverance payments or benefits. Our executive officers have also agreed not to engage in any activities that compete with us or to directly or indirectly solicit the services of any ofour employees, for a certain period after the termination of employment. Each executive officer has agreed to hold in strict confidence any trade secrets of ourcompany, including technical secrets, marketing information, management information, legal information, third-party business secrets and other kinds ofconfidential information. Each executive officer also agrees to perform his or her confidentiality obligation and protect our company’s trade secrets in a wayconsistent with the policies, rules and practices of our company. Breach of the above confidentiality obligations would be deemed as material breach of ourcompany’s employment policies and we are entitled to seek legal remedies. D. Employees See “Item 4. Information on the Company—B. Business Overview—Employees and Training.” E. Share Ownership The following table sets forth information as of the date of this annual report on Form 20-F with respect to the beneficial ownership of our ordinaryshares by: · each of our directors and executive officers; and · each person known to us to own beneficially 5.0% or more of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to, or the power toreceive the economic benefit of ownership of, the securities. In computing the number of shares beneficially owned by a person and the percentage ownershipof that person, we have included shares that the person has the right to acquire within 60 days, including through the exercise of any option or other right orthe conversion of any other security. The total number of ordinary shares outstanding as of the date of this annual report on Form 20-F is 1,007,069,640, comprising 939,479,304 Class Aordinary shares (including 5,208,216 Class A ordinary shares held by JPMorgan Chase Bank, N.A., as depositary, which are reserved for future delivery uponexercise or vesting of share awards granted under our share incentive plans) and 67,590,336 Class B ordinary shares, but excludes ordinary shares issuableupon the exercise of outstanding share options, vested but not yet issued restricted shares and ordinary shares reserved for future issuance under our shareincentive plans. 127 Table of Contents Class A Class B % ofAggregateVotingPowerwith Class Aand Class BOrdinarySharesVoting on a1:20 % ofAggregateVotingPowerwithClass AandClass BOrdinarySharesVoting ona Number Percent Number Percent Basis*** 1:1 BasisDirectors and Executive Officers**:William Wei Huang**78,891,429100.0%58.8%6.7%Daniel Newman**——**Jamie Gee Khoo**——**Sio Tat Hiang**——**Satoshi Okada**——**Bruno Lopez**——**Lee Choong Kwong**——**Lim Ah Doo**——**Bin Yu**——**Zulkifli Baharudin**——**Chang Sun**——**Gary J. Wojtaszek**——**Judy Qing Ye**——**Jonathan King**——**Xu Wei**——**Yilin Chen**——**Liang Chen**——**Yan Liang**——** Class A Class B % ofAggregateVotingPowerwith Class Aand Class BOrdinarySharesVoting on a1:20 % ofAggregateVotingPowerwithClass AandClass BOrdinarySharesVoting ona Number Percent Number Percent Basis*** 1:1 BasisDirectors and Executive Officers as aGroup19,305,3752.0%78,891,429100%59.4%8.0%Principal Shareholders:STT GDC354,937,73238.0%——15.5%35.4%SBCVC Holdings Limited61,192,2306.5%——2.7%6.1%CyrusOne Inc.64,257,0286.9%——2.8%6.4%Ping An Insurance63,369,8566.8%——2.8%6.3%EDC Group Limited——42,975,88454.5%37.6%4.3% * Beneficially owns less than 1% of our outstanding shares. ** The business address for our directors and executive officers is at 2/F, Tower 2, Youyou Century Place, 428 South Yanggao Road, Pudong, Shanghai200127, People’s Republic of China. 128(1)(2)(3)(4)(5)(6)(7) Table of Contents *** For each person or group included in this column, the percentage of total voting power represents voting power based on all ordinary shares beneficiallyowned by such person or group, with respect to (i) the election of a simple majority of our directors and (ii) any change to our amended articles ofassociation that would adversely affect the rights of the holders of Class B ordinary shares, at general meetings of our shareholders, where each Class Aordinary share is entitled to one vote per share, and each Class B ordinary share is entitled to 20 votes per share. With respect to any other matters atgeneral meetings of our shareholders, each Class A ordinary share is entitled to one vote, and each Class B ordinary share is entitled to one vote, votingtogether as a combined class, and accordingly, percentages of total voting power on such matters correspond to the percentages in the adjacent column,“% of Aggregate Voting Power with Class A and Class B Ordinary Shares Voting on a 1:1 Basis”. Class B ordinary shares are convertible into Class Aordinary shares. (1) The number of ordinary shares beneficially owned is as of December 31, 2018, as reported in a Schedule 13G filed by Mr. William Wei Huang onFebruary 11, 2019, and consists of (i) 3,286,144 Class B ordinary shares held by Solution Leisure Investment Limited, a limited liability companyestablished in the British Virgin Islands, (ii) 42,975,884 Class B ordinary shares held by EDC Group Limited, a limited liability company established inthe British Virgin Islands, (iii) 21,328,308 Class B ordinary shares held by GDS Enterprises Limited, a limited liability company established in theBritish Virgin Islands, (iv) 11,301,093 of Class B ordinary shares underlying share options exercisable within 60 days after the date of this annual reporton Form 20-F held by Treasure Luck Investment Corporation, a limited liability company established in the British Virgin Islands, and (v) 325,608Class A ordinary shares in the form of 40,701 ADSs underlying restricted share units exercisable within 60 days after December 31, 2018 held byMr. William Wei Huang. Solution Leisure Investment Limited is indirectly wholly owned by a trust of which Mr. Huang’s family is the beneficiary. Eachof EDC Group Limited and Treasure Luck Investment Corporation is wholly owned by Solution Leisure Investment Limited. GDS Enterprises Limited isindirectly wholly owned by a trust of which Mr. Huang’s family is a beneficiary. The registered address of Solution Leisure Investment Limited isPortcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands. EDC Group Limited is further described in footnote 7 below. (2) Represents ordinary shares beneficially held by all of our directors and executive officers as a group and ordinary shares issuable upon exercise ofoptions and vesting of restricted share units within 60 days after the date of this annual report on Form 20-F held by all of our directors and executiveofficers as a group. (3) Represents 354,937,732 Class A ordinary shares (directly or in the form of ADSs) owned by STT GDC. STT GDC is wholly-owned by STTCommunications Ltd (“STTC”). STTC is wholly-owned by Singapore Technologies Telemedia Pte Ltd (“ST Telemedia”). Each of STT GDC, STTC andST Telemedia is a company organized under the laws of the Republic of Singapore. The address of the principal business office of STT GDC is 3Temasek Avenue, #28-01, Centennial Tower, Singapore 039190. The address of the principal business office of each of ST Telemedia and STTC is 1Temasek Avenue, #33-01, Millenia Tower, Singapore 039192. On November 14, 2017, STT GDC exercised its option to convert, and converted, theconvertible bonds in a principal amount of US$50.0 million due December 30, 2019 (the “Convertible Bonds”) then held by it, together with interestaccrued thereon of US$4,513,889.00, into 32,540,515 Class A ordinary shares, at a conversion price of US$1.675262 per Class A ordinary share pursuantto and in accordance with the terms and conditions of the Convertible Bonds. On January 30, 2018, we completed our public offering of 12,650,000ADSs, comprising 8,225,000 ADSs offered by us and 4,425,000 ADSs offered by certain selling shareholders, at a public offering price of US$26.00 perADS (the “January 2018 Offering”). STT GDC purchased an aggregate of 3,009,857 ADSs in the January 2018 Offering at the public offering price. (4) Represents 61,192,230 Class A ordinary shares beneficially owned by SBCVC Fund II-Annex, L.P., a Cayman Islands limited partnership of whichSBCVC Management II-Annex, L.P. is the general partner, SBCVC Venture Capital, a People’s Republic of China company, treated as a partnership fortax purposes, of which SBCVC Limited is the general partner, SBCVC Company Limited, a Hong Kong company which is wholly-owned by SBCVCFund II, L.P. (“SBCVC Fund II”), SBCVC Fund II, a Cayman Islands limited partnership of which SBCVC Management II, L.P. (“SBCVC ManagementII”) is the general partner, and SBCVC Fund III, L.P. (“SBCVC Fund III”), a Cayman Islands limited partnership of which SBCVC Management III, L.P.(“SBCVC Management III”) is the general partner. Each of SBCVC Management II-Annex, L.P., SBCVC Management II and SBCVC Management III is aCayman Islands limited partnership of which SBCVC Limited is the general partner. SBCVC Limited is a Cayman Islands company that is majority-owned by Star Pioneer Investment Holdings Limited (“Star Pioneer”), a British Virgin Islands company. Star Pioneer is wholly-owned by Lin Ye Song, acitizen of Australia. The voting and investment decisions made by SBCVC Limited are executed by SBCVC Holdings Limited (“SBCVC Holdings”), aBritish Virgin Islands company, by means of management agreements by and between SBCVC Holdings and each of the following entities: SBCVCManagement II-Annex, L.P., SBCVC Venture Capital, SBCVC Management II and SBCVC Management III. The power to execute SBCVC Limited’svoting and investment decisions is exercised by the board of directors of SBCVC Holdings. SBCVC Holdings executes voting and investment decisionsmade by SBCVC Limited as to the shares beneficially owned by it and its subsidiary general partners by means of multiple management agreements, butdecision-making power remains with SBCVC Limited and its subsidiary general partners. The address of the principal business office of each of SBCVCFund II and SBCVC Fund III is Cricket Square, Hutchins Drive, P.O. Box 2681GT, Grand Cayman KY1-111, Cayman Islands. The address of theprincipal business office of each of SBCVC Management II, SBCVC Management III and SBCVC Limited is Cricket Square, Hutchins Dr., PO Box2681GT, George Town, Grand Cayman, Cayman Islands KY1-111. The address of the principal business office of Star Pioneer is OMC Chambers,P.O. Box 3152, Road Town, Tortola, British Virgin Islands. The address of the principal business office of SBCVC Holdings is OMC Chambers,Wickham Cay 1, Road Town, Tortola, British Virgin Islands. On January 30, 2018, we completed our public offering of 12,650,000 ADSs, comprising8,225,000 ADSs offered by us and 4,425,000 ADSs offered by certain selling shareholder entities affiliated with SBCVC Holdings Limited, at a publicoffering price of US$26.00 per ADS (the “January 2018 Offering”). 129 Table of Contents (5) The number of ordinary shares beneficially owned is as of October 23, 2017, as reported in a Schedule 13D filed by CyrusOne Inc. on November 2, 2017,and consists of 64,257,028 Class A ordinary shares that are held by Cheetah Asia Holdings LLC, a Delaware company and a wholly owned subsidiary ofCyrusOne Inc., a Maryland corporation listed on Nasdaq. The address of the principal business and the principal office of each of Cheetah Asia HoldingsLLC and CyrusOne Inc. is 2101 Cedar Springs Road, Suite 900, Dallas, TX 75201, United States. (6) The number of ordinary shares beneficially owned is as of December 31, 2017, as reported in a Schedule 13G filed by Falcon Vision Global Limited onFebruary 13, 2018, and consists of 63,369,856 Class A ordinary shares held by Falcon Vision Global Limited (“Falcon”), a company incorporated underthe laws of the British Virgin Islands. Falcon is wholly-owned by Ping An Life Insurance Company of China, Ltd. (“Ping An Life”) directly. Ping An Lifeis directly owned and controlled by Ping An Insurance (Group) Company of China, Ltd. (“Ping An Insurance”), a company listed on the Hong KongStock Exchange and the Shanghai Stock Exchange. Ping An Insurance is a company incorporated under the laws of the People’s Republic of China. Theaddress of the principal business office of Falcon is Vistra Corporation Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British VirginIslands. The address of the principal business office of Ping An Insurance is 15, 16, 17, 18 Floors, Galaxy Development Center, Fu Hua No. 3 Road,Futian District, Shenzhen, Guang Dong Province, People’s Republic of China. On November 14, 2017, Perfect Success Limited (“Perfect Success”), acompany incorporated under the laws of the Cayman Islands, exercised its option to convert the convertible bonds in a principal amount of US$100.0million due December 30, 2019 (the “Convertible Bonds”) then held by it, together with interest accrued thereon, into 65,329,748 Class A ordinaryshares, at a conversion price of US$1.675262 per Class A ordinary share pursuant to and in accordance with the terms and conditions of the ConvertibleBonds, of which 63,369,856 Class A ordinary shares were allotted to Falcon and 1,959,892 Class A ordinary shares were allotted to another entity. (7) EDC Group Limited is a limited liability company established in the British Virgin Islands wholly owned by Solution Leisure Investment Limited, alimited liability company established in the British Virgin Islands which is indirectly wholly owned by a trust of which the family of Mr. William WeiHuang, our chairman and chief executive officer, is the beneficiary. The registered address of EDC Group Limited is OMC Chambers, Wickhams Cay 1,Road Town, Tortola, British Virgin Islands. In October 2017, we formed a new strategic partnership with CyrusOne Inc., or CyrusOne, a premier global data center REIT company, through theexecution of a commercial agreement, and the issuance to CyrusOne of 64,257,028 Class A ordinary shares, equivalent to approximately 8.0 million ADSs, ata purchase price of US$1.55625 per ordinary share, or US$12.45 per ADS, for a total consideration of US$100 million. On January 30, 2018, we completed our follow-on public offering of 12,650,000 ADSs (including full exercise of the underwriters’ option topurchase additional ADSs), comprising 8,225,000 ADSs offered and sold by us and 4,425,000 ADSs offered and sold by certain selling shareholder entitiesaffiliated with SBCVC Holdings Limited, or SBCVC, representing an aggregate of 101,200,000 Class A ordinary shares, raising US$204.8 million inproceeds to us and US$110.2 million in proceeds to SBCVC before expenses but after underwriting discounts and commissions. We did not receive any ofthe proceeds from the sale of ADSs by SBCVC. On June 5, 2018, we issued and sold convertible senior notes due in 2025 in an aggregate principal amount of US$300 million, which notes bearinterest at a rate of 2% per year, payable on June 1 and December 1 of each year, beginning on December 1, 2018. The convertible senior notes will mature onJune 1, 2025, unless earlier redeemed, repurchased or converted in accordance with their terms. The convertible senior notes may be converted into our ADSs,at the option of the holders, at an initial conversion rate of 19.3865 of our ADSs per US$1,000 principal amount of notes, or approximately 5,815,950 ADSs,representing 46,527,600 Class A ordinary shares, assuming conversion of the entire US$300 million aggregate principal amount at the initial conversion rate. Except as stated in the footnotes to the table above, we are not aware of any of our shareholders being affiliated with a registered broker-dealer orbeing in the business of underwriting securities. Except as otherwise disclosed in this annual report on Form 20-F, none of our existing shareholders has voting rights that differ from the votingrights of other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company. 130 Table of Contents ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” B. Related Party Transactions Transactions with Certain Directors, Shareholders, Affiliates and Key Management Personnel Long-term loans of RMB9.5 million, nil and nil as of December 31, 2016, 2017 and 2018 were guaranteed by Mr. William Wei Huang. Our WFOEs provided outsourcing and other services to the VIEs within our company with revenues being recognized by the WFOEs, and costsbeing recognized by the VIEs, of RMB343.3 million, RMB658.6 million and RMB1,260.5 million (US$183.3 million) in 2016, 2017 and 2018, respectively.These inter-company transactions are eliminated on a consolidated basis. Transactions with Our Shareholders Upon completion of our initial public offering on November 2, 2016, we settled the preference dividend totaling US$50.8 million to preferenceshareholders, of which US$11.4 million was paid in cash and US$39.4 million was paid by issuing an aggregate of 31,490,164 ordinary shares to the holdersof the preferred shares, respectively, based on the initial public offering price of US$10.00 per American Depositary Share (ADS), or US$1.25 per ordinaryshare. During the year ended December 31, 2015, we borrowed a loan of US$10.0 million from STT GDC. The interest expenses on the loan amounted toUS$0.4 million. As of December 31, 2015, the amount due to STT GDC comprised an outstanding short-term loan balance of US$10.0 million and accruedloan interest of US$0.4 million. On January 29, 2016, we received the second tranche of US$50.0 million from STT GDC to subscribe for convertible and redeemable bonds due2019, of which US$10.5 million was used to settle the outstanding short-term loan of US$10.0 million and related interest payable of US$0.5 million. During the years ended December 31, 2016 and 2017, the related interest expenses arising from the convertible bonds due 2019 subscribed by STTGDC amounted to US$4.7 million and US$4.4 million, respectively. In November 2017, the convertible bonds due 2019 and the interest accrued thereon due to STT GDC were fully converted into 32,540,515 newlyissued Class A ordinary shares at the conversion price of US$1.675262. In addition, upon conversion, the accrued but unpaid cash interest due to STT GDCof US$0.8 million was relinquished. During the year ended December 31, 2018, we successfully referred customers to CyrusOne Inc. and recognized RMB0.14 million (US$0.02 million)as commission income. On December 17, 2018, one of our subsidiaries, GDS IDC Services Pte. Ltd., or GDS Singapore, entered into a master service agreement with STTSingapore DC Pte. Ltd. and a cloud service provider, pursuant to which GDS Singapore will provide billing and payment collection services as well as othercoordination and administration services. As of December 31, 2018, we had not recognized or received any agency commission under this agreement. 131 Table of Contents Contractual Arrangements with Our Affiliated Consolidated Entities and their Shareholders See “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements with Our Affiliated Consolidated Entities.” Securities Issuances The following is a summary of our securities issuances since January 1, 2015. Ordinary Shares On November 7, 2016, we completed our initial public offering in which we offered and sold 19,250,000 ADSs representing 154,000,000 Class Aordinary shares, raising US$179.0 million in proceeds to us before expenses but after underwriting discounts and commissions. On December 6, 2016, theunderwriters exercised their option to purchase from us 820,735 additional ADSs representing 6,565,880 Class A ordinary shares, and we thereby raised anadditional US$7.6 million in proceeds to us before expenses but after underwriting discounts and commissions. In October 2017, we formed a new strategic partnership with CyrusOne Inc., or CyrusOne, a premier global data center REIT company, through theexecution of a commercial agreement, and the issuance to CyrusOne of 64,257,028 Class A ordinary shares, equivalent to approximately 8.0 million ADSs, ata purchase price of US$1.55625 per ordinary share, or US$12.45 per ADS, for a total consideration of US$100 million. Pursuant to the commercial agreement,the parties intend to exchange best practices as to sales and marketing, data center design and construction, supply chain management, customer relationshipmanagement, as well as operations, leveraging the core competencies of both companies in order to deliver data center solutions to their respective customersand assist in their global expansion. In connection with its investment, CyrusOne president and chief executive officer Gary Wojtaszek joined our board ofdirectors as an observer and will be elected as a director in future. In October 2017, we also agreed to grant to STT GDC and SBCVC, two of our majorshareholders, preemptive rights with respect to future private issuances of equity or equity-linked securities we conduct anytime in the eighteen monthsfollowing CyrusOne’s investment, whereby STT GDC and SBCVC will have the right to subscribe for pro rata portions of any such future offerings based ontheir shareholdings at the time of the agreement. On December 22, 2017, we convened an extraordinary general meeting of our shareholders, or the EGM, at which our shareholders passed ordinaryresolutions authorizing our board of directors to allot or issue, in the 12-month period from the date of the EGM, ordinary shares or other equity-linkedsecurities up to an aggregate twenty per cent (20%) of our existing issued share capital at the date of the EGM, whether in a single transaction or a series oftransactions (other than any allotment or issues of shares on the exercise of any options that have been granted by us). On January 30, 2018, we completed our follow-on public offering of 12,650,000 ADSs (including full exercise of the underwriters’ option topurchase additional ADSs), comprising 8,225,000 ADSs offered and sold by us and 4,425,000 ADSs offered and sold by certain selling shareholder entitiesaffiliated with SBCVC Holdings Limited, or SBCVC, representing an aggregate of 101,200,000 Class A ordinary shares, raising US$204.8 million inproceeds to us and US$110.2 million in proceeds to SBCVC before expenses but after underwriting discounts and commissions. We did not receive any ofthe proceeds from the sale of ADSs by SBCVC. On October 9, 2018, we convened our annual general meeting, or AGM, at which our shareholders passed ordinary resolutions authorizing our boardof directors to approve the allotment or issuance, in the 12-month period from the date of the AGM, of ordinary shares or other equity or equity-linkedsecurities of our company up to an aggregate twenty percent (20%) of our existing issued share capital at the date of the AGM, whether in a single transactionor a series of transactions (other than any allotment or issues of shares on the exercise of any options that have been granted by our company). 132 Table of Contents Preferred Shares Conversion of Preferred Shares and Preference Dividend. Prior to the closing of our initial public offering, holders of each series of preferred shareswere entitled to elect to convert part or all of the preferred shares held by them into our ordinary shares at a 1:1 share conversion ratio. Each preferred sharenot so converted automatically converted into our ordinary shares at the 1:1 share conversion ratio immediately prior to the closing of our initial publicoffering, which resulted in the conversion of 349,087,677 preference shares into 349,087,677 ordinary shares. All preferred shares converted into ordinaryshares are subject to a lock-up period of 180 days after the date of the completion of our initial public offering. Upon completion of our initial public offering on November 7, 2016, we settled the preference dividend totaling US$50.8 million to preferenceshareholders, of which US$11.4 million was paid in cash and US$39.4 million was paid by issuing an aggregate of 31,490,164 ordinary shares to the holdersof the preferred shares, respectively, based on the initial public offering price of US$10.00 per American Depositary Share (ADS), or US$1.25 per ordinaryshare. Convertible Bonds and Convertible Notes On December 30, 2015 and January 29, 2016, we issued and sold convertible and redeemable bonds due 2019 in aggregate principal amount ofUS$150.0 million, which bonds were subscribed by Ping An Insurance and STT GDC as to US$100.0 million and US$50.0 million, respectively. On November 17, 2017, the full principal amount of the outstanding US$150.0 million convertible bonds was voluntarily converted into ordinaryshares by Ping An Insurance and STT GDC at a set conversion price of US$1.675262 per ordinary share, or US$13.40 per ADS. Upon conversion of theprincipal amount of and interest accrued on the convertible bonds, we issued approximately 97.9 million additional Class A ordinary shares, representing10.4% of our enlarged issued share capital. On June 5, 2018, we completed our offering of US$300 million aggregate principal amount of 2% convertible senior notes due 2025 (including fullexercise of the initial purchasers’ option to purchase additional notes), raising US$291.1 million in net proceeds to us after deducting underwriting discountsand commissions and other offering expenses. Share Options and Restricted Shares We adopted our 2014 share incentive plan in July 2014. In May 2016, we granted 11,084,840 share options to employees, officers and directors. We adopted our 2016 share incentive plan in August 2016. In August 2016, we granted 877,400 fully vested restricted shares in lieu of cash to ourdirectors to settle a portion of their remuneration for services provided by the directors in the past. In December 2016, July 2017 and August 2018, we granted 12,910,080, 13,475,060 and 12,941,952 non-vested restricted shares to employees,officers and directors, respectively. The restricted share awards were granted subject to service and market conditions, or service and performance conditions,which are tied to our financial performance. In May, August and November 2017, we issued an aggregate of 502,000 restricted shares to directors pursuant to equity awards under the 2016 shareincentive plan. In March, May, August and November 2018, we issued a total of 260,560 restricted shares to directors pursuant to equity awards under the2016 share incentive plan. These restricted shares were fully vested upon the date of grant, and were granted to our directors in lieu of cash to settle a portionof remuneration for their services previously rendered. 133 Table of Contents Members (Shareholders) Agreements Pursuant to our amended members agreement entered into on May 19, 2016, we granted the holders of our registrable securities certain preferentialrights, including registration rights, information and inspection rights, drag-along rights and pre-emptive rights. The amended members agreement alsoprovides that our board of directors consists of nine directors, including (i) four directors appointed by STT GDC, (ii) two directors appointed by holders of75% of our then outstanding preferred shares other than the Series C preferred shares, such holders voting together as a separate class on an as-convertedbasis, and (iii) three directors appointed by holders of a majority of our then outstanding ordinary shares, such holders voting as a separate class. The boardcomposition arrangements under the amended members agreement will terminate immediately prior to the effectiveness of this registration statement. Inaddition, pursuant to our amended voting agreement entered into on May 19, 2016, the holders of our registrable securities have agreed to exercise votingrights so as to maintain the composition of the board of directors as set forth in the amended members agreement and described above. The amended votingagreement terminated on the date of the closing of our initial public offering. The drag-along rights terminated effective upon the closing of our initial public offering. The pre-emptive rights terminated immediately prior to theclosing of our initial public offering. On November 7, 2016, we entered into an information rights agreement with STT GDC, pursuant to which we granted certain information rights toSTT GDC for so long as it has the right to appoint directors under our articles of association. A copy of the information rights agreement has been filed withthis annual report. Registration Rights Pursuant to our amended members agreement, we have also granted certain registration rights to holders of our registrable securities, which includeour preferred shares and ordinary shares converted from preferred shares, for a period of up to five years from the closing of the offering. Set forth below is adescription of the registration rights under the amended members agreement. Demand Registration Rights Under the terms of the amended members agreement dated May 19, 2016, among us and our existing shareholders, certain holders of our registrablesecurities, at any time from after the earlier of (i) six months after our initial public offering and (ii) three years after August 13, 2014, until the date that is fiveyears after the closing of our initial public offering, have the right to demand that we file a registration statement under the Securities Act covering theregistration of all or part of their registrable securities. We, however, are not obligated to effect a demand registration if, among other things, we have alreadyeffected two demand registrations. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determine in goodfaith that filing of a registration will be materially detrimental to us, but we cannot exercise the deferral right more than once in any twelve-month period. Piggyback Registration Rights If we propose to file a registration statement in connection with a public offering of securities of our company other than relating to an employeeincentive plan, corporate reorganization, demand registration or Form S-3/F-3 registration then we must offer each holder of the registrable securities theopportunity to include their shares in the registration statement. Such requests for registrations are not counted as demand registrations. Form S-3/F-3 Registration Rights When eligible for use of form S-3/F-3, holders of our registrable securities then outstanding may request in writing that we effect a registration onForm S-3/F-3 so long, among other things, the gross proceeds of the securities to be sold under the registration statement exceeds US$1 million. We, however,are not obligated to effect a registration on Form S-3/F-3 if, among other things, we have already effected a registration within any six-month periodpreceding the date of the registration request. We have the right to defer filing of a registration statement for up to 90 days if our board of directors determinein good faith that filing of a registration will be materially detrimental to us, but we cannot exercise the deferral right more than once in any twelve-monthperiod. 134 Table of Contents Registration pursuant to Form S-3/F-3 registration rights is not deemed to be a demand registration, and there is no limit on the number of times theholders may exercise their Form S-3/F-3 registration rights. Expenses of Registration We will pay all expenses incurred by us relating to any demand, piggyback or Form S-3/F-3 registration, except that the requesting holders shallbear the expense of any underwriting discounts and selling commissions relating to the offering of their securities. We will not be required to pay for anyexpenses of any registration proceeding begun pursuant to demand registration rights, unless subject to certain exception, if the registration request issubsequently withdrawn at the request of a majority of the holders of the registrable securities to be registered. Investor Rights Agreements In October 2017, in connection with an investment from CyrusOne Inc., or CyrusOne, of US$100 million, we granted to CyrusOne, now a majorshareholder of ours, registration rights substantially similar to the foregoing registration rights granted to holders of our registrable securities pursuant to ouramended members agreement described above. In October 2017, we also agreed to grant to STT GDC and SBCVC, two of our major shareholders, preemptiverights with respect to future private issuances of equity or equity-linked securities we conduct anytime in the eighteen months following CyrusOne’sinvestment, whereby STT GDC and SBCVC will have the right to subscribe for pro rata portions of any such future offerings based on their shareholdings atthe time of the agreement. Copies of these rights agreements have been filed with this annual report. Share Options See “Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentive Plans.” C. Interests of Experts and Counsel Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information Please refer to Item 18 for a list of our annual consolidated financial statements filed as part of this annual report on Form 20-F. Legal Proceedings See “Item 4. Information on the Company—B. Business Overview—Legal Proceedings.” Dividend Policy and Distributions Since our inception, we have not declared or paid any dividends on our shares. We do not have any present plan to pay any dividends on ourClass A ordinary shares or ADSs in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate andexpand our business. Any future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors,including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that theboard of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our Class A ordinary shares,subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paidin U.S. dollars. 135 Table of Contents We are an exempted company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders,we may rely on dividends distributed by our PRC subsidiaries. Certain payments from our PRC subsidiaries to us may be subject to PRC withholding incometax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits asdetermined in accordance with its articles of association and the accounting standards and regulations in China. Each of our PRC subsidiaries is required toset aside at least 10% of its after-tax profit based on PRC accounting standards every year to a statutory common reserve fund until the aggregate amount ofsuch reserve fund reaches 50% of the registered capital of such subsidiary. Such statutory reserves are not distributable as loans, advances or cash dividends. B. Significant Changes We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report. ITEM 9. THE OFFER AND LISTING A. Offer and Listing Details Our ADSs, each representing eight of our Class A ordinary shares, have been listed on the Nasdaq Global Market since November 2, 2016 under theticker symbol “GDS.” B. Plan of Distribution Not applicable. C. Markets Our ADSs, each representing eight of our Class A ordinary shares, have been trading on the Nasdaq Global Market since November 2, 2016 under theticker symbol “GDS.” D. Selling Shareholders Not applicable. E. Dilution Not applicable. F. Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. 136 Table of Contents B. Memorandum and Articles of Association We incorporate by reference into this annual report the description of our eighth amended and restated memorandum and articles of associationcontained in our Form F-1 registration statement (File No. 333-213951), as amended, initially filed with the SEC on October 4, 2016. Our shareholdersconditionally adopted our eighth amended and restated memorandum and articles of association by way of a special resolution passed on October 18, 2016.Our eighth amended and restated memorandum and articles of association became effective immediately upon the completion of our initial public offeringon December 6, 2016. C. Material Contracts In the past three fiscal years, we have not entered into any material contracts other than in the ordinary course of business or other than thosedescribed elsewhere in this annual report. D. Exchange Controls See “Item 4. Information on the Company—B. Business Overview—Regulatory Matters—Regulations Related to Foreign Currency Exchange andDividend Distribution.” E. Taxation Cayman Islands Taxation The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is notaxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and ordinary shares. There are noother taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instrumentsexecuted in, or after execution brought within the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of sharesof Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is a party to a double tax treaty enteredwith the United Kingdom in 2010 but is otherwise not party to any double tax treaties. There are no exchange control regulations or currency restrictions inthe Cayman Islands. Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Council: (i) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to usor our operations; and (ii) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on our shares, debentures or other obligations. The undertaking for us is for a period of twenty years from June 8, 2004. People’s Republic of China Taxation In March 2007, the National People’s Congress of China enacted the Enterprise Income Tax Law, which became effective on January 1, 2008 andwas amended on February 24, 2017. The Enterprise Income Tax Law provides that enterprises organized under the laws of jurisdictions outside China withtheir “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax atthe rate of 25% on their worldwide income. The Implementation Rules of the Enterprise Income Tax Law further defines the term “de facto managementbody” as the management body that exercises substantial and overall management and control over the business, personnel, accounts and properties of anenterprise. While we do not currently consider our company or any of our overseas subsidiaries to be a PRC resident enterprise, there is a risk that the PRC taxauthorities may deem our company or any of our overseas subsidiaries as a PRC resident enterprise since a substantial majority of the members of ourmanagement team as well as the management team of some of our overseas subsidiaries are located in China, in which case we or the overseas subsidiaries, asthe case may be, would be subject to the PRC enterprise income tax at the rate of 25% on worldwide income. If the PRC tax authorities determine that ourCayman Islands holding company is a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences couldfollow. One example is a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gainsderived by our non-PRC enterprise shareholders from transferring our shares or ADSs. It is unclear whether, if we are considered a PRC resident enterprise,holders of our shares or ADSs would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. 137 Table of Contents Material United States Federal Income Tax Considerations The following summary describes the material United States federal income tax consequences of the purchase, ownership and disposition of ourADSs and ordinary shares as of the date hereof. This summary is only applicable to ADSs and ordinary shares held as capital assets by a United States Holder(as defined below). As used herein, the term “United States Holder” means a beneficial owner of our ADSs or ordinary shares that is for United States federal income taxpurposes: · an individual citizen or resident of the United States; · a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws ofthe United States, any state thereof or the District of Columbia; · an estate the income of which is subject to United States federal income taxation regardless of its source; or · a trust if it (i) is subject to the primary supervision of a court within the United States and one or more United States persons have the authorityto control all substantial decisions of the trust or (ii) has a valid election in effect under applicable United States Treasury regulations to betreated as a United States person. The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings andjudicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in United States federal incometax consequences different from those discussed below. In addition, this summary is based, in part, upon representations made by the depositary to us andassumes that the deposit agreement, and all other related agreements, will be performed in accordance with their terms. This summary does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject tospecial treatment under the United States federal income tax laws, including if you are: · a dealer in securities or currencies; · a financial institution; · a regulated investment company; · a real estate investment trust; · an insurance company; · a tax-exempt organization; 138 Table of Contents · a person holding our ADSs or ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; · a trader in securities that has elected the mark-to-market method of accounting for your securities; · a person liable for alternative minimum tax; · a person who owns or is deemed to own 10% or more of our stock (by vote or value); · a partnership or other pass-through entity for United States federal income tax purposes; · a person required to accelerate the recognition of any item of gross income with respect to our ADSs or ordinary shares as a result of suchincome being recognized on an applicable financial statement; or · a person whose “functional currency” is not the United States dollar. If a partnership (or other entity treated as a partnership for United States federal income tax purposes) holds our ADSs or ordinary shares, the taxtreatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holdingour ADSs or ordinary shares, you should consult your tax advisors. This summary does not contain a detailed description of all the United States federal income tax consequences to you in light of your particularcircumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-United States tax laws. If you areconsidering the purchase, ownership or disposition of our ADSs or ordinary shares, you should consult your own tax advisors concerning the UnitedStates federal income tax consequences to you in light of your particular situation as well as any consequences arising under the laws of any othertaxing jurisdiction. ADSs If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares that arerepresented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax. Taxation of Dividends Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any distributions on the ADSs or ordinaryshares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulatedearnings and profits, as determined under United States federal income tax principles. Such income (including withheld taxes) will be includable in yourgross income as ordinary income on the day actually or constructively received by you, in the case of the ordinary shares, or by the depositary, in the case ofADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. With respect to non-corporate United States Holders, certain dividends received from a qualified foreign corporation may be subject to reduced ratesof taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on ordinary shares (orADSs backed by such shares) that are readily tradable on an established securities market in the United States. Our ADSs are listed on the Nasdaq. UnitedStates Treasury Department guidance indicates that our ADSs are readily tradable on an established securities market in the United States. Thus, subject to thediscussion under “—Passive Foreign Investment Company” below, we believe that dividends we pay on our ADSs will meet the conditions required for thereduced tax rate. Since we do not expect that our ordinary shares will be listed on an established securities market, we do not believe that dividends that wepay on our ordinary shares that are not represented by ADSs will meet the conditions required for these reduced tax rates. There also can be no assurance thatour ADSs will continue to be readily tradable on an established securities market in later years. Consequently, there can be no assurance that our ADSs willcontinue to be afforded the reduced tax rates. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certainincome tax treaties with the United States. In the event that we are deemed to be a PRC resident enterprise under the PRC tax law (see “—People’s Republicof China Taxation” above), we may be eligible for the benefits of the income tax treaty between the United States and the PRC, or the Treaty. In that case,dividends we pay on our ordinary shares would be eligible for the reduced rates of taxation whether or not the shares are readily tradable on an establishedsecurities market in the United States, and whether or not the shares are represented by ADSs. Non-corporate United States Holders that do not meet aminimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investmentincome” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreigncorporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect topositions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. You should consult yourown tax advisors regarding the application of these rules given your particular circumstances. 139 Table of Contents Non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a passive foreigninvestment company, or PFIC, in the taxable year in which such dividends are paid or in the preceding taxable year (see “—Passive Foreign InvestmentCompany” below). In the event that we are deemed to be a PRC resident enterprise under the PRC tax law, you may be subject to PRC withholding taxes on dividendspaid to you with respect to the ADSs or ordinary shares. See “—People’s Republic of China Taxation.” In that case, subject to certain conditions andlimitations (including a minimum holding period requirement), PRC withholding taxes on dividends may be treated as foreign taxes eligible for creditagainst your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ADSs or ordinary shares willbe treated as foreign-source income and will generally constitute passive category income. The rules governing the foreign tax credit are complex. You areurged to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances. To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits, as determined under United Statesfederal income tax principles, the distribution ordinarily would be treated, first, as a tax-free return of capital, causing a reduction in the adjusted basis of theADSs or ordinary shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of theADSs or ordinary shares), and, second, the balance in excess of adjusted basis ordinarily would be taxed as capital gain recognized on a sale or exchange.However, we do not expect to determine our earnings and profits in accordance with United States federal income tax principles. Therefore, you shouldexpect that distributions will generally be reported to the Internal Revenue Service, or IRS, and taxed to you as dividends (as discussed above), even if theymight ordinarily be treated as a tax-free return of capital or as capital gain. Passive Foreign Investment Company Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe wewere a PFIC for our taxable year ended December 31, 2018 and we do not expect to be a PFIC for our taxable year ending December 31, 2019 or in futuretaxable years, although there can be no assurance in this regard, since the determination of our PFIC status cannot be made until the end of a taxable year anddepends significantly on the composition of our assets and income throughout the year. In general, we will be a PFIC for any taxable year in which: · at least 75% of our gross income is passive income, or · at least 50% of the value (based on a quarterly average) of our assets is attributable to assets that produce or are held for the production ofpassive income. 140 Table of Contents For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the activeconduct of a trade or business and not derived from a related person), as well as gains from the sale of assets (such as stock) that produce passive income,foreign currency gains, and certain other categories of income. If we own at least 25% (by value) of the stock of another corporation, we will be treated, forpurposes of determining whether we are a PFIC, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share ofthe other corporation’s income. However, it is not entirely clear how the contractual arrangements between us and our consolidated VIEs will be treated forpurposes of the PFIC rules. For United States federal income tax purposes, we consider ourselves to own the stock of our consolidated VIEs. If it isdetermined, contrary to our view, that we do not own the stock of our consolidated VIEs for United States federal income tax purposes (for instance, becausethe relevant PRC authorities do not respect these arrangements), that would alter the composition of our income and assets for purposes of testing our PFICstatus, and may cause us to be treated as a PFIC. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any futuretaxable year due to changes in our asset or income composition. The calculation of the value of our assets will be based, in part, on the quarterly market valueof our ADSs, which is subject to change. The composition of our income and our assets will also be affected by how, and how quickly, we spend the cashraised in our initial public offering. If the cash is not deployed for active purposes, our risk of becoming a PFIC may increase. If we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares and you do not make a timely mark-to-market election, asdescribed below, you will be subject to special—and generally very unfavorable—tax rules with respect to any “excess distribution” received and any gainrealized from a sale or other disposition, including a pledge, of ADSs or ordinary shares. Distributions received in a taxable year that are greater than 125% ofthe average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares willbe treated as excess distributions. Under these special tax rules: · the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares, · the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated asordinary income, and · the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generallyapplicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our ADSs or ordinaryshares, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold the ADSs orordinary shares (even if we do not qualify as a PFIC in any subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of thePFIC rules by making a special election to recognize gain as if your ADSs or ordinary shares had been sold on the last day of the last taxable year duringwhich we were a PFIC. You are urged to consult your own tax advisor about this election. In certain circumstances, in lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect toyour ADSs or ordinary shares provided such ADSs or ordinary shares are treated as “marketable stock.” The ADSs or ordinary shares generally will be treatedas marketable stock if the ADSs or ordinary shares are “regularly traded” on a “qualified exchange or other market” (within the meaning of the applicableTreasury regulations). Under current law, the mark-to-market election may be available to holders of ADSs as the ADSs are listed on the Nasdaq, whichconstitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for purposes of the mark-to-market election. Itshould also be noted that only the ADSs and not the ordinary shares are listed on the Nasdaq. Consequently, if you are a holder of ordinary shares that are notrepresented by ADSs, you generally will not be eligible to make a mark-to-market election. 141 Table of Contents If you make an effective mark-to-market election, for each taxable year that we are a PFIC, you will include as ordinary income the excess of the fairmarket value of your ADSs at the end of the year over your adjusted basis in the ADSs. You will be entitled to deduct as an ordinary loss in each such year theexcess of your adjusted basis in the ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included inincome as a result of the mark-to-market election. If you make an effective mark-to-market election, any gain you recognize upon the sale or other dispositionof your ADSs in a year that we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of the netamount previously included in income as a result of the mark-to-market election. Your adjusted basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under themark-to-market rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxableyears unless the ADSs are no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You areurged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in yourparticular circumstances. A different election, known as the “qualified electing fund” or “QEF” election is generally available to holders of PFIC stock, but requires that thecorporation provide the holders with a “PFIC Annual Information Statement” containing certain information necessary for the election, including theholder’s pro rata share of the corporation’s earnings and profits and net capital gains for each taxable year, computed according to United States federalincome tax principles. We do not intend, however, to determine our earnings and profits or net capital gain under United States federal income tax principles,nor do we intend to provide United States Holders with a PFIC Annual Information Statement. Therefore, you should not expect to be eligible to make thiselection. If we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC,you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You areurged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries. You will generally be required to file IRS Form 8621 if you hold our ADSs or ordinary shares in any year in which we are classified as a PFIC. Youare urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or ordinary shares if we are considereda PFIC in any taxable year. Taxation of Capital Gains For United States federal income tax purposes, you will recognize taxable gain or loss on any sale or exchange of ADSs or ordinary shares in anamount equal to the difference between the amount realized for the ADSs or ordinary shares and your adjusted basis in the ADSs or ordinary shares. Subject tothe discussion under “—Passive Foreign Investment Company” above, such gain or loss will generally be capital gain or loss and will generally be long-termcapital gain or loss if you have held the ADSs or ordinary shares for more than one year. Long-term capital gains of non-corporate United States Holders(including individuals) are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized byyou will generally be treated as United States source gain or loss. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax isimposed on any gain, and if you are eligible for the benefits of the Treaty, you may elect to treat such gain as PRC source gain. If you are not eligible for thebenefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from anyPRC tax imposed on the disposition of our ADSs or ordinary shares unless such credit can be applied (subject to applicable limitations) against United Statesfederal income tax due on other income derived from foreign sources in the same income category (generally, the passive category). You are urged to consultyour tax advisors regarding the tax consequences if any PRC tax is imposed on gain on a disposition of our ordinary shares or ADSs, including theavailability of the foreign tax credit and the election to treat any gain as PRC source, under your particular circumstances. 142 Table of Contents Information Reporting and Backup Withholding In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale, exchange or otherdisposition of our ADSs or ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are anexempt recipient such as a corporation. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number orcertification of other exempt status or fail to report in full dividend and interest income. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a creditagainst your United States federal income tax liability provided the required information is furnished to the IRS in a timely manner. Certain United States Holders are required to report information relating to our ADSs or ordinary shares by attaching a complete Form 8938,Statement of Specified Foreign Financial Assets, with their tax returns for each year in which they hold ADSs or ordinary shares. Significant penalties canapply if you are required to file this form and you fail to do so. You are urged to consult your own tax advisor regarding this and other information reportingrequirements relating to your ownership of the ADSs or ordinary shares. F. Dividends and Paying Agents Not applicable. G. Statement by Experts Not applicable. H. Documents on Display We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, weincorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to anotherdocument filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report. You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public ReferenceRoom at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York, and Chicago, Illinois. You can also requestcopies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing to the SEC’sPublic Reference Room for information. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically withthe SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this annual report. I. Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our exposure to interest rate risk primarily relates to interest expenses incurred in respect of bank borrowings, bonds payable and capital lease andother financing obligations and interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. We have not usedderivative financial instruments in our investment portfolio. Interest earning instruments and interest-bearing obligations carry a degree of interest rate risk.We have not been exposed to material risks due to changes in market interest rates. However, our future interest income and interest expenses may fluctuatedue to changes in market interest rates. 143 Table of Contents Foreign Exchange Risk All of our revenue and substantially all of our expenses are denominated in Renminbi. We do not believe that we currently have any significantdirect foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk. Although in general our exposure toforeign exchange risks should be limited, the value of your investment in our ADSs will be affected by the exchange rate between the U.S. dollar and theRenminbi because the value of our business is effectively denominated in Renminbi, while our ADSs will be traded in U.S. dollars. The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the PBOC. On July 21, 2005, the PRCgovernment changed its policy of pegging the value of the Renminbi to the U.S. dollar. The PRC government allowed the Renminbi to appreciate by morethan 20% against the U.S. dollar between July 2005 and July 2008. Between July 2008 and June 2010, the exchange rate between the Renminbi and the U.S.dollar had been stable and traded within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly andunpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket ofcurrencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freelyusable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. FromDecember 31, 2015 to December 31, 2016, the Renminbi depreciated approximately 6.7% against the U.S. dollar. In 2017, however, the RMB appreciatedapproximately 6.7% against the U.S. dollar; and in 2018, the RMB depreciated approximately 5.7% against the U.S. dollar. With the development of theforeign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the futureannounce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in valueagainst the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between theRenminbi and the U.S. dollar in the future. It remains unclear what further fluctuations may occur or what impact this will have on our results of operations. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would havean adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose ofmaking payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi wouldhave a negative effect on the U.S. dollar amounts available to us. Inflation Since our inception, inflation in China has not materially affected our results of operations. According to the National Bureau of Statistics of China,the consumer price index in China was 2.0%, 1.6% and 2.1% in 2016, 2017 and 2018, respectively. Although we have not been materially affected byinflation in the past, we may be affected if China experiences higher rates of inflation in the future. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES A. Debt Securities Not applicable. B. Warrants and Rights Not applicable. 144 Table of Contents C. Other Securities Not applicable. D. American Depositary Shares Fees and Charges As an ADS holder, you will be required to pay the following service fees to the depositary bank: Service: Fee:Issuance of ADSs, including issuances resulting from a distribution of sharesor rights or other property$5.00 for each 100 ADSs (or portion thereof) issuedCancellation of ADSs, including in the case of termination of the depositagreement$5.00 for each 100 ADSs (or portion thereof) cancelledDistribution of cash dividends or other cash distributionsUp to $0.05 per ADS heldDistribution of ADSs pursuant to share dividends, free share distributions orexercise of rightsUp to $0.05 per ADS heldDistribution of securities other than ADSs or rights to purchase ADSs oradditional ADSsA fee being in an amount equal to the fee for the execution and delivery ofADSs which would have been charged as a result of the deposit of suchsecuritiesDepositary servicesAn aggregate fee of $0.05 per ADS per calendar year (or portion thereof) forservices performed by the Depositary in administering the ADRsTransfer of ADRs$1.50 per certificate presented for transfer As an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmentalcharges such as: Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares in the Cayman Islands (i.e.,upon deposit and withdrawal of ordinary shares). · Expenses incurred for converting foreign currency into U.S. dollars. · Expenses for cable, telex and fax transmissions and for delivery of securities. · Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding taxes (i.e.,when ordinary shares are deposited or withdrawn from deposit). · Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit. · Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements applicable toordinary shares, deposited securities, ADSs and ADRs. · Any applicable fees and penalties thereon. The depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of theirclients) receiving the newly issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bankfor cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to ADSholders and the depositary services fee are charged by the depositary bank to the holders of record of ADSs as of the applicable ADS record date. 145 Table of Contents The depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributableproperty to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADSrecord date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated or uncertificated in directregistration), the depositary bank sends invoices to the applicable record date ADS holders. In the case of ADSs held in brokerage and custodian accounts(via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the ADSs held inDTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients’ ADSs in DTC accounts inturn charge their clients’ accounts the amount of the fees paid to the depositary banks. In the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested serviceuntil payment is received or may set off the amount of the depositary fees from any distribution to be made to the ADS holder. The depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the ADRprogram, including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount ofreimbursement available to us is not related to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse uscertain fees payable to the depositary by holders of ADSs. Neither the depositary nor we can determine the exact amount to be made available to us because(i) the number of ADSs that will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and (iii) our reimbursable expensesrelated to the program are not known at this time. Payments by Depositary In 2018, we received total payments of US$0.5 million from JPMorgan Chase Bank, N.A., the depositary bank for our ADR program, forreimbursement of investor relations expenses and other program related expenses. PART II. ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None of these events occurred in any of the years ended December 31, 2016, 2017 and 2018. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS A. Modifications of Rights In October 2017, in connection with an investment from CyrusOne Inc., or CyrusOne, of US$100 million, we granted to CyrusOne, now a majorshareholder of ours, registration rights substantially similar to the registration rights granted to holders of our registrable securities pursuant to our amendedmembers agreement. See “Item 10. Additional Information—B. Memorandum and Articles of Association” for a description of the rights of securities holders.In October 2017, we also agreed to grant to STT GDC and SBCVC, two of our major shareholders, preemptive rights with respect to future private issuances ofequity or equity-linked securities we conduct anytime in the eighteen months following CyrusOne’s investment, whereby STT GDC and SBCVC will havethe right to subscribe for pro rata portions of any such future offerings based on their shareholdings at the time of the agreement. Copies of these rightsagreements have been filed with this annual report. 146 Table of Contents B. Use of Proceeds On November 7, 2016, we completed our initial public offering in which we offered and sold 19,250,000 ADSs, raising US$179.0 million inproceeds to us before expenses but after underwriting discounts and commissions. On December 6, 2016, the underwriters exercised their option to purchase820,735 additional ADSs from us, and we thereby raised an additional US$7.6 million in proceeds to us before expenses but after underwriting discounts andcommissions. Apart from underwriting discounts and commissions of US$14.0 million, our other expenses incurred in connection with the issuance anddistribution of our ADSs in our initial public offering totaled US$6.0 million. The effective date of our registration statement on Form F-1 (File number 333-213951) was November 1, 2016. As of December 31, 2016, we had used a portion of the net proceeds received from our initial public offering, which consisted of US$11.4 millionused for payment of preference dividends to holders of our preferred shares and US$15.0 million for the repayment of a portion of our outstandingindebtedness. As of December 31, 2017, we had used majority portion of the net proceeds received from our initial public offering, which consisted of US$11.4million used for payment of preference dividends to holders of our preferred shares and US$20.8 million for the repayment of a portion of our outstandingindebtedness. As of December 31, 2018, we had fully used the net proceeds received from our initial public offering, which consisted of US$11.4 million used forpayment of preference dividends to holders of our preferred shares and US$20.8 million for the repayment of a portion of our outstanding indebtedness. On January 30, 2018, we completed our follow-on public offering of 12,650,000 ADSs (including full exercise of the underwriters’ option topurchase additional ADSs), comprising 8,225,000 ADSs offered and sold by us and 4,425,000 ADSs offered and sold by certain selling shareholder entitiesaffiliated with SBCVC Holdings Limited, or SBCVC, representing an aggregate of 101,200,000 Class A ordinary shares, raising US$204.8 million inproceeds to us and US$110.2 million in proceeds to SBCVC before expenses but after underwriting discounts and commissions. We did not receive any ofthe proceeds from the sale of ADSs by SBCVC. As of December 31, 2018, we had fully used the net proceeds received from our follow-on public offering, which consisted of US$189.8 million usedfor the development and acquisition of new data centers, with the remaining amounts used for general corporate purposes. On June 5, 2018, we completed our offering of US$300 million aggregate principal amount of 2% convertible senior notes due 2025 (including fullexercise of the initial purchasers’ option to purchase additional notes), raising US$291.1 million in net proceeds to us after deducting underwriting discountsand commissions and other offering expenses. As of December 31, 2018, we had used a portion of the net proceeds received from our offering of convertible senior notes due 2025, whichconsisted of US$41.4 million used for the repayment of a portion of our outstanding indebtedness and US$58.7 million used for the development andacquisition of new data centers. ITEM 15. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this annual report, an evaluation has been carried out under the supervision and with the participation of ourmanagement, including our chief executive officer and our chief financial officer, of the effectiveness of the design and operation of our disclosure controlsand procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based on that evaluation, our chiefexecutive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in ensuring that material informationrequired to be disclosed in this annual report is recorded, processed, summarized and reported to them for assessment, and required disclosure is made withinthe time period specified in the rules and forms of the SEC. 147 Table of Contents Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for our company. Internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance withgenerally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary topermit preparation of consolidated financial statements in accordance with U.S. GAAP and that a company’s receipts and expenditures are being made onlyin accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection ofunauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, ourmanagement including our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of internal control over financial reporting as ofDecember 31, 2018 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of SponsoringOrganizations of the Treadway Commission (known as COSO). Based on this evaluation, management concluded that our internal control over financialreporting was effective as of December 31, 2018. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect toconsolidated financial statements preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. Our independent registered public accounting firm, KPMG Huazhen LLP, has audited the effectiveness of our internal control over financialreporting as of December 31, 2018, as stated in its report, which appears on page F-2 of this annual report. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our Board of Directors has determined that each of Lim Ah Doo and Bin Yu, who are independent directors, satisfies the criteria of an auditcommittee financial expert as defined in Item 16A of the instruction to Form 20-F. ITEM 16B. CODE OF ETHICS We have adopted a code of business conduct which applies to our directors, employees, advisors and officers, including our Chief Executive Officerand Chief Financial Officer. No changes have been made to the code of business conduct since its adoption and no waivers have been granted therefrom toour directors or employees. We have filed our code of business conduct as an exhibit to our F-1 registration statement (File No. 333-213951), as amended,initially filed with the SEC on October 4, 2016, and a copy is available to any shareholder upon request. This code of business conduct is also available onour website at investors.gds-services.com. 148 Table of Contents ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES KPMG Huazhen LLP has served as our independent public accountant for each of the fiscal years in the three-year period ended December 31, 2018,for which audited financial statements appear in this annual report. The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by KPMGHuazhen LLP, for the years indicated. For the Year EndedDecember 31, 2017 2018 (In thousands of US dollars)Audit Fees1,2651,534Audit-related Fees8777Tax Fees79153All Other Fees——Total1,4311,764 (1) “Audit Fees” represents the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal auditors for theaudit of our annual financial statements, issue of comfort letters in connection with our registration statements, prospectuses and offering memoranda,assistance with and review of documents filed with the SEC and other statutory and regulatory filings. (2) “Audit-related Fees” represents the aggregate fees billed for each of the fiscal years listed for the assurance and related services rendered by our principalauditors that are reasonably related to the performance of the audit or review of our financial statements and not reported under “Audit Fees.” (3) “Tax Fees” represents the aggregate fees billed for each of the fiscal years listed for the professional tax services rendered by our principal auditors. (4) “All Other Fees” represents the aggregate fees for services rendered by our principal auditors other than services reported under “Audit Fees,” “Audit-related Fees” and “Tax Fees.” Pre-Approval Policies and Procedures Our audit committee is responsible for the oversight of our independent accountants’ work. The policy of our audit committee is to pre-approve allaudit and non-audit services provided by KPMG Huazhen LLP, including audit services, audit-related services, tax services and other services, as describedabove. ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES None. ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS None. ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT Not applicable. ITEM 16G. CORPORATE GOVERNANCE We are a “foreign private issuer” (as such term is defined in Rule 3b-4 under the Exchange Act), and our ADSs, each representing eight ordinaryshares, are listed on the Nasdaq Global Market. Nasdaq Stock Market Rules permit a foreign private issuer like us to follow the corporate governancepractices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from theNasdaq corporate governance listing standards. For instance, we are not required to: 149(1)(2)(3)(4) Table of Contents · have a majority of the board be independent (although all of the members of the audit committee must be independent under the ExchangeAct); · have a compensation committee or a nominations or corporate governance committee consisting entirely of independent directors; or · have regularly scheduled executive sessions with only independent directors each year. We have relied on and intend to continue to rely on some of these exemptions. ITEM 16H. MINE SAFETY Not applicable. PART III. ITEM 17. FINANCIAL STATEMENTS The Registrant has elected to provide the financial statements and related information specified in Item 18. ITEM 18. FINANCIAL STATEMENTS The consolidated financial statements of GDS Holdings Limited are included at the end of this annual report. ITEM 19. EXHIBIT INDEX ExhibitNumber Description of Exhibits 1.1**Eighth Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference Exhibit 3.2 to ourRegistration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4,2016). 2.1**Registrant’s Specimen American Depositary Receipt evidencing American Depositary Shares (included in Exhibit 4.2) (incorporated byreference Exhibit 4.3 to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and ExchangeCommission on October 4, 2016). 2.2**Registrant’s Specimen Class A Ordinary Share Certificate (incorporated by reference Exhibit 4.1 to our Registration Statement onForm F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 2.3***Form of Deposit Agreement, between the Registrant, JPMorgan Chase Bank, N.A., as depositary and holders of the American DepositaryReceipts (incorporated by reference Exhibit (a) to our Registration Statement on Form F-6 (File No. 333-214177) with respect toAmerican depositary shares representing our Class A ordinary shares, filed with the Securities and Exchange Commission on October 19,2016). 4.1**Sixth Amended and Restated Members Agreement, dated May 19, 2016 (incorporated by reference Exhibit 4.5 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 150 Table of Contents ExhibitNumber Description of Exhibits 4.2**Sixth Amended and Restated Voting Agreement, dated May 19, 2016 (incorporated by reference Exhibit 4.6 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.3**Sixth Amended and Restated Right of First Refusal And Co-sale Agreement, dated May 19, 2016 (incorporated by reference Exhibit 4.7to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission onOctober 4, 2016). 4.4**Agreement Dated September 29, 2016 Between Shanghai Waigaoqiao EDC Technology Co., Ltd. and Shanghai Yungang EDCTechnology Co. Ltd. as Borrowers and GDS Holdings Limited as Ultimate Parent, arranged by Credit Agricole Corporate and InvestmentBank, United Overseas Bank (China) Limited Shanghai Pilot Free Trade Zone Sub-Branch, DBS Bank (China) Ltd, Shanghai Branch,Shanghai HuaRui Bank Co., Ltd. and Australia and New Zealand Bank (China) Company Limited, Shanghai Branch as Mandated LeadArrangers with United Overseas Bank (China) Limited Shanghai Pilot Free Trade Zone Sub-Branch acting as Facility Agent and SecurityAgent and United Overseas Bank (China) Limited Shanghai Pilot Free Trade Zone Sub-Branch acting as Account Bank, and CreditAgricole Corporate and Investment Bank and United Overseas Bank Limited acting as Coordinating Banks relating to Term LoanFacilities (incorporated by reference Exhibit 4.9 to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with theSecurities and Exchange Commission on October 4, 2016). *4.5Agreement Dated December 6, 2017 Between EDC (Chengdu) Industry Co., Ltd. as Borrower and Jiangsu International Trust Co., Ltd.acting as Lender relating to Term Loan Facilities. 4.6**Share Swap Agreement among the Registrant, EDC Holding and the shareholders of EDC Holding, dated June 12, 2014 (incorporated byreference Exhibit 10.1 to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and ExchangeCommission on October 4, 2016). 4.7**Subscription Agreement for up to US$250,000,000 10% Convertible and Redeemable Bond due 2019 convertible into shares in GDSHoldings, among GDS Holdings, Perfect Success Limited and STT GDC Pte. Ltd., dated December 30 2015 (incorporated by referenceExhibit 10.2 to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and ExchangeCommission on October 4, 2016). 4.8**Equity Interest Pledge Agreement concerning GDS Beijing, among William Wei Huang, Qiuping Huang and GDS ManagementCompany, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.3 to our Registration Statement on Form F-1(File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.9**Shareholder Voting Rights Proxy Agreement concerning GDS Beijing, among GDS Management Company, GDS Beijing, William WeiHuang and Qiuping Huang, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.4 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.10**Exclusive Call Option Agreement concerning GDS Beijing, among William Wei Huang, Qiuping Huang and GDS ManagementCompany, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.5 to our Registration Statement on Form F-1(File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 151 Table of Contents ExhibitNumber Description of Exhibits 4.11**Loan Agreement between William Wei Huang, Qiuping Huang and GDS Management Company, dated April 13, 2016 (EnglishTranslation) (incorporated by reference Exhibit 10.6 to our Registration Statement on Form F-1 (File No. 333-213951), initially filedwith the Securities and Exchange Commission on October 4, 2016). 4.12**Exclusive Technology License and Service Agreement between GDS Beijing and GDS Management Company, dated April 13, 2016(English Translation) (incorporated by reference Exhibit 10.7 to our Registration Statement on Form F-1 (File No. 333-213951), initiallyfiled with the Securities and Exchange Commission on October 4, 2016). 4.13**Equity Interest Pledge Agreement concerning GDS Shanghai, among William Wei Huang, Qiuping Huang and GDS ManagementCompany, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.8 to our Registration Statement on Form F-1(File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.14**Shareholder Voting Rights Proxy Agreement concerning GDS Shanghai, among GDS Management Company, GDS Shanghai, WilliamWei Huang and Qiuping Huang, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.9 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.15**Intellectual Property Rights License Agreement between GDS Shanghai and GDS Management Company, dated April 13, 2016 (EnglishTranslation) (incorporated by reference Exhibit 10.10 to our Registration Statement on Form F-1 (File No. 333-213951), initially filedwith the Securities and Exchange Commission on October 4, 2016). 4.16**Exclusive Call Option Agreement concerning GDS Shanghai, among William Wei Huang, Qiuping Huang, GDS Shanghai and GDSManagement Company, dated April 13, 2016 (English Translation) (incorporated by reference Exhibit 10.11 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.17**Exclusive Technology License and Service Agreement between GDS Shanghai and GDS Management Company, dated April 13, 2016(English Translation) (incorporated by reference Exhibit 10.12 to our Registration Statement on Form F-1 (File No. 333-213951),initially filed with the Securities and Exchange Commission on October 4, 2016). 4.18**Loan Agreement among William Wei Huang, Qiuping Huang and GDS Management Company, dated April 13, 2016 (EnglishTranslation) (incorporated by reference Exhibit 10.13 to our Registration Statement on Form F-1 (File No. 333-213951), initially filedwith the Securities and Exchange Commission on October 4, 2016). 4.19**Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated by referenceExhibit 10.14 to our Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and ExchangeCommission on October 4, 2016). 4.20**Forms of Employment Agreements between the Registrant and its executive officers (incorporated by reference Exhibit 10.15 to ourRegistration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4,2016). 152 Table of Contents ExhibitNumber Description of Exhibits 4.21**GDS Holdings Limited 2014 Equity Incentive Plan (incorporated by reference Exhibit 10.16 to our Registration Statement on Form F-1(File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.22**Data Center Outsourcing Service Agreement (English Translation) (incorporated by reference Exhibit 10.17 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.23**†Premises and Warehouse Lease Agreement dated December 26, 2008 (English Translation) (incorporated by reference Exhibit 10.18 toour Registration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission onOctober 4, 2016). 4.24**†Premises and Warehouse Lease Agreement dated April 15, 2011 (English Translation) (incorporated by reference Exhibit 10.19 to ourRegistration Statement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4,2016). 4.25**†Premise Lease Agreement dated July 16, 2012 (English Translation) (incorporated by reference Exhibit 10.20 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.26**†Premise Lease Agreement dated March 9, 2015 (English Translation) (incorporated by reference Exhibit 10.21 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.27**†Premise Lease Agreement dated July 6, 2015 (English Translation) (incorporated by reference Exhibit 10.22 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.28**†Tenement Lease Agreement dated April 1, 2015 (English Translation) (incorporated by reference Exhibit 10.23 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.29**†Premise Lease Agreement dated November 27, 2013 (English Translation) (incorporated by reference Exhibit 10.24 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.30**†Premise Lease Agreement dated August 1, 2015 (English Translation) (incorporated by reference Exhibit 10.25 to our RegistrationStatement on Form F-1 (File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.31**GDS Holdings Limited 2016 Equity Incentive Plan (incorporated by reference Exhibit 10.26 to our Registration Statement on Form F-1(File No. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). 4.32Information Rights Letter dated November 7, 2016 from the Registrant to STT GDC (incorporated by reference to Exhibit 4.33 to ourAnnual Report on Form 20-F for the Fiscal Year Ended December 31, 2016 (File No. 001-37925), initially filed with the Securities andExchange Commission on April 19, 2017). 4.33Investor Rights Agreement, dated October 23, 2017, between the Registrant, Cheetah Asia Holdings LLC, CyrusOne LLC andMr. William Wei Huang (only with respect to Article I (insofar as and only to the extent to which such Definitions are used in the othersections with respect to which Mr. Huang is entering into this Agreement), Section 2.2, and Article VI) (incorporated by reference toExhibit 99.2 to our report on Form 6-K (File No. 001-37925), initially filed with the Securities and Exchange Commission onOctober 24, 2017). 153 Table of Contents ExhibitNumber Description of Exhibits 4.34Investor Rights Agreement, dated October 23, 2017, between the Registrant and STT GDC Pte. Ltd. (incorporated by reference toExhibit 99.3 to our report on Form 6-K (File No. 001-37925), initially filed with the Securities and Exchange Commission onOctober 24, 2017). 4.35Investor Rights Agreement, dated October 23, 2017, between the Registrant, SBCVC Fund II, L.P., SBCVC Company Limited, SBCVCFund II-Annex, L.P., SBCVC Venture Capital and SBCVC Fund III, L.P. (incorporated by reference to Exhibit 99.4 to our report onForm 6-K (File No. 001-37925), initially filed with the Securities and Exchange Commission on October 24, 2017). *4.36Indenture, dated June 5, 2018, between the Registrant and The Bank of New York Mellon, as Trustee, relating to the issuance ofRegistrant’s 2% Convertible Senior Notes due 2025 in the aggregate principal amount of US$300 million *8.1List of Subsidiaries of the Registrant 11.1**Code of Business Conduct of the Registrant (incorporated by reference Exhibit 99.1 to our Registration Statement on Form F-1 (FileNo. 333-213951), initially filed with the Securities and Exchange Commission on October 4, 2016). *12.1Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *12.2Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *13.1Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *13.2Certification of our Chief Financial Officer pursuant to 18 U.S.C Section 1350 as adopted pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 *15.1Consent of Independent Registered Public Accounting Firm *15.2Consent of King & Wood Mallesons *101.INSXBRL Instance Document. *101.SCHXBRL Taxonomy Extension Schema Document. *101.CALXBRL Taxonomy Extension Calculation Linkbase Document. *101.DEFXBRL Taxonomy Extension Definition Linkbase Document. *101.LABXBRL Taxonomy Extension Labels Linkbase Document. *101.PREXBRL Taxonomy Extension Presentation Linkbase Document. 154 Table of Contents * Filed herewith.** Previously filed as an exhibit to our Registration Statement on Form F-1 (File No. 333-213951), which was initially filed with the Securities andExchange Commission on October 4, 2016.*** Previously filed as an exhibit to our Registration Statement on Form F-6 (File No. 333-214177) with respect to American depositary shares representingour Class A ordinary shares, filed with the Securities and Exchange Commission on October 19, 2016.As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, our company has not filed with this annual report on Form 20-F certain instruments definingthe rights of holders of long-term debt of our company and its subsidiaries because the total amount of securities authorized under any such instrumentsdoes not exceed 10% of the total assets of our company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of any suchagreement to the Securities and Exchange Commission upon request.† Confidential treatment has been granted for portions of this document. 155 Table of Contents SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersignedto sign this annual report on its behalf. GDS Holdings Limited By:/s/ William Wei HuangName: William Wei HuangTitle: Chief Executive OfficerDate: March 13, 2019 156 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIES Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2017 and 2018F-3Consolidated Statements of Operations for the years ended December 31, 2016, 2017 and 2018F-4Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, 2017 and 2018F-5Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the years ended December 31, 2016, 2017 and 2018F-6Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2017 and 2018F-7Notes to Consolidated Financial StatementsF-10 F-1 Table of Contents Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders GDS Holdings Limited: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of GDS Holdings Limited and subsidiaries (“the Company”) as of December 31, 2017 and2018, and the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity (deficit), and cash flows for each of theyears in the three-year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”). We also have auditedthe Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofDecember 31, 2017 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018, inconformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by theCOSO. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2018 due tothe adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606), as amended. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal controlover financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (UnitedStates) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicablerules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ KPMG Huazhen LLP We have served as the Company’s auditor since 2015. Shanghai, ChinaMarch 13, 2019 F-2 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands of RMB, except share data and per share data, or otherwise noted) As of December 31,Note 2017 2018AssetsCurrent assetsCash (including RMB266,560 and RMB552,153 of VIEs as of December 31, 2017 and 2018, respectively)31,873,4462,161,622Restricted cash (including RMB10,837 and RMB87 of VIEs as of December 31, 2017 and 2018,respectively)310,83787Accounts receivable, net of allowance for doubtful accounts (including RMB348,536 and RMB517,346 ofVIEs as of December 31, 2017 and 2018, respectively)4364,654536,842Value-added-tax (“VAT”) recoverable (including RMB27,596 and RMB39,671 of VIEs as of December 31,2017 and 2018, respectively)112,067163,476Prepaid expenses (including RMB32,919 and RMB32,962 of VIEs as of December 31, 2017 and 2018,respectively)50,37364,843Other current assets (including RMB7,283 and RMB59,499 of VIEs as of December 31, 2017 and 2018,respectively)42,651110,526Total current assets2,454,0283,037,396 Property and equipment, net (including RMB2,164,121 and RMB3,058,294 of VIEs as of December 31, 2017and 2018, respectively)58,165,60113,994,945Intangible assets, net (including RMB143,151 and RMB181,025 of VIEs as of December 31, 2017 and 2018,respectively)6348,466482,492Prepaid land use rights, net726,245756,957Goodwill81,570,7551,751,970Deferred tax assets (including RMB11,846 and RMB16,676 of VIEs as of December 31, 2017 and 2018,respectively)1914,30536,974Restricted cash (including RMB23,592 and RMB39,346 of VIEs as of December 31, 2017 and 2018,respectively)363,317123,039VAT recoverable (including RMB26,235 and RMB115,054 of VIEs as of December 31, 2017 and 2018,respectively)290,065488,526Other non-current assets (including RMB80,763 and RMB81,290 of VIEs as of December 31, 2017 and 2018,respectively)211,785212,944Total assets13,144,56720,885,243 Liabilities and Shareholders’ EquityCurrent liabilitiesShort-term borrowings and current portion of long-term borrowings (including RMB232,000 andRMB235,250 of VIEs as of December 31, 2017 and 2018, respectively)9790,4841,283,320Accounts payable (including RMB339,175 and RMB212,698 of VIEs as of December 31, 2017 and 2018,respectively)1,110,4111,508,020Accrued expenses and other payables (including RMB91,542 and RMB148,945 of VIEs as of December 31,2017 and 2018, respectively)11368,624476,564Deferred revenue (including RMB46,526 and RMB54,101 of VIEs as of December 31, 2017 and 2018,respectively)455,60973,077Capital lease and other financing obligations, current (including RMB84,771 and RMB96,787 of VIEs as ofDecember 31, 2017 and 2018, respectively)1297,943166,898 Total current liabilities2,423,0713,507,879 Long-term borrowings, excluding current portion (including RMB85,250 and RMB60,000 of VIEs as ofDecember 31, 2017 and 2018, respectively)93,459,7655,203,708Convertible bonds payable10—2,004,714Capital lease and other financing obligations, non-current (including RMB879,685 and RMB1,068,862 of VIEsas of December 31, 2017 and 2018, respectively)122,303,0444,134,327Deferred tax liabilities (including RMB70,030 and RMB69,624 of VIEs as of December 31, 2017 and 2018,respectively)19124,277171,878Other long-term liabilities (including RMB13,145 and RMB10,740 of VIEs as of December 31, 2017 and 2018,respectively)13358,898340,812Total liabilities8,669,05515,363,318 Shareholders’ EquityOrdinary shares (US$0.00005 par value; 2,002,000,000 shares authorized; 873,679,343 and 939,479,307Class A ordinary shares issued and outstanding as of December 31, 2017 and 2018, respectively;67,590,336 Class B ordinary shares issued and outstanding as of December 31, 2017 and 2018,respectively)16320341Additional paid-in capital5,861,4457,275,945Accumulated other comprehensive loss(200,688)(139,254)Accumulated deficit20(1,185,565)(1,615,107)Total shareholders’ equity4,475,5125,521,925Commitments and contingencies24 Total liabilities and shareholders’ equity13,144,56720,885,243 See accompanying notes to consolidated financial statements. F-3 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands of RMB, except share data and per share data, or otherwise noted) Years ended December 31,Note 2016 2017 2018 Net revenue181,055,9601,616,1662,792,077Cost of revenue(790,286)(1,207,694)(2,169,636)Gross profit265,674408,472622,441 Operating expensesSelling and marketing expenses(71,578)(90,118)(110,570)General and administrative expenses(227,370)(228,864)(329,601)Research and development expenses(9,100)(7,261)(13,915)(Loss) Income from operations(42,374)82,229168,355 Other income (expenses):Interest income2,0705,60019,213Interest expenses(265,234)(412,003)(656,186)Foreign currency exchange gain (loss), net18,310(12,299)20,306Government grants2,2173,0623,217Others, net2844355,436Loss before income taxes(284,727)(332,976)(439,659) Income tax benefits198,3156,0769,391Net loss(276,412)(326,900)(430,268) Net loss(276,412)(326,900)(430,268)Change in redemption value of redeemable preferred shares21205,670——Cumulative Dividend on preferred shares21(332,660)—— Net loss attributable to ordinary shareholders(403,402)(326,900)(430,268) Loss per ordinary shareBasic and diluted21(1.35)(0.42)(0.43) Weighted average number of ordinary share outstandingBasic and diluted21299,093,937784,566,371990,255,959 See accompanying notes to consolidated financial statements. F-4 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands of RMB, except share data and per share data, or otherwise noted) Years ended December 31,2016 2017 2018 Net loss(276,412)(326,900)(430,268)Other comprehensive (loss) incomeForeign currency translation adjustments, net of nil tax(130,131)(8,608)61,434 Comprehensive loss(406,543)(335,508)(368,834) See accompanying notes to consolidated financial statements. F-5 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)(In thousands of RMB, except share data and per share data, or otherwise noted) Additional Accumulatedother Total Ordinary Shares paid-in comprehensive Accumulated equityNote Number Amount capital income (loss) deficit (deficit) Balance at January 1, 2016 217,987,92276303,621(61,949)(582,253)(340,505) Loss for the year ————(276,412)(276,412)Other comprehensive loss ———(130,131)—(130,131)Total comprehensive loss ———(130,131)(276,412)(406,543) Issuance of ordinary shares - initialpublic offering16160,565,880541,221,464——1,221,518Declaration of preference dividend inordinary shares14——(343,296)——(343,296)Settlement of preference dividend inordinary shares1431,490,16411266,783——266,794Change in redemption value ofredeemable preferred shares14——205,670——205,670Conversion of redeemable preferenceshares14349,087,6771182,311,014——2,311,132Settlement of liability-classifiedrestricted shares award17877,40017,5387,539Share-based compensation17——64,165——64,165 Balance at December 31, 2016 andJanuary 1, 2017 760,009,0432604,036,959(192,080)(858,665)2,986,474 Loss for the year ————(326,900)(326,900)Other comprehensive loss ———(8,608)—(8,608)Total comprehensive loss ———(8,608)(326,900)(335,508) Issuance of ordinary shares1664,257,02821649,813——649,834Conversion of convertible bonds1097,870,263321,106,195——1,106,227Shares surrendered (866,655)—————Shares issued to depository bank2120,000,0007(7)———Share-based compensation17——59,843——59,843Exercise of share options17816,880—4,180——4,180Vesting of restricted shares171,621,120—————Settlement of liability-classifiedrestricted shares award17502,000—4,462——4,462Settlement of share options andrestricted share awards with sharesheld by depository bank17(2,940,000)————— Balance at December 31, 2017 andJanuary 1, 2018 941,269,6793205,861,445(200,688)(1,185,565)4,475,512Impact of change in accounting policy2(ee)————726726Adjusted balance at January 1, 2018 941,269,6793205,861,445(200,688)(1,184,839)4,476,238 Loss for the year ————(430,268)(430,268)Other comprehensive income ———61,434—61,434Total comprehensive loss ———61,434(430,268)(368,834) Issuance of ordinary shares1665,800,000211,283,287——1,283,308Shares surrendered (36)—————Share-based compensation17——105,877——105,877Exercise of share options173,614,464—18,979——18,979Vesting of restricted shares177,066,060—————Settlement of liability-classifiedrestricted shares award17260,560—6,357——6,357Settlement of share options andrestricted share awards with sharesheld by depository bank17(10,941,084)————— Balance at December 31, 2018 1,007,069,6433417,275,945(139,254)(1,615,107)5,521,925 See accompanying notes to consolidated financial statements. F-6 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands of RMB, except share data and per share data, or otherwise noted) Years ended December 31,Note 2016(As adjusted,note 2(ee)) 2017(As adjusted,note 2(ee)) 2018 Cash flows from operating activities:Net loss(276,412)(326,900)(430,268)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of debt issuance cost and debt discount5,91748,10061,373Depreciation and amortization227,355378,130741,507Net (gain) loss on disposal of property and equipment(62)—2,212Share-based compensation expense1764,16559,843105,877(Reversal of) allowance for doubtful accounts4(2,156)—241Deferred tax benefit19(10,624)(11,622)(36,597) Changes in operating assets and liabilities, net of effect of acquisitions:Increase in accounts receivable(79,383)(134,631)(157,708)Increase in VAT recoverable(94,588)(194,335)(221,390)Decrease (increase) in prepaid expenses1,034520(14,153)(Increase) decrease in other current assets(20,534)11,500(11,477)Increase in other non-current assets(24,820)(23,111)(37,035)Increase in accounts payable43,84433,90325,292Decrease in due to related parties(2,668)——(Decrease) increase in deferred revenue(5,851)14,95217,468Increase (decrease) in accrued expenses and other payables22,018(83,260)(56,693)Increase (decrease) in other long-term liabilities23,78559,095(1,559) Net cash used in operating activities(128,980)(167,816)(12,910) See accompanying notes to consolidated financial statements. F-7 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED(In thousands of RMB, except share data and per share data, or otherwise noted) Years ended December 31,Note 2016(As adjusted,note 2(ee)) 2017(As adjusted,note 2(ee)) 2018Cash flows from investing activitiesPayments for purchase of property and equipment(987,763)(1,720,165)(4,260,977)Payments for purchase of intangible assets—(6,000)—Loans advanced to subsidiaries prior to acquisitions8(42,000)(6,025)—Cash acquired from the business combinations81,23724,916466Cash paid for the business combinations8(103,600)(252,780)(359,372)Cash paid for the asset acquisitions8——(115,167)Deposits paid for potential acquisitions(15,000)(5,000)(1,000)Proceeds from sale of property and equipment62—13,896Deposits paid for construction of property and equipment—(40,000)(10,896) Net cash used in investing activities(1,147,064)(2,005,054)(4,733,050) Cash flows from financing activities:Proceeds from short-term borrowings339,777553,490943,088Proceeds from long-term borrowings1,269,9963,086,3902,814,197Repayment of short-term borrowings(433,000)(381,071)(776,224)Repayment of long-term borrowings(373,946)(1,401,023)(834,154)Payment of issuance cost of borrowings(57,438)(62,460)(91,124)Proceeds from exercise of stock options—3,37716,866Net proceeds from issuance of convertible bonds10327,580—1,867,304Repayment of a related party loan25(65,474)——Net proceeds from issuance of ordinary shares161,221,518649,8341,283,308Payment of preferred shares dividends14(76,502)——Payment under capital lease and other financing obligations(23,897)(68,670)(190,718)Payment of contingent consideration for the acquisition of subsidiaries—(24,139)(155,737) Net cash provided by financing activities2,128,6142,355,7284,876,806 Effect of exchange rate changes on cash and restricted cash55,499(74,250)206,302 Net increase in cash and restricted cash908,069108,608337,148Cash and restricted cash at beginning of year930,9231,838,9921,947,600 Cash and restricted cash at end of year1,838,9921,947,6002,284,748 See accompanying notes to consolidated financial statements. F-8 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED(In thousands of RMB, except share data and per share data, or otherwise noted) Years ended December 31,Note 2016 2017 2018Supplemental disclosures of cash flow information Interest paid 228,678358,748633,063Income tax paid 5,6451,3693,371 Supplemental disclosures of non-cash investing and financing activities Payables (settlement of payables) for purchase of property andequipment 128,901(287,327)(190,351)Purchase of property and equipment through capital leases and otherfinancing arrangement 568,984828,452720,753Changes in consideration payable for the acquisition of subsidiaries825,900254,470(8,920)Settlement of liability-classified restricted share award177,5394,4626,357Issuance of ordinary shares to settle preference dividend14266,794——Conversion of convertible bonds10—1,106,227— See accompanying notes to consolidated financial statements. F-9 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (a) Description of business GDS Holdings Limited (the “Parent” or “GDS Holdings”) was incorporated in the Cayman Islands on December 1, 2006. GDS Holdings and itsconsolidated subsidiaries and consolidated variable interest entities (collectively referred to as “the Company”) are principally engaged in providingcolocation, managed hosting and managed cloud services in the People’s Republic of China (the “PRC”). The Company operates its data centers inHong Kong Special Administrative Region (the “Hong Kong SAR”), Shanghai Municipality, Beijing Municipality, Jiangsu Province, GuangdongProvince, Sichuan Province and Hebei Province of the PRC and serves customers that primarily operate in the internet and banking industries. (b) Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“USGAAP”). The consolidated financial statements are presented in Renminbi (“RMB”), rounded to the nearest thousand. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The accompanying consolidated financial statements include the financial statements of GDS Holdings Limited, its subsidiaries and consolidatedvariable interest entities (“VIEs”) for which the Company is the primary beneficiary. The VIEs are Beijing Wanguo Chang’an Science and TechnologyCo., Ltd. (“GDS Beijing”) and Shanghai Shu’an Data Services Co., Ltd. (“GDS Shanghai”). In certain regions of the PRC, the Company’s operations are conducted through VIEs to comply with the PRC laws and regulations, which prohibitforeign investments in companies that are engaged in data center related business in those regions. Individuals acting as nominee equity holders holdthe legal equity interests of the VIEs on behalf of the Company. The equity holders of the VIEs are the CEO of the Company and his relative. F-10 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Prior to the internal restructuring (the “2016 Variable Interest Entity Restructuring”), the Company primarily conducted its operations through GlobalData Solutions Co., Ltd. (“GDS Suzhou”), a wholly owned subsidiary. Shanghai Waigaoqiao EDC Technology Co, Ltd., or EDC Shanghai Waigaoqiaoalso conducted certain data center related operations. The Company completed the 2016 Variable Interest Entity Restructuring whereby GDS Suzhouand EDC Shanghai Waigaoqiao were converted into PRC domestic companies that are wholly owned by GDS Beijing on April 13, 2016 and August 9,2016, respectively. Prior to the internal restructuring, GDS Beijing was a VIE of GDS Suzhou through a series of contractual agreements, including theequity interest pledge agreements, shareholder voting rights proxy agreement, exclusive technology license and service agreements, exclusive calloption agreements and loan agreements (collectively, the “VIE Agreements”). The conversion of GDS Suzhou and EDC Shanghai Waigaoqiao intoPRC domestic companies were accomplished by way of transferring all of the equity interests in GDS Suzhou and EDC Shanghai Waigaoqiao to GDSBeijing. In connection with the internal restructuring, the VIE Agreements between GDS Beijing and GDS Suzhou were terminated and concurrently,new contractual VIE Agreements were entered into between GDS Beijing and GDS (Shanghai) Investment Co., Ltd. (formerly known as Shanghai FreeTrade Zone GDS Management Co., Ltd.) (“GDS Investment”), a newly-established subsidiary of the Company. The terms of the new contractualarrangements between GDS Beijing and GDS Investment are identical to the terms of the VIE Agreements between GDS Beijing and GDS Suzhou. TheCompany continues to be the primary beneficiary of the VIEs following the completion of the internal restructuring. Since the entities involved in the 2016 Variable Interest Entity Restructuring are all under common control and the Company is the primarybeneficiary of GDS Beijing at the time of transfer, the net assets of GDS Suzhou and EDC Shanghai Waigaoqiao transferred to GDS Beijing is recordedat the same amounts at which the assets and liabilities would have been measured if they had not been transferred. That is, no gain or loss is recognizedbecause of such transfer. The following is a summary of the contractual VIE Agreements entered among GDS Investment, the VIEs, and the shareholders of the VIEs. Equity Interest Pledge Agreements. Pursuant to the equity interest pledge agreements, each shareholder of the VIEs has pledged all of his or her equityinterest in the VIEs as a continuing first priority security interest, as applicable, to respectively guarantee the VIEs and their shareholders’ performanceof their obligations under the relevant contractual arrangement, which include the exclusive technology license and service agreement, loanagreement, exclusive call option agreement, shareholder voting rights proxy agreement and intellectual property rights license agreement. If the VIEsor any of their shareholders breach their contractual obligations under these agreements, GDS Investment, as pledgee, will be entitled to certain rightsregarding the pledged equity interests, including receiving proceeds from the auction or sale of all or part of the pledged equity interests of the VIEs inaccordance with PRC law. Each of the shareholders of the VIEs agrees that, during the term of the equity interest pledge agreements, he or she will notdispose of the pledged equity interests or create or allow creation of any encumbrance on the pledged equity interests without the prior written consentof GDS Investment. The equity interest pledge agreements remain effective until the VIEs and their shareholders discharge all their obligations underthe contractual arrangements. F-11 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Shareholder Voting Rights Proxy Agreement. Pursuant to the shareholder voting rights proxy agreements, each shareholder of the VIEs has irrevocablyappointed the PRC citizen(s) as designated by GDS Investment to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights,including, but not limited to, voting on all matters of the VIEs requiring shareholder approval, disposing of all or part of the shareholder’s equityinterest in the VIEs, and appointing directors and executive officers. GDS Investment is also entitled to change the appointment by designating anotherPRC citizen(s) to act as exclusive attorney-in-fact of the shareholders of the VIEs with prior notice to such shareholders. Each shareholder voting rightsproxy agreement will remain in force for so long as the shareholder remains a shareholder of the VIE. Exclusive Technology License and Service Agreements. Under the exclusive technology license and service agreements, GDS Investment licensescertain technology to the VIEs and GDS Investment has the exclusive right to provide the VIEs with technical support, consulting services and otherservices. Without GDS Investment’s prior written consent, the VIEs agree not to accept the same or any similar services provided by any third party. The VIEs agree to pay service fees on a yearly basis and at an amount equivalent to all of its net profits as confirmed by GDS Investment. GDSInvestment owns the intellectual property rights arising out of its performance of these agreements. In addition, the VIEs have granted GDS Investmentan exclusive right to purchase or to be licensed with any or all of the intellectual property rights of the VIEs at the lowest price permitted under PRClaw. Unless otherwise agreed by the parties, these agreements will continue to remain effective at all times. Intellectual Property Rights License Agreement. Pursuant to an intellectual property rights license agreement between GDS Investment and GDSShanghai, GDS Shanghai has granted GDS Investment an exclusive license to use for free any or all of the intellectual property rights owned by GDSShanghai from time to time, and without the parties’ prior written consent, GDS Shanghai cannot take any actions, including without limitation to,transferring or licensing outside its ordinary course of business any intellectual property rights to any third parties, which may affect or undermine GDSInvestment’s use of the licensed intellectual property rights from GDS Shanghai. The parties have also agreed under the agreement that GDS Investmentshould own the new intellectual property rights developed by it regardless whether such development is dependent on any of the intellectual propertyrights owned by GDS Shanghai. This agreement can only be early terminated by prior mutual consent of the parties and need to be renewed upon GDSInvestment’s unilateral request. Exclusive Call Option Agreements. Pursuant to the exclusive call option agreements, the shareholders of the VIEs have irrevocably granted GDSInvestment an exclusive option to purchase, or have its designated person or persons to purchase, at its discretion, to the extent permitted under PRClaw, all or part of such shareholders’ equity interests in the VIEs. The purchase price should equal to the minimum price required by PRC law or suchother price as may be agreed by the parties in writing. Without GDS Investment’s prior written consent, the shareholders of the VIEs have agreed thatthe VIEs shall not amend the articles of association, increase or decrease the registered capital, sell or otherwise dispose of their assets or beneficialinterest, create or allow any encumbrance on their assets or other beneficial interests, provide any loans, or distribute dividends to the shareholders.These agreements will remain effective until all equity interests of the VIEs have been transferred or assigned to GDS Investment or its designatedperson(s). F-12 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Loan Agreements. Pursuant to the loan agreements between GDS Management and the shareholders of the VIEs, GDS Management agrees to extendloans in an aggregate amount of RMB310,100 to the shareholders of the VIEs solely for their capitalization or equity contribution into the VIEs.Pursuant to the loan agreements, GDS Investment has the right to require repayment of the loans upon delivery of thirty-day’s prior notice to theshareholders, and the shareholders can repay the loans by either sale of their equity interests in the VIEs to GDS Investment or its designatedperson(s) pursuant to their respective exclusive option agreements, or other methods as determined by GDS Investment pursuant to its articles ofassociation and the applicable PRC laws and regulations. Under the terms of the VIE Agreements, the Company has (i) the right to receive service fees on a yearly basis at an amount equivalent to all of the netprofits of the VIEs under the exclusive technology license and services agreements when such services are provided; (ii) the right to receive alldividends declared by the VIEs and the right to all undistributed earnings of the VIEs; (iii) the right to receive the residual benefits of the VIEs throughits exclusive option to acquire 100% of the equity interests in the VIEs, to the extent permitted under PRC law; and (iv) the right to require each of theshareholder of the VIEs to appoint the PRC citizen(s) as designated by GDS Investment to act as such shareholder’s exclusive attorney-in-fact toexercise all shareholder rights, including, but not limited to, voting on all matters of the VIEs requiring shareholder approval, disposing of all or part ofthe shareholder’s equity interest in the VIEs, and appointing directors and executive officers. In accordance with Accounting Standards Codification (“ASC”) 810-10-25-38A, the Company has a controlling financial interest in the VIEs becausethe Company has (i) the power to direct activities of the VIEs that most significantly impact the economic performance of the VIEs; and (ii) theobligation to absorb the expected losses and the right to receive expected residual return of the VIEs that could potentially be significant to the VIEs.The terms of the VIE Agreements and the Company’s financial support to the VIEs were considered in determining that the Company is the primarybeneficiary of the VIEs. Accordingly, the financial statements of the VIEs are consolidated in the Company’s consolidated financial statements. Under the terms of the VIE Agreements, the VIEs’ equity holders have no rights to the net assets nor have the obligations to fund the deficit, and suchrights and obligations have been vested to the Company. All of the equity (net assets) or deficits (net liabilities) and net income (loss) of the VIEs areattributed to the Company. The Company has been advised by its PRC legal counsel that each of the VIE agreements is valid, binding and enforceable in accordance with its termsand applicable PRC laws and the ownership structure of the VIEs does not violate applicable PRC Laws. However, there are substantial uncertaintiesregarding the interpretation and application of PRC laws and future PRC laws and regulations. There can be no assurance that the PRC authorities willtake a view that is not contrary to or otherwise different. If the current ownership structure of the Company and the VIE Agreements are determined tobe in violation of any existing or future PRC laws and regulations, the PRC government could: · Levy fines on the Company or confiscate income of the Company; · Revoke or suspend the VIEs’ business or operating licenses; · Discontinue or place restrictions or onerous conditions on VIE’s operations; · Require the Company to discontinue their operations in the PRC; · Require the Company to undergo a costly and disruptive restructuring; · Take other regulatory or enforcement actions that could be harmful to the Company’s business. F-13 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The imposition of any of these government actions could result in the termination of the VIE agreements, which would result in the Company losingthe (i) ability to direct the activities of the VIEs and (ii) rights to receive substantially all the economic benefits and residual returns from the VIEs andthus result in the deconsolidation of the VIEs in the Company’s consolidated financial statements. The assets and liabilities of the VIEs are presented parenthetically on the face of the consolidated balance sheets. Net revenue, net income, operating,investing and financing cash flows of the VIEs that were included in the Company’s consolidated financial statements for the years endedDecember 31, 2016, 2017 and 2018 are as follows: Years ended December 31, 2016 2017 2018 Net revenue846,1681,469,9292,712,875Net income (loss)22,24644,541(59,757)Net cash provided by operating activities (note)249,715186,843739,848Net cash used in investing activities (note)(158,681)(286,476)(1,063,826)Net cash provided by (used in) financing activities (note)304,973(7,417)614,575 Note: The Company adopted Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1,2018, and retrospectively adjusted the cash flows of the VIEs by excluding the increase of restricted cash of RMB10,091 from net cashprovided by operating activities for the year ended December 31, 2016, and RMB3,663 from net cash provided by operating activities andRMB20,675 from net cash used in financing activities for the year ended December 31, 2017. The unrecognized revenue producing assets that are held by the VIEs comprise of internally developed software, intellectual property and trademarkswhich were not recorded on the Company’s consolidated balance sheets as they do not meet all the capitalization criteria. Costs recognized by the VIEs for outsourcing and other services provided by other entities within the Company were RMB343,271, RMB658,617 andRMB1,260,481 for the years ended December 31, 2016, 2017 and 2018, respectively. (b) Use of estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. Significant items subject to such estimates and assumptions include, but are not limited to, the useful lives of long-lived assets, the fairvalues of assets acquired and liabilities assumed and the consideration transferred in a business combination, the fair value of the reporting unit for thegoodwill impairment test, the allowance for doubtful accounts receivable, the realization of deferred income tax assets, the fair value of share-basedcompensation awards, the recoverability of long-lived assets, the fair value of leased property and the fair value of the asset retirement obligation.Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may bematerial to the consolidated financial statements. (c) Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Companydoes not have any cash equivalents as of December 31, 2017 and 2018. F-14 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (d) Restricted cash Restricted cash represents amounts held by banks, which are not available for the Company’s use, as security for bank borrowings and related interestsand issuance of commercial acceptance notes relating to purchase of property. Upon repayment of bank borrowings and maturity of the commercialacceptance notes, the deposits are released by the bank and available for general use by the Company. (e) Fair value of financial instruments The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extentpossible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal ormost advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchydistinguishes between observable and unobservable inputs, which are categorized in one of the following levels (note 15 to the consolidated financialstatements): · Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurementdate. · Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, forsubstantially the full term of the asset or liability. · Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, therebyallowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. (f) Contract Balances The timing of revenue recognition, billings and cash collections result in accounts receivable, contract assets and contract liabilities (i.e. deferredrevenue). Accounts receivable are recorded at the invoice amount, net of an allowance for doubtful account and is recognized in the period when theCompany has transferred products or provided services to its customers and when its right to consideration is unconditional. Amounts collected ontrade accounts receivable are included in net cash provided by operating activities in the consolidated statements of cash flows. The Companymaintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance,management considers historical losses adjusted to take into account current market conditions and customers’ financial condition, the amount ofreceivables in dispute, the accounts receivable aging, and the customers’ repayment patterns. The Company reviews its allowance for doubtfulaccounts on a customer-by-customer basis. Account balances are charged off against the allowance after all means of collection have been exhaustedand the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. A contract asset exists when the Company has transferred products or provided services to its customers but customer payment is contingent uponsatisfaction of additional performance obligations. Contract assets are recorded in other current assets and other assets in the consolidated balancesheet. Deferred revenue (a contract liability) is recognized when the Company has an unconditional right to a payment before it transfers goods or services tocustomers. F-15 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (g) Property and equipment Property and equipment are carried at cost less accumulated depreciation and any recorded impairment. Property and equipment acquired under capitalleases are initially recorded at the present value of minimum lease payments. Gains or losses arising from the disposal of an item of property and equipment are determined based on the difference between the net disposalproceeds and the carrying amount of the item and are recognized in profit or loss on the date of disposal. The estimated useful lives are presented below. Buildings20 - 30 yearsData center equipment- Machinery10 - 20 years- Other equipment3 - 5 yearsLeasehold improvementShorter of the lease term and the estimated useful lives of the assetsFurniture and office equipment3 - 5 yearsVehicles5 years Construction in progress primarily consists of the cost of data center buildings and the related construction expenditures that are required to prepare thedata center buildings for their intended use. No depreciation is provided in respect of construction in progress until it is substantially completed and ready for its intended use. Once a data centerbuilding is ready for its intended use and becomes operational, construction in progress is allocated to the property and equipment categories and isdepreciated over the estimated useful life of the underlying assets. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of the assets. For assets acquiredunder a capital lease, the assets are amortized in a manner consistent with the Company’s normal depreciation policy for owned assets if the leasetransfers ownership to the Company by the end of the lease term or contains a bargain-purchase-option. Otherwise, assets acquired under a capital leaseare amortized over the lease term. (h) Long-lived assets held for sale Long-lived assets are classified as held-for-sale if: (1) the Company has committed to a plan to sell the assets that are available for sale in its presentcondition, including initiating actions to complete the sale that is probable to qualify for as a completed sale within one year; (2) it is unlikely thatsignificant changes to the plan will be made or the plan will be withdrawn; (3) the assets are being marketed for sale at a price that is reasonable inrelated to its current value. Long-lived assets held for sale are recorded at the lower of carrying value and fair value less cost to sell. A loss shall berecognized for any initial or subsequent write-down to fair-value less cost to sell. Long-lived assets held for sale are not depreciated while classified asheld for sale. F-16 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (i) Leases Leases are classified at the lease inception date as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditionsexists: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of theproperty’s estimated remaining economic life, or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or moreof the fair value of the leased property to the lessor at the inception date. The Company records a capital lease as an asset and an obligation at anamount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term. If at any time the lessee and lessor agree to change the provisions of the lease, other than by renewing the lease or extending its term, in a manner thatwould have resulted in a different classification of the lease under the lease classification criteria had the changed terms been in effect at leaseinception, the revised agreement shall be considered as a new agreement over its term, and the lease classification criteria shall be applied for purposesof classifying the new lease. The Company records an asset and related financing obligation for the estimated construction costs under build-to-suit lease arrangements where it isconsidered the owner for accounting purposes, to the extent the Company is involved in the construction of the building or structural improvements orhas construction risk prior to commencement of a lease. Upon completion of the construction and commencement of the lease terms, the Companyassesses whether these arrangements qualify for sales recognition under the deemed sale-leaseback transaction. If the arrangements do not qualify forsales recognition under the sale-leaseback accounting guidance, the Company continues to be the deemed owner of the build-to-suit assets forfinancial reporting purposes. The Company keeps the construction costs of the assets on its balance sheet. In addition, lease payments less the portionconsidered to be interest expense decrease the financing liability. As of December 31, 2017 and 2018, assets under capital leases and other financing obligations represent data center buildings and data centerequipment. Rental costs on operating leases are charged to expense on a straight-line basis over the lease term. Certain operating leases contain rent holidays andescalating rent. Rent holidays and escalating rent are considered in determining the straight-line rent expense to be recorded over the lease term. Rentalcosts associated with building operating leases that are incurred during the construction of leasehold improvements and to otherwise ready the propertyfor the Company’s intended use are recognized as rental expenses and are not capitalized. (j) Asset retirement costs The Company’s asset retirement obligations are primarily related to its data center buildings, of which the majority are leased under long-termarrangements, and, in certain cases, are required to be returned to the landlords in their original condition. The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred. The corresponding asset retirementcosts are capitalized as part of the cost of leasehold improvements and are depreciated over the shorter of the asset or the term of the lease subsequent tothe initial measurement. The Company accretes the liability in relation to the asset retirement obligations over time and the accretion expense isrecorded in cost of revenue. F-17 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Asset retirement obligations are recorded in other long-term liabilities. The following table summarizes the activity of the asset retirement obligationliability: Asset retirement obligations as of January 1, 20165,775Additions2,942Accretion expense588 Asset retirement obligations as of December 31, 20169,305Additions7,394Accretion expense949 Asset retirement obligations as of December 31, 201717,648Additions16,391Accretion expense1,840 Asset retirement obligations as of December 31, 201835,879 (k) Intangible assets Intangible assets acquired in the acquisition comprised of customer relationships, favorable leases and licenses. The weighted-average amortization period by major intangible asset class is as follows: Customer relationships5-15 yearsFavorable leases13 to 20 yearsLicenses20 years Customer relationships represent the orders, backlog and customer lists, which arise from contractual rights or through means other than contracts.Customer relationships are amortized using a straight-line method, as the pattern in which the economic benefits of the intangible assets are consumedor used up cannot be reliably determined. Favorable lease is recognized as an intangible asset if the terms of the acquiree’s operating lease are favorable relative to market terms. Favorable leaseis amortized on a straight-line method over the lease term. Licenses are amortized using a straight-line method over the estimated beneficial period. (l) Prepaid land use rights The land use rights represent the amounts paid and relevant costs incurred for the rights to use land in the PRC and Hong Kong SAR and are carried atcost less accumulated amortization. Amortization is provided on a straight-line basis over the remaining terms of the land use right ranging from 28 to43 years. (m) Goodwill Goodwill is an asset representing the future economic benefits arising from other assets acquired in the acquisition that are not individually identifiedand separately recognized. F-18 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might beimpaired. Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstanceschange that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include asignificant change in the stock prices, business climate, legal factors, operating performance indicators, competition, or sale or disposition of asignificant portion of a reporting unit. Application of the goodwill impairment test requires judgment, including the identification of the reportingunit, assignment of assets and liabilities to the reporting unit, assignment of goodwill to the reporting unit, and determination of the fair value of eachreporting unit. The Company has the option to perform a qualitative assessment to determine whether it is more-likely-than not that the fair value of a reporting unit isless than its carrying value prior to performing the two-step goodwill impairment test. If it is more-likely-than-not that the fair value of a reporting unitis greater than its carrying amount, the two-step goodwill impairment test is not required. If the two-step goodwill impairment test is required, first, thefair value of the reporting unit is compared with its carrying amount (including goodwill). If the fair value of the reporting unit is less than its carryingamount, an indication of goodwill impairment exists for the reporting unit and the Company performs step two of the impairment test (measurement).Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value ofthat goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase priceallocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. No impairment losses were recordedfor goodwill for the years ended December 31, 2016, 2017 and 2018. (n) Impairment of long-lived assets Long-lived assets, such as property and equipment, intangible assets subject to amortization and prepaid land use rights are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by thatasset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flowbasis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuationtechniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Noimpairment losses were recorded for long-lived assets for the years ended December 31, 2016, 2017 and 2018. (o) Value-added-tax (“VAT”) Entities that are VAT general taxpayers are permitted to offset qualified input VAT paid to suppliers against their output VAT upon receipt ofappropriate supplier VAT invoices on an entity by entity basis. When the output VAT exceeds the input VAT, the difference is remitted to taxauthorities, usually on a monthly basis; whereas when the input VAT exceeds the output VAT, the difference is treated as VAT recoverable which canbe carried forward indefinitely to offset future net VAT payables. VAT related to purchases and sales which have not been settled at the balance sheetdate is disclosed separately as an asset and liability, respectively, in the consolidated balance sheets. F-19 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) As of December 31, 2017 and 2018, the Company recorded a VAT recoverable of RMB112,067 and RMB163,476 in current assets, and RMB290,065and RMB488,526 in non-current assets, respectively. The Company also recorded VAT payables of RMB11,213 and RMB11,350 in accrued expensesand other payables, in the consolidated balance sheets as of December 31, 2017 and 2018, respectively. (p) Derivative financial instruments Derivative financial instruments are recognized initially at fair value. At the end of each reporting period, the fair value is remeasured. The gain or losson remeasurement to fair value is recognized immediately in profit or loss. (q) Commitment and contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable thata liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed asincurred. (r) Revenue recognition The Company adopted ASC 606 Revenue from Contracts with Customers on January 1, 2018. The Company applied ASC 606 using the cumulativeeffect method — i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of accumulateddeficit at January 1, 2018. The Company elects to apply this guidance retrospectively only to contracts that are not completed contracts as ofJanuary 1, 2018. The Company recognizes revenue as the Company satisfies a performance obligation by transferring control over a good or service to a customer. Foreach performance obligation satisfied over time, the Company recognizes revenue over time by measuring the progress toward complete satisfaction ofthat performance obligation. If the Company does not satisfy a performance obligation over time, the performance obligation is satisfied at a point intime. Revenue is measured as the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods orservices to a customer, excluding amounts collected on behalf of third parties. For contracts with customers that contain multiple performance obligations, the Company accounts for individual performance obligations separatelyif they are distinct or as a series of distinct obligations if the individual performance obligations meet the series criteria. Determining whether productsand services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment.The transaction price is allocated to the separate performance obligation on a relative standalone selling price basis. The standalone selling price isdetermined based on overall pricing objectives, taking into consideration market conditions, geographic locations and other factors. Other judgmentsinclude determining if any variable consideration should be included in the total contract value of the arrangement such as price increases. The Company derives revenue primarily from the delivery of (i) colocation services; (ii) managed services, including managed hosting services andmanaged cloud services. The remainder of the Company’s revenue is from IT equipment sales that are either sold on a stand-alone basis or bundled in amanaged service contract arrangement and consulting services. F-20 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Colocation services are services where the Company provides space, power and cooling to customers for housing and operating their IT systemequipment in the Company’s data centers, which are primarily provided to customers for a fixed consideration over the contract service period.Revenues from such colocation services where services are provided to customers for a fixed amount over the contract service period are recognized ona straight-line basis over the term of the contract. The Company has determined that its performance pattern to be straight-line since the customerreceives value as the services are rendered continuously during the term of the contract, the earning process is straight-line, and there is no otherdiscernible performance pattern of recognition. Managed hosting services are services where the Company provides outsourced services to manage the customers’ data center operations, includingdata migration, IT operations, security and data storage. Managed hosting services are primarily provided to financial institution customers as abusiness continuity and disaster recovery solution, which are primarily provided to customers for a fixed consideration over the contract service period.Revenues from such managed hosting services where services are provided to customers for a fixed amount over the contract service period arerecognized on a straight-line basis over the term of the contract. The Company has determined that its performance pattern to be straight-line since thecustomer receives value as the services are rendered continuously during the term of the contract, the earning process is straight-line, and there is noother discernible performance pattern of recognition. Certain contracts with customers for colocation services and managed hosting services provide for variable considerations that are primarily based onthe usage of such services. Revenues on such contracts are recognized based on the agreed usage-based fees as the services are rendered throughout thecontract term. In certain colocation and managed hosting service contracts, the Company agrees to charge customers for their actual power consumption. Relevantrevenue is recognized based on actual power consumption during each period. In certain other colocation and managed hosting service contracts, theCompany specifies a fixed power consumption limit each month for customers. If a customer’s actual power consumption is below the limit, noadditional fee is charged, while if its actual power consumption is above the limit, the Company charges the customer additional power consumptionfees calculated based on the portion of actual power consumption exceeding the limit, multiplied by a fixed unit price, which is determined based onmarket price and does not provide customers with material rights to acquire additional goods or services that the customer would not receive withoutentering into that contract. Accordingly, relevant revenue is recognized each month based on actual additional power consumption fees. Managed cloud services are services where the Company 1) distributes and delivers virtual storage to customers including offering direct privateconnection to major cloud platforms (“CloudConnect”) and 2) provides cloud infrastructure, including cloud resources, and solutions to assistcustomers in managing their hybrid clouds (“CloudMix”). Services are provided to certain customers for a fixed amount over the contract period,usually ranging from 1 to 5 years and are recognized on a straight-line basis over the contract period. Services are provided to remaining customers ona consumption basis, such as the amount of storage used in a period and the revenue is recognized based on a customer’s utilization of such resourcesand rate specified in the contracts over the related contractual term beginning on the date on which the platform is made available to the customer. Revenue recognized for colocation or managed hosting and cloud services delivered prior to billing is recorded within accounts receivable. TheCompany generally bills the customer in equal instalments on a monthly or quarterly basis. Cash received in advance from customers prior to the delivery of the colocation or managed hosting and cloud services is recorded as deferred revenue. The sale of IT equipment is recognized when the customer obtains control of the equipment, which is typically when delivery has occurred, thecustomer accepts the equipment and the Company has no performance obligation after the delivery. F-21 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) In certain managed service contracts, the Company sells and delivers IT equipment such as servers and computer terminals prior to the delivery of theservices. Since sale of equipment can be distinguished and is separately identifiable from other promises in the contract and it is distinct within thecontext of the contract, the sale of equipment is considered a separate performance obligation. Accordingly, the contract consideration is allocated tothe equipment and the managed services based on their relative standalone selling prices. Consulting services are provided to customers for a fixed amount over the service period, usually less than one year. The Company recognizes revenuesfrom consulting services over the period when the services were provided, since customers simultaneously receive and consume the benefit of theservices. The Company uses the input method based on the pattern of service provided to the customers. Revenue is generally recognized on a gross basis as the Company is primarily responsible for fulfilling the contract, assumes inventory risk and hasdiscretion in establishing the price when selling to the customer. To the extent the Company does not meet the criteria for recognizing revenue on agross basis, the Company records the revenue on a net basis. (s) Cost of revenues Cost of revenues consists primarily of utility costs, depreciation of property and equipment, rental costs, labor costs and other costs directly attributableto the provision of the service revenue. (t) Research and development and advertising costs Research and development and advertising costs are expensed as incurred. Research and development costs amounted to RMB9,100, RMB7,261 andRMB13,915 in 2016, 2017 and 2018, respectively. Research and development costs consist primarily of payroll and related personnel costs fordeveloping or significantly improving the Company’s services and products. Advertising costs amounted to RMB8,942, RMB10,189 and RMB6,332 in 2016, 2017 and 2018, respectively. (u) Start-up costs Pre-operating or start-up costs incurred prior to operating a new data center are expensed as incurred and consist primarily of rental costs of operatingleases of buildings during the construction of leasehold improvements and other miscellaneous costs incurred prior to the operation of the data centers.Start-up costs amounted to RMB12,976, RMB7,469 and nil were recorded in general and administrative expenses in 2016, 2017 and 2018,respectively. (v) Government grants Government grants are recognized when received and when all the conditions for their receipt have been met. Subsidies that compensate the Companyfor expenses incurred are recognized as a reduction of expenses in the consolidated statements of operations. Subsidies that are not associated withexpenses are recognized as other income. F-22 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Subsidies for the acquisition of property and equipment are recorded as a liability until earned and then depreciated over the useful life of the relatedassets as a reduction of the depreciation charges. Subsidies for obtaining the rights to use land are recorded as a liability until earned and thenamortized over the land use right period as a reduction of the amortization charges of the related land use rights. In 2010 and 2011, the Companyreceived government subsidies that required the Company to operate in a particular area for a certain period. The Company recorded the subsidies inother long-term liabilities when the subsidies were received and subsequently recognized as government subsidy income ratably over the period theCompany is required to operate in the area. In 2017, the Company received government subsidies that required the Company to pass certain inspectionon the related project by March 31, 2019. The Company recorded such subsidies in other long-term liabilities when received, which are reclassified toaccrued expenses and other payables when the inspection is expected to be completed within one year, and will be recorded as government subsidyincome when the conditions are met. As of December 31, 2017 and 2018, deferred government grants of RMB16,789 and RMB9,771 are recorded in other long-term liabilities, respectively.Deferred government grants of RMB4,800 are recorded in accrued expenses and other payables in the consolidated balance sheets as of December 31,2018. (w) Capitalized interest A reconciliation of total interest costs to “Interest expenses” as reported in the consolidated statements of operations for 2016, 2017 and 2018 is asfollows: Years ended December 31, 2016 2017 2018 Total interest costs324,085466,460749,730Less: interest costs capitalized(58,851)(54,457)(93,544) Interest expenses265,234412,003656,186 Interest costs that are directly attributable to the construction of an asset which necessarily takes a substantial period of time to get ready for itsintended use or sale are capitalized as part of the cost of that asset. The capitalization of interest costs as part of the cost of a qualifying assetcommences when expenditure for the asset is being incurred, interest costs are being incurred and activities that are necessary to prepare the asset for itsintended use or sale are in progress. Capitalization of interest costs is ceased when the asset is substantially complete and ready for its intended use. (x) Debt issuance costs Debt issuance costs are capitalized and are amortized over the life of the related debts based on the effective interest method. Such amortization isincluded as a component of interest expense. Unamortised debt issuance costs of RMB134,395 and RMB203,779 are presented as a reduction of debt as of December 31, 2017 and 2018,respectively. F-23 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (y) Income tax Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases andoperating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable incomein the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change intax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only ifthose positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. TheCompany records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses. (z) Share-based compensation The Company accounts for the compensation cost from share-based payment transactions with employees based on the grant-date fair value of theequity instrument issued. The grant-date fair value of the award is recognized as compensation expense, net of forfeitures, over the period during whichan employee is required to provide service in exchange for the award, which is generally the vesting period. When no future services are required to beperformed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, thecost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions that has agraded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount ofcompensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date. Awards granted to employees with performance conditions attached are measured at fair value on the grant date and are recognized as thecompensation expenses in the period and thereafter when the performance goal becomes probable to achieve. Awards granted to employees withmarket conditions attached are measured at fair value on the grant date and are recognized as the compensation expenses over the estimated requisiteservice period, regardless of whether the market condition has been satisfied if the requisite service period is fulfilled. The Company recognizes the estimated compensation cost of service-based restricted share based on the fair value of its ordinary shares on the date ofthe grant. The Company recognizes the compensation cost, net of forfeitures, over its respective vesting term. The Company recognizes the estimatedcompensation cost of performance-based restricted share based on the fair value of its ordinary shares on the date of the grant. The rewards are earnedupon attainment of identified performance goals. The Company recognizes the compensation cost, net of forfeitures, over the performance period. TheCompany also adjusts the compensation cost based on the probability of performance goal achievement at the end of each reporting period. F-24 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The Company has adopted the simplification guidance on forfeitures in ASU 2016-09, Compensation—Stock Compensation (Topic 718) and elected toaccount for forfeitures when they occur. Compensation cost previously recognized are reversed in the period the award is forfeited, for an award that isforfeited before completion of the requisite service period. The adoption of such simplification guidance did not have any material effect on retainedearnings or other components of equity or net assets in the statement of consolidated balance sheet as of the beginning of the period of adoption. Share-based payment transactions with nonemployees in which goods or services are received in exchange for equity instruments are accounted forbased on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Themeasurement date of the fair value of the equity instrument issued is the earlier of either the date on which the counterparty’s performance is completeor the date at which a commitment for performance by the counterparty to earn the equity instrument is reached. For further information on share-based compensation, see Note 17 below. (aa) Employee benefits Pursuant to relevant PRC regulations, the Company is required to make contributions to various defined contribution plans organized by municipaland provincial PRC governments. The contributions are made for each PRC employee at rates ranging from 28% to 49% on a standard salary base asdetermined by local social security bureau. Contributions to the defined contribution plans are charged to the consolidated statements of operationswhen the related service is provided. (bb) Foreign currency translation and foreign currency risks The functional currency of GDS Holdings is the USD, whereas the functional currency of its PRC subsidiaries and consolidated VIEs is the RMB. Foreign currency transactions during the period are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets andliabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains andlosses are recognized in profit or loss and are reported in foreign currency exchange gain (loss) on a net basis. The results of foreign operations are translated into RMB at the exchange rates approximating the foreign exchange rates ruling at the dates of thetransactions. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchangerates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported in other comprehensive income and accumulated in the translation adjustment component of equity until the saleor liquidation of the foreign entity. The RMB is not a freely convertible currency. The PRC State Administration for Foreign Exchange, under the authority of the PRC government,controls the conversion of RMB to foreign currencies. The value of the RMB is subject to changes of central government policies and internationaleconomic and political developments affecting supply and demand in the China foreign exchange trading system market. The Company’s cash andrestricted cash denominated in RMB amounted to RMB458,971 and RMB1,134,694 as of December 31, 2017 and 2018, respectively. F-25 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) As of December 31, 2018, the Company’s cash and restricted cash were deposited in major financial institutions located in PRC, Hong Kong SAR, USand Singapore and were denominated in the following currencies: RMBUSDHKDJPYEURSGD In PRC1,102,93937,988————In Hong Kong SAR31,75544,1957,94819,098153—In US—81,483————In Singapore—2,531———12 Total in original currency1,134,694166,1977,94819,09815312RMB equivalent1,134,6941,140,6456,9641,1821,20459 (cc) Concentration of credit risk Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalent, restrictedcash, and accounts receivable. The Company’s investment policy requires cash and cash equivalents and restricted cash to be placed with high-qualityfinancial institutions and to limit the amount of credit risk from any one issuer. The Company regularly evaluates the credit standing of thecounterparties or financial institutions. The Company conducts credit evaluations on its customers prior to delivery of goods or services. The assessment of customer creditworthiness isprimarily based on historical collection records, research of publicly available information and customer on-site visits by senior management. Based onthis analysis, the Company determines what credit terms, if any, to offer to each customer individually. If the assessment indicates a likelihood ofcollection risk, the Company will not deliver the services or sell the products to the customer or require the customer to pay cash, post letters of creditto secure payment or to make significant down payments. Historically, credit losses on accounts receivable have been insignificant. (dd) Earnings (loss) per share Basic earnings (loss) per ordinary share is computed by dividing net income (loss) attributable to the Company’s ordinary shareholders by the weightedaverage number of ordinary shares outstanding during the year using the two-class method. Under the two-class method, net income (loss) attributableto the Company’s ordinary shareholders is allocated between ordinary shares and other participating securities based on participating rights inundistributed earnings. The Company’s preferred shares (note 14) are participating securities since the holders of these securities participate individends on the same basis as ordinary shareholders. These participating securities are not included in the computation of basic loss per ordinary sharein periods when the Company reports net loss, because these participating security holders have no obligation to share in the losses of the Company. F-26 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Diluted earnings (loss) per share is calculated by dividing net income (loss) attributable to the Company’s ordinary shareholders as adjusted for theeffect of dilutive ordinary share equivalents, if any, by the weighted average number of ordinary and dilutive ordinary share equivalents outstandingduring the year. Ordinary share equivalents include the ordinary shares issuable upon the exercise of the outstanding share options (using the treasurystock method) and conversion of redeemable preferred shares and convertible bonds (using the as-if-converted method). Potential dilutive securities arenot included in the calculation of diluted earnings (loss) per share if the impact is anti-dilutive. (ee) Changes in accounting principle 1) The Company adopted ASC 606 Revenue from Contracts with Customers on January 1, 2018. The Company applied ASC 606 using thecumulative effect method — i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance ofaccumulated deficit at January 1, 2018. The Company elects to apply this guidance retrospectively only to contracts that are not completedcontracts as of January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under ASC 605Revenue Recognition. Certain sales agreement of the Company contains contingent consideration terms regarding the equipment sales. Before the adoption of ASC 606,the allocation of arrangement consideration to the delivered items is limited to amounts of revenue that are not contingent. Upon the adoption ofASC 606, sales are recognized as the Company transfers control of the promised products or services to the customers. The revenue recognition ofsuch equipment sales was accelerated as the control transfers. The Company estimates variable consideration to which it expects to be entitled,given consideration to the risk of revenue reversal in making the estimate. As a result, the Company made an adjustment to decrease the openingbalance of accumulated deficit by RMB726 at January 1, 2018. The adoption of ASC 606 does not have impact to the Company’s consolidated balance sheet as of December 31, 2018. The impact for adoption ofASC 606 to the Company’s consolidated statement of operations for the year ended December 31, 2018 is as follows: Consolidated Statement of Operations: Year endedDecember31, 2018Adjustments Amountswithoutadoptionof ASC 606 Net revenue2,792,0771,5692,793,646Cost of revenue(2,169,636)(843)(2,170,479)Income from operations168,355726169,081Net loss(430,268)726(429,542)Loss per ordinary shareBasic and diluted(0.43)0.00(0.43) F-27 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 2) The Company adopted ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash on January 1, 2018. According to this ASU, theamounts generally described as restricted cash are included with cash when reconciling the beginning-of-period and end-of-period total amountsshown on the consolidated statements of cash flows using a retrospective transition method to each period. As a result of the adoption of ASU2016-18, the consolidated statement of cash flows was retrospectively adjusted by excluding the increase of restricted cash of RMB21,248 fromcash flows from operating activities for the year ended December 31, 2016 and RMB9,762 from cash flows from operating activities, RMB3,619from cash flows from investing activities and RMB33,100 from cash flows from financing activities for the year ended December 31, 2017. Areconciliation of cash and restricted cash in the consolidated balance sheets to the amounts in the consolidated statements of cash flows is in note3. 3) The Company adopted ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments onJanuary 1, 2018. According to this ASU, cash payments not made soon after the acquisition date of a business combination by an acquirer to settlea contingent consideration liability should be separated and classified as cash outflows for financing activities and operating activities. Cashpayments up to the amount of the contingent consideration liability recognized at the acquisition date (including measurement-periodadjustments) should be classified as financing activities; any excess should be classified as operating activities. Cash payments made soon afterthe acquisition date of a business combination by an acquirer to settle a contingent consideration liability should be classified as cash outflowsfor investing activities. The amendments in this ASU should be applied using a retrospective transition method to each period presented. As aresult of the adoption of ASU 2016-15, the consolidated statement of cash flows for the year ended December 31, 2017 was retrospectivelyadjusted by reclassifying the payment of contingent consideration for acquisition of subsidiaries of RMB27,105 from investing activities to cashflows from operating activities and financing activities of RMB2,966 and RMB24,139, respectively. The adoption of ASU 2016-15 does not haveimpact on the consolidated statement of cash flows for the year ended December 31, 2016. 4) The Company adopted ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory on January 1, 2018. ThisASU requires the recognition of the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs,which consequently eliminates the exception for an intra-entity transfer of an asset other than inventory to the recognition of current and deferredincome taxes. Deferred tax assets recognized as a result of this ASU shall be assessed for realizability. ASU 2016-16 was applied on a modifiedretrospective basis, with a cumulative-effect adjustment directly to accumulated deficit of the Company as of January 1, 2018, and thecomparative information is not adjusted. The adoption of this ASU does not have impact to the accumulated deficit of the Company as ofJanuary 1, 2018. F-28 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (ff) Recently Issued Accounting Standards In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accountingfor Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues TaskForce), which clarifies the accounting for implementation costs incurred in a hosting arrangement that is a service contract. Capitalization of theseimplementation costs are accounted for under the same guidance as implementation costs incurred to develop or obtain internal-use software andrecorded as a prepaid asset. These capitalized costs are to be expensed ratably over the hosting arrangement term as operating expenses, along with theservice fees. The guidance is effective for periods beginning after December 15, 2019. Early adoption is allowed. The Company does not plan to earlyadopt this guidance and is evaluating the impact of the new standard. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the DisclosureRequirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of ASC 820. Under this ASU, keyprovisions include new, eliminated and modified disclosure requirements. The guidance is effective for periods beginning after December 15, 2019.Early adoption is allowed. The Company does not plan to early adopt this guidance and is evaluating the impact of the new standard. In June 2018, FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting. The ASU expands the scope of ASC 718, Compensation - Stock Compensation to include share-based payment transactions for acquiringgoods and services from nonemployees. An entity should apply the requirements of ASC 718 to nonemployee awards except for specific guidance oninputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern ofcost recognition over that period). The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquiresgoods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that ASC718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with sellinggoods or services to customers as part of a contract accounted for under ASC 606. The amendments in this ASU are effective for the Company sincefiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of this standard is not expected to havea significant impact on the Company’s consolidated financial statements. F-29 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) In January 2017, FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ThisASU is to simplify the subsequent measurement of goodwill. The ASU eliminates step 2 from the goodwill impairment test and the requirements for anyreporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of thegoodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitativeimpairment test is necessary. This ASU should be applied on a prospective basis. The amendments in this ASU are effective for the Company for itsannual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annualgoodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that the adoption of thisstandard will have on its consolidated financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on FinancialInstruments. This ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amountexpected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) topresent the net carrying value at the amount expected to be collected on the financial asset. The measurement of expected credit losses is based onrelevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect thecollectibility of the reported amount. This ASU eliminates the probable initial recognition threshold in current GAAP and, instead, reflects an entity’scurrent estimate of all expected credit losses. The amendments in this ASU is effective for the Company for its fiscal years beginning after December 15,2019, including interim periods within those fiscal years, with early adoption permitted since fiscal years beginning after December 15, 2018,including interim periods within those fiscal years. The adoption of this standard is not expected to have a significant impact on the Company’sconsolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued subsequent amendments to the initial guidance within ASU 2017-13,ASU 2018-01, ASU 2018-10, ASU 2018-11 and ASU 2018-20, collectively referred to as “ASC 842”. Under the new guidance, lessees will be requiredto recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’sobligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents thelessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certaintargeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606. The new lease guidancesimplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. F-30 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) ASC 842 is effective for the Company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to allleases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparativeperiod presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements forexisting leases also apply to leases entered into between the date of initial application and the effective date. The entity must also recast itscomparative period financial statements and provide the disclosures required by the new standard for the comparative periods. The Company expectsto use the effective date of January 1, 2019 as the date of initial application. Consequently, financial information will not be updated and thedisclosures required under the new standard will not be provided for dates and periods before January 1, 2019. ASC 842 provides a number of optional practical expedients in transition. The Company will elect the package of the transition practical expedients,including (1) not to reassess whether any expired or existing contracts, including land easements that were not previously accounted for as leases, are orcontain leases, (2) not to reassess the lease classification for any expired or existing leases, (3) not to reassess initial direct costs for any existing leases. ASC 842 is expected to have a material effect on the Company’s consolidated financial statements. While continuing to assess all of the effects ofadoption, the Company currently believes that the most significant effects relate to the recognition of right-of-use (“ROU”) assets and lease liabilitieson its balance sheet for operating leases and the derecognition of existing assets and liabilities for certain assets under construction in build-to-suitlease arrangements that the Company will lease when construction is complete. On adoption, the Company currently expects to: 1) Recognize additional operating lease liabilities and ROU assets of approximately RMB483,607 and RMB513,961, and derecognize intangibleassets of RMB44,552. 2) Derecognize other financing obligations and construction in progress of approximately RMB331,917 and RMB336,719, respectively, andrecognize prepaid expenses of RMB4,802, for assets under construction in build-to-suit lease arrangements. Upon completion of construction, newROU assets and lease liabilities are expected to be recognized on the consolidated balance sheet for the associated leases. ASC 842 also provides practical expedients for an entity’s ongoing accounting. The Company currently expects to elect the short-term leaserecognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize ROU assets or leaseliabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets. The Company also currentlyexpects to elect the practical expedient to not separate lease and non-lease components for all of the leases. F-31 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 3 CASH AND RESTRICTED CASH A reconciliation of cash and restricted cash in the consolidated balance sheets to the amounts in the consolidated statements of cash flows is as follows: As atDecember 31, 2017As atDecember 31, 2018 Cash1,873,4462,161,622Restricted cash - current assets10,83787Restricted cash - non-current assets63,317123,039 Total cash and restricted cash shown in the consolidated statements of cash flows1,947,6002,284,748 Restricted cash included in non-current assets was to secure the repayment of long-term bank borrowings and related interests. 4 CONTRACT BALANCES Accounts Receivable, Net Accounts receivable, net consisted of the following: As of December 31, 20172018 Accounts receivable364,654541,355Less: allowance for doubtful accounts—(241) Accounts receivable, net364,654541,114Including:- Current portion364,654536,842- Non-current portion—4,272 The Company generally invoices its customers on a monthly or quarterly basis in accordance with the contract terms. Due to the timing differencebetween the billing and revenue recognition, accounts receivable included an unbilled portion of RMB253,724 and RMB384,640 as of December 31,2017 and 2018, respectively. As of December 31, 2018, the accounts receivable expected to be received after one year amounted to RMB4,272 were recorded in other non-currentassets in the consolidated balance sheet. Accounts receivable of RMB136,043 and RMB365,938 was pledged as security for bank loans (note 9) as of December 31, 2017 and 2018,respectively. F-32 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) An allowance for doubtful accounts is provided based on the Company’s best estimate of the amount of probable credit losses in the Company’sexisting accounts receivable. The Company assesses the collectability of accounts receivable by analyzing specific customer accounts that haveknown or potential doubt as to collectability. The following table presents the movement of the allowance for doubtful accounts: Years ended December 31, 2016 2017 2018 Balance at the beginning of the year2,156——Allowance made during the year——241Reversal during the year(2,156)—— Balance at the end of the year——241 During the year ended December 31, 2016, the Company reversed allowance for doubtful accounts on a receivable from a customer of RMB2,156 dueto the collection of such balance during 2016. During the year ended December 31, 2018, the Company made an allowance on accounts receivable ofRMB241. Management believes all other accounts receivable as of December 31, 2018 are to be collected in full. Deferred Revenue The opening and closing balances of the Company’s deferred revenue are as following: Deferred revenue Beginning balance as of January 1, 201855,609Closing balance as of December 31, 201873,077 Increase17,468 The difference between the opening and closing balances of the Company’s deferred revenue primarily results from the timing difference between thesatisfaction of the Company’s performance obligation and the customer’s payment. The amounts of revenue recognized during the year endedDecember 31, 2018 from the opening deferred revenue balance was RMB43,192. Remaining performance obligations The Company elected to apply the practical expedient that allows the Company not to disclose the remaining performance obligations for variableconsideration that is allocated to entirely unsatisfied performance obligations or to a wholly unsatisfied distinct good or service that forms part of asingle obligation. This includes usage-based contracts for certain colocation and managed hosting services for which the variable consideration isallocated entirely to the unsatisfied promised services that form part of the single performance obligation under these contracts. As of December 31, 2018, approximately RMB1,631,208 of total revenues and deferred revenues are expected to be recognized in future periods, themajority of which will be recognized over the next three years. F-33 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 5 PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: As ofDecember 31, 2017As ofDecember 31, 2018 At cost:Buildings2,693,8434,382,469Data center equipment2,202,2474,225,963Leasehold improvement2,243,6914,239,601Furniture and office equipment36,76245,057Vehicles2,9724,0867,179,51512,897,176Less: Accumulated depreciation(965,758)(1,534,368)6,213,75711,362,808Construction in progress1,951,8442,632,137 Property and equipment, net8,165,60113,994,945 (1) The carrying amounts of the Company’s property and equipment acquired under capital leases and other financing arrangement at the respectivebalance sheet dates were as follows: As ofDecember 31, 2017As ofDecember 31, 2018 At cost (note):Buildings2,488,5224,557,081Data center equipment192,946300,9602,681,4684,858,041Less: Accumulated depreciation(141,948)(287,375) 2,539,5204,570,666 Note: This item included buildings under construction of RMB476,489 and RMB1,478,612 and data center equipment under construction ofRMB180,228 and nil, respectively, as of December 31, 2017 and 2018. F-34 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (2) Depreciation of property and equipment (including assets acquired under capital leases and other financing arrangement) was RMB212,873,RMB352,480 and RMB682,451 for the years ended December 31, 2016, 2017 and 2018, respectively, and included in the following captions: Years ended December 31, 2016 2017 2018 Cost of revenue206,724345,025674,560General and administrative expenses5,4256,9027,319Research and development expenses724553572 212,873352,480682,451 (3) Property and equipment with net a book value of RMB698,922 and RMB1,716,736 was pledged as security for bank loans (note 9) as ofDecember 31, 2017 and 2018, respectively. (4) As of December 31, 2017 and 2018, payables for purchase of property and equipment that are contractually due beyond one year of RMB195,749and RMB206,591 are recorded in other long-term liabilities in the consolidated balance sheets. 6 INTANGIBLE ASSETS, NET Intangible assets consisted of the following: Note As ofDecember 31, 2017 As ofDecember 31, 2018 Customer relationships8379,322532,322Favorable leases815,50049,500Licenses 6,0006,000 400,822587,822Less: accumulated amortization (52,356)(105,330) Intangible assets, net 348,466482,492 The Company’s customer relationships and favorable leases were acquired in business combinations (note 8). Amortization of intangible assets wasRMB13,866, RMB25,103 and RMB 52,974 for the years ended December 31, 2016, 2017 and 2018, respectively. F-35 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Estimated future amortization expense related to these intangible assets is as follows: Fiscal year ending December 31, 201961,204202053,054202153,054202253,054202351,512Thereafter210,614 Total482,492 7 PREPAID LAND USE RIGHTS Prepaid land use rights consisted of the following: As of December 31, 2017 2018 Prepaid land use rights28,370765,114Less: Accumulated amortization(2,125)(8,157) Prepaid land use rights, net26,245756,957 Amortization of prepaid land use rights was RMB616, RMB547 and RMB6,082 for the years ended December 31, 2016, 2017 and 2018, respectively. Prepaid land use rights with a net book value of RMB6,091 and RMB13,241 were pledged as security for bank loans (note 9) as of December 31, 2017and 2018, respectively. 8 BUSINESS COMBINATIONS The movement of goodwill is set out as below: As of December 31,2017 2018 Balance at the beginning of the year1,341,0871,570,755Addition during the year229,668181,215Balance at end of year1,570,7551,751,970 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition. Thegoodwill is not deductible for tax purposes. Goodwill is assigned to the design, build-out and operation of data centers reporting unit. F-36 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Guangzhou 1 Acquisition On May 19, 2016, the Company acquired all of the equity interests in Guangzhou Weiteng Construction Co., Ltd. (“Weiteng Construction”) from athird party for an aggregate purchase price of RMB129,500. The Company had paid the full purchase consideration as of December 31, 2017. Weiteng Construction is a limited liability company organized and existing under the PRC law and owns a data center project (“Guangzhou 1”) inGuangzhou, China. At the date of acquisition, the data center has just commenced its operations. The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair value on the acquisition date andconsisted of the following major items. NoteFair value of consideration129,500Effective settlement of pre-existing relationships upon consolidation(i)43,161Recognized amounts of identifiable assets acquired and liabilities assumed: Cash (1,237)Property and equipment(ii)(281,437)Identifiable intangible assets(iii)(59,500)Other assets (25,363)Accounts payable 131,114Capital lease and other financing obligations, current 12,097Capital lease and other financing obligations, non-current 68,584Deferred tax liabilities 21,143Other liabilities 8,361Total identifiable net assets (126,238)Goodwill(iv)46,423 Note (i): Prior to the acquisition, in February and May 2016, the Company lent short-term loans of RMB40,000 and RMB2,000, respectively, toWeiteng Construction. The loans bear an interest rate of 10% per annum and mature in September 2016. No gain or loss was recognized fromthe effective settlement of such pre-existing relationship between the Company and Weiteng Construction. At the acquisition date, theamount due from Weiteng Construction of RMB43,161, including loan principal of RMB42,000 and interest receivable of RMB1,161, iseliminated upon consolidation. Note (ii): Property and equipment acquired included properties acquired under capital lease of RMB102,785, data center equipment of RMB19,895,leasehold improvement of RMB132,462 and construction in progress of RMB26,295. Note (iii): Identifiable intangible assets acquired consisted of customer relationships of RMB59,500 with an estimated useful life of 7 to 8 years. Note (iv): Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition.Goodwill is assigned to the design, build-out and operation of data centers reporting unit. Goodwill primarily represents the expectedsynergies from combining operations of Weiteng Construction with those of the Company and intangible assets that do not qualify forseparate recognition and is not deductible for tax purposes. In accordance with ASC350, goodwill is not amortized but is tested forimpairment. The amounts of net revenue and net loss of Weiteng Construction included in the Company’s consolidated statements of operations from theacquisition date to December 31, 2016 amounted to RMB36,924 and RMB2,861, respectively. F-37 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Shenzhen 5 Acquisition On June 29, 2017, the Company consummated an acquisition of all equity interests in a target group, comprising onshore and offshore entities, fromthird parties for an aggregate contingent purchase price of RMB312,000. As of December 31, 2018, the present value of remaining considerationpayable of RMB123,098 was recorded in other payables with payment schedule based on the milestone related to the achievement of all specifiedconditions. The target group owns a data center project (“Shenzhen 5”) in Shenzhen, China. At the date of acquisition, the data center had just commenced itsoperations. The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair value on the acquisition date andconsisted of the following major items. Note Fair value of consideration(i)294,491Effective settlement of pre-existing relationships upon consolidation(ii)6,025Recognized amounts of identifiable assets acquired and liabilities assumed: Cash (11,153)Property and equipment(iii)(821,405)Identifiable intangible assets(iv)(176,500)Other assets (59,520)Accounts payable 219,207Capital lease and other financing obligations, current 23,156Capital lease and other financing obligations, non-current 363,380Long-term borrowings 217,790Deferred tax liabilities 45,931Other liabilities 55,299Total identifiable net assets (143,815)Goodwill(v)156,701 Note (i): The fair value of consideration represents the present value of the purchase price of RMB312,000. Note (ii): Prior to the acquisition, the Company had other receivables from the target group of RMB6,025, which was effectively settled with the sellerupon completion of the acquisition. Note (iii): Property and equipment acquired included properties acquired under capital lease of RMB416,000, data center equipment of RMB174,292,leasehold improvements of RMB118,368 and construction in progress of RMB112,745. Note (iv): Identifiable intangible assets acquired consisted of customer relationships of RMB176,500 with an estimated useful life of 14.4 years. Note (v): Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition.Goodwill is assigned to the design, build-out and operation of data centers reporting unit. Goodwill primarily represents the expectedsynergies from combining operations of the target group with those of the Company and intangible assets that do not qualify for separaterecognition and is not deductible for tax purposes. F-38 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The amounts of net revenue and net loss of the target group included in the Company’s consolidated statements of operations from the acquisition dateto December 31, 2017 amounted to RMB42,072 and RMB23,859, respectively. Guangzhou 2 Acquisition On October 9, 2017, the Company consummated an acquisition of all equity interests in a target group, comprising onshore and offshore entities, fromthird parties for a cash consideration of RMB233,984. The Company paid the full consideration as of December 31, 2018. The target group owns a data center project (“Guangzhou 2”) in Guangzhou, China. The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair value on the acquisition date andconsisted of the following major items. Note Fair value of consideration233,984Effective settlement of pre-existing relationships upon consolidation(i)(1,807)Recognized amounts of identifiable assets acquired and liabilities assumed: Cash (10,144)Accounts receivable (25,177)Property and equipment(ii)(319,943)Identifiable intangible assets(iii)(98,500)Other assets (14,135)Accounts payable 56,431Capital lease and other financing obligations, current 5,958Capital lease and other financing obligations, non-current 101,875Short-term borrowings 50,750Long-term borrowings 52,999Deferred tax liabilities 35,097Other liabilities 5,579Total identifiable net assets (159,210)Goodwill(iv)72,967 Note (i): Prior to the acquisition, the Company had payables to the target group of RMB1,807, which was effectively settled with the seller uponcompletion of the acquisition. Note (ii): Property and equipment acquired included properties acquired under capital lease of RMB106,000, data center equipment of RMB57,932,leasehold improvement of RMB155,149 and furniture and office equipment of RMB862. Note (iii): Identifiable intangible assets acquired consisted of customer relationships of RMB98,500 with an estimated useful life of 11.8 years. Note (iv): Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition.Goodwill is assigned to the design, build-out and operation of data centers reporting unit. Goodwill primarily represents the expectedsynergies from combining operations of the target group with those of the Company and intangible assets that do not qualify for separaterecognition and is not deductible for tax purposes. F-39 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The amounts of net revenue and net income of the target group included in the Company’s consolidated statements of operations from the acquisitiondate to December 31, 2017 amounted to RMB26,573 and RMB2,734, respectively. Guangzhou 3 Acquisition On May 2, 2018, the Company consummated an acquisition of all equity interests in a target group, comprising onshore and offshore entities, fromthird parties for an aggregate cash consideration of RMB262,244 (including contingent considerations of RMB245,244). As of the acquisition date,the Company estimated that, pursuant to the share purchase agreement, all specified conditions would be met and the Company would be obligated tosettle full amount of the purchase price of RMB262,244. As of December 31, 2018, the present value of remaining consideration payable wasRMB124,921, of which RMB45,838 and RMB79,083 were recorded in other payables and other long-term liabilities, respectively. The paymentschedule of remaining consideration is based on the milestone related to the achievement of all specified conditions. The target group owns a data center project (“Guangzhou 3”) in Guangzhou, China. The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair value on the acquisition date andconsisted of the following major items. Note Fair value of consideration(i)247,937Recognized amounts of identifiable assets acquired and liabilities assumed: Cash (62)Accounts receivable (13,995)Property and equipment(ii)(780,312)Identifiable intangible assets(iii)(130,000)Other assets (43,039)Accounts payable 471,532Capital lease and other financing obligations, non-current 282,051Short-term borrowings 47,580Long-term borrowings 30,000Deferred tax liabilities 26,503Other liabilities 2,849Total identifiable net assets (106,893)Goodwill(iv)141,044 Note (i): The fair value of consideration represents the present value of the purchase price of RMB262,244. Note (ii): Property and equipment acquired included properties acquired under capital lease of RMB291,000, data center equipment of RMB254,241and leasehold improvement of RMB235,071. Note (iii): Identifiable intangible assets acquired consisted of customer relationships of RMB130,000 with an estimated useful life of 7 years. Note (iv): Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition.Goodwill is assigned to the design, build-out and operation of data centers reporting unit. Goodwill primarily represents the expectedsynergies from combining operations of the target group with those of the Company and intangible assets that do not qualify for separaterecognition and is not deductible for tax purposes. F-40 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The amounts of net revenue and net loss of the target group included in the Company’s consolidated statements of operations from the acquisition dateto December 31, 2018 amounted to RMB85,298 and RMB11,727 respectively. Shanghai 11 Acquisition On June 1, 2018, the Company consummated an acquisition of all equity interests in a target entity from third parties for an aggregate cashconsideration of RMB320,000 (including contingent considerations of RMB70,000). As of the acquisition date, the Company estimated that, pursuantto the share purchase agreement, all specified conditions would be met and the Company would be obligated to settle full amount of the purchase priceof RMB320,000. As of December 31, 2018, the present value of remaining consideration payable of RMB13,931 was recorded in other payables. Thepayment schedule of remaining consideration is based on the milestone related to the achievement of all specified conditions. The target entity owns a data center project (“Shanghai 11”) in Shanghai, China. The identifiable assets acquired and liabilities assumed in the business combination were recorded at their fair value on the acquisition date andconsisted of the following major items. Note Fair value of consideration(i)319,119Recognized amounts of identifiable assets acquired and liabilities assumed: Cash (404)Property and equipment(ii)(233,405)Identifiable intangible assets(iii)(57,000)Other assets (94,647)Accounts payable 91,136Deferred tax liabilities 9,995Other liabilities 5,377Total identifiable net assets (278,948)Goodwill(iv)40,171 Note (i): The fair value of the consideration represents the present value of the purchase price of RMB320,000. Note (ii): Property and equipment acquired included data center equipment of RMB70,241 and leasehold improvement of RMB163,164. Note (iii): Identifiable intangible assets acquired consisted of customer relationships of RMB23,000 with an estimated useful life of 10 years andfavourable lease of RMB34,000 with an estimated useful life of 13.6 years. Note (iv): Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in the acquisition.Goodwill is assigned to the design, build-out and operation of data centers reporting unit. Goodwill primarily represents the expectedsynergies from combining operations of the target group with those of the Company and intangible assets that do not qualify for separaterecognition and is not deductible for tax purposes. In accordance with ASC 350, goodwill is not amortized but is tested for impairment. F-41 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The amounts of net revenue and net loss of the target entity included in the Company’s consolidated statements of operations from the acquisition dateto December 31, 2018 amounted to RMB35,489 and RMB2,924, respectively. Supplemental pro forma financial information as if the acquisitions had occurred as of the earliest date presented has not been provided as theacquisitions are not material to the Company’s results of operations in 2018. Asset acquisitions in 2018 In 2018, the Company consummated several acquisitions of certain target groups for a total cash consideration of RMB124,667. These acquisitions didnot meet the definition of a business as of the acquisition date in accordance with ASC 805 Business Combinations, and were accounted for as assetsacquisitions. The targets entered into various property lease arrangements to operate data center business. These data centers had not commenced theiroperations as of the respective acquisition date. The primary assets acquired were properties under capital leases, equipment and leaseholdimprovements. The Company settled the consideration of RMB115,167 in 2018. As of December 31, 2018, the remaining consideration payable wasRMB9,500, which was recorded in other payables. 9 LOANS AND BORROWINGS The Company’s borrowings consisted of the following: As ofDecember 31, 2017As ofDecember 31, 2018 Short-term borrowings462,946684,788Current portion of long-term borrowings327,538598,532Sub-total790,4841,283,320Long-term borrowings, excluding current portion3,459,7655,203,708 Total loans and borrowings4,250,2496,487,028 F-42 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Short-term borrowings The Company’s short-term borrowings consisted of the following: As ofDecember 31, 2017 As ofDecember 31, 2018 Unsecured short-term loans and borrowings230,00030,000Secured short-term loans and borrowings232,946654,788 462,946684,788 Short-term borrowings were secured by the following assets: As ofDecember 31, 2017 As ofDecember 31, 2018 Accounts receivable (Note)11,61518,796Property and equipment, net—203,290 11,615222,086 The weighted average interest rates of short-term borrowings outstanding as of December 31, 2017 and 2018 were 7.93% and 7.01% per annum,respectively. Long-term borrowings The Company’s long-term borrowings consisted of the following: As ofDecember 31, 2017 As ofDecember 31, 2018 Unsecured long-term loans and borrowings167,25085,250Secured long-term loans and borrowings3,620,0535,716,990 3,787,3035,802,240 The weighted average interest rates of long-term borrowings as of December 31, 2017 and 2018 were 6.93% and 7.42% per annum, respectively. F-43 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Long-term borrowings were secured by the following assets: As ofDecember 31, 2017 As ofDecember 31, 2018 Accounts receivable (Note )124,428347,142Property and equipment, net698,9221,513,446Prepaid land use rights, net6,09113,241 829,4411,873,829 Note: The Company applied accounts receivable generated from certain data center operation as collateral to secure borrowings. The outstanding long-term borrowings mature serially from 2019 to 2028. The aggregate maturities of the above long-term borrowings for each for thefive years and thereafter subsequent to December 31, 2018 are as follows: Twelve-months ending December 31, Long-term borrowings2019598,5322020725,72720211,759,69520221,087,95520231,235,936Thereafter394,3955,802,240 The Company entered into secured loan agreements with various financial institutions for project development and working capital purpose with termsranging from 1 to 13 years. More specifically, the terms of these secured loan facility agreements generally include one or more of the following conditions. If any of the belowconditions were to be triggered, the Company could be obligated to notify the lender or repay any loans outstanding immediately or on an acceleratedrepayment schedule: (i) STT Communications Ltd. ceases to, directly or indirectly, own at least 50.1% of equity interests of STT GDC Pte. Ltd. (“STT GDC”); (ii) STT GDC (a) is not or ceases to, directly or indirectly, be the beneficial owner of at least 30%, in certain cases, 25%, of the issued share capital ofthe Company, or (b) does not or ceases to have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to cast, orcontrol the casting of, at least 30%, in some cases, 25%, of the votes that may be cast at a meeting of the board of directors (or similar governingbody) of the Company, or (c) is not or ceases to be the single largest shareholder of the Company; F-44 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (iii) The Company and GDS Investment are not or ceases to be, directly or indirectly, the legal and beneficial owner of 100% of equity interests of, andhave the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to control, GDS Investment, GDS Beijing, GDSSuzhou and the relevant borrowing subsidiaries; (iv) William Wei Huang ceases to, directly or indirectly, own at least 99.9% of the equity interests of and have the power to control GDS Beijing orGDS Suzhou; (v) GDS Beijing, GDS Suzhou, and the relevant borrowing subsidiaries, cease to, directly or indirectly, be the legal and beneficial owner of 100% ofequity interests of, and have the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to control, their consolidatedsubsidiaries as mentioned in Note 2(a); (vi) there are changes in the shareholding structure of a principal operating subsidiary of ours, as defined in the relevant loan facility agreement; and (vii) the IDC license of GDS Beijing or the borrowing subsidiaries, or the authorization by GDS Beijing to one of the subsidiaries to operate the datacenter business and provide IDC services under the auspices of the IDC license held by GDS Beijing is cancelled or fail to be renewed on or beforethe expiry date. There are certain other events in the loan facility agreements upon which the Company could be obligated to notify the lender or repay any loansoutstanding immediately or on an accelerated repayment schedule, for example, the borrowing subsidiary fails to use the loan in accordance with theuse of proceeds as provided in the loan facility agreement, the borrowing subsidiary violates or fails to perform any of its commitments under the loanfacility agreement, the Company is delisted before the maturity date under the relevant loan facility agreement, etc. In addition, the loan facilitiescontain financial covenants that limit certain financial ratios, such as the interest coverage ratio and gross leverage ratio, during the relevant period, asdefined in the facilities. The loan facilities also include cross default provisions which would be triggered if the Company fails to repay any financialindebtedness in an aggregate amount of either US$4,500 or RMB50,000 or more when due or within any originally applicable grace period. As ofDecember 31, 2018, the Company was in compliance with these covenants. As of December 31, 2018, the Company had total working capital and project financing credit facilities of RMB8,134,013 from various financialinstitutions, of which the unused amount was RMB1,497,452. As of December 31, 2018, the Company had drawn down RMB6,636,561, of whichRMB684,788 (net of debt issuance costs of RMB2,102) was recorded in short-term loans and borrowings and RMB5,802,240 (net of debt issuancecosts of RMB147,431) was recorded in long-term loans and borrowings, respectively. Drawdowns from the credit facility are subject to the approval ofthe banks and are subject to the terms and conditions of each agreement. F-45 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 10 CONVERTIBLE BONDS PAYABLE Convertible Bonds due December 30, 2019 issued by the Company (“Convertible Bonds due 2019”) On December 30, 2015, the Company entered into a subscription agreement with two investors (referred to as “PA investor” and STT GDC Pte. Ltd. or“STT GDC”) for Convertible Bonds due 2019 in an aggregate principal amount of US$250,000 in four tranches. On December 30, 2015 andJanuary 29, 2016, the Company received the first tranche of US$100,000 (RMB648,950) from PA investor and the second tranche of US$50,000(RMB324,475) from STT GDC, respectively. The subscription for the remaining third and fourth tranches of the Convertible Bonds due 2019 in theaggregate principal amount of US$100,000 (RMB648,950) expired on September 30, 2016. The Company pledged 100% of the equity interests in asubsidiary to the investors. The key terms of the Convertible Bonds due 2019 are summarized as follows: Maturity Date · December 30, 2019 Interest · A simple rate of 5% per annum on the outstanding principal amount, payable by the Company semi-annually (the “Cash Interest”). · In the event that the bond holder has redeemed or converted part or whole of the principal amount, the bond holder shall be entitled to additionalinterest with a simple rate of 5% per annum (the “Accrued Interest”), payable in cash on the Maturity Date in the case of redemption or by issuanceof ordinary shares of the Company at the Conversion Price on the Conversion Date in the case of conversion. Conversion of the Convertible Bonds due 2019 · If the Company completes a QIPO, the bond holder, at any time between the date of completion of such QIPO (the “QIPO Completion Date”) and theMaturity Date (the “Conversion Period”), have the right to convert up to 100% of the principal amount of the bond (in multiples of US$10,000),together with the Accrued Interest thereon, into ordinary shares of the Company. The conversion price shall be US$1.675262 subject to adjustmentsfor situations such as share dividend, share split, consolidation, recapitalization, exchange or substitution of ordinary shares at any time or from timeto time. The Company determined that there was no embedded beneficial conversion feature (“BCF”) attributable to Convertible Bonds due 2019 atthe commitment date because the initial conversion price of Convertible Bonds due 2019 was greater than the estimated fair value of the Company’sordinary shares as of December 30, 2015. The estimated fair value of the underlying ordinary shares on December 30, 2015 was determined bymanagement with the assistance of an independent valuation firm. The valuation used an income approach, which requires the estimation of futurecash flows and the application of an appropriate discount rate with reference to comparable listed companies engaged in a similar industry toconvert such future cash flows to a single present value. F-46 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) · The Company determined that the embedded conversion option of the Convertible Bonds due 2019 was not required to be accounted for as anembedded derivative for periods prior to the Company’s IPO, as the underlying ordinary shares were not publicly traded or otherwise readilyconvertible into cash. Upon the listing of the Company’s ordinary shares on November 2, 2016, the embedded conversion option has beenaccounted for separately as an embedded derivative with changes in its fair value recognized through the consolidated statement of operations. With the assistance of an independent appraiser, the Company determined that the fair value of the embedded conversion feature as a derivativeliability was immaterial as of November 2, 2016 and December 31, 2016. Accordingly, no gain or loss was recognized in respect of the change in thefair value of such derivative liability for the year ended December 31, 2016. · If the Company completes a QIPO and the closing price of its shares is at or above 125% of the conversion price (i.e. 25% premium to the conversionprice) for a period of at least ten consecutive trading days, the Company may, at its unilateral option, notify the bondholder that the bond thenoutstanding will be mandatorily converted at the end of the notice period in accordance with the terms and conditions of the bond. Redemption on maturity · Unless previously converted or purchased and cancelled in the circumstances, the bond will be redeemed on December 30, 2019 at its principalamount, plus Accrued Interest thereon. In November 2017, the bond holders of the Convertible Bonds due 2019, exercised the right to convert 100% of the principal amount of the bonds,together with the Accrued Interest thereon into 97,870,263 newly issued Class A ordinary shares at the conversion price of US$1.675262 pursuant tothe terms of the bonds. Concurrent with the conversion, the accrued but unpaid Cash Interest was relinquished. The difference between par value of theshares issued of RMB32 and the carrying value of the convertible bonds, Accrued Interest and unpaid Cash Interest of RMB1,106,195 were recorded asadditional paid-in capital upon conversion. Convertible Bonds due June 1, 2025 issued by the Company (“Convertible Bonds due 2025”) On June 5, 2018, the Company completed its issuance of Convertible Bonds due 2025 in an aggregate principal amount of US$300,000. The relatedissuance costs of US$8,948 were deducted from principal of the Convertible Bonds due 2025 and amortized over the period from issuance to the firstput date (i.e. June 1, 2023) using the effective interest rate method. As of December 31, 2018, accrued interests of RMB3,432 were recorded in accruedexpenses. The key terms of the Convertible Bonds due 2025 are summarized as follows: Maturity Date · June 1, 2025 Interest · 2.0% per annum, accruing from June 5, 2018 (computed on the basis of 360-day year composed of twelve 30-day months), payable semiannually inarrears on June 1 and December 1 of each year F-47 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Repurchase of Notes · Holders will have the right to require the Company to repurchase for cash all of their notes, or any portion of the principal thereof that is equal toUS$1 thousand or an integral multiple of US$1 thousand, on June 1, 2023 or if a fundamental change occurs at any time. Tax redemption · The Company may redeem, at its option, all but not part of the Convertible Bonds due 2025 if it becomes obligated to pay to the holder of any note“additional amounts” (which are more than a de minimis amount) as a result of any change in tax law at the price equal to 100% of the principalamount together with accrued and unpaid interest. Upon receiving notice of redemption, each holder will have the right to elect to: convert its notes;or not have its notes redeemed and GDS Holdings will not pay any additional amounts as a result of such change in tax law. Conversion rights · Holders may convert their notes at their option at any time prior to the close of business on the third scheduled trading day immediately precedingthe maturity date. · The conversion rate is initially 19.3865 ADSs of the Company per US$1 thousand principal amount of notes (equivalent to an initial conversionprice of approximately US$51.58 per ADS), and subject to changes under certain anti-dilution conditions. The Company determined that the embedded conversion option of the Convertible Bonds due 2025 was not required to be accounted for as anembedded derivative pursuant to ASC 815 Derivatives and Hedging. The Company also determined that there was no embedded BCF attributable toConvertible Bonds due 2025 at the commitment date because the initial conversion price of Convertible Bonds due 2025 was greater than the fairvalue of the Company’s ordinary shares. Contingent BCF will be assessed upon occurrence of an adjusting event to the conversion price. TheCompany also determined there was no other embedded derivative to be separated from the Convertible Bonds due 2025. 11 ACCRUED EXPENSES AND OTHER PAYABLES Accrued expenses and other payables consisted of the following: As of December 31, 20172018 Accrued interest expenses21,11432,902Accrued debt issuance costs34,194618Income tax payable (note 19)20,12243,898Consideration payables for acquisitions (note 8)159,489192,367Deferred government grants—4,800Accrued payroll and welfare benefits47,43277,134Accrued professional fees15,72532,076Other accrued operating expenses38,11852,618Other payables32,43040,151 368,624476,564 F-48 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 12 LEASE Capital lease and other financing obligations The Company’s capital lease and other financing obligations are summarized as follows: December 31, 2017December 31, 2018 CapitalleaseobligationsOtherfinancingobligationsTotalCapital leaseobligationsOtherfinancingobligationsTotal Within 1 year212,78045,007257,787352,52437,150389,674After 1 year but within 2 years220,29363,151283,444453,89180,276534,167After 2 years but within 3 years316,47575,685392,160286,468107,497393,965After 3 years but within 4 years144,05276,678220,730282,627111,616394,243After 4 years but within 5 years141,91080,832222,742292,481113,667406,148After 5 years1,900,7441,469,3183,370,0623,926,0281,878,0985,804,126 Total2,936,2541,810,6714,746,9255,594,0192,328,3047,922,323 Less total future interest(1,209,120)(905,590)(2,114,710)(2,300,484)(1,160,108)(3,460,592)Less: estimated building costs—(231,228)(231,228)—(160,506)(160,506) Present value of lease and otherfinancing obligations1,727,134673,8532,400,9873,293,5351,007,6904,301,225Including:Current portion97,943166,898Non-current portion2,303,0444,134,327 The Company’s capital and build-to-suit leases expire at various dates ranging from 2020 to 2039. The weighted average effective interest rate of theCompany’s capital and build-to-suit leases was 7.28% and 6.99% as of December 31, 2017 and 2018, respectively. The balances of other financing obligations are all derived from build-to-suit leases. The Company recognized the capital lease and other financing obligations assumed in the business combination at the acquisition-date fair value. Inaddition, the Company entered into the following lease arrangements, which are classified as capital lease based on the assessment performed pursuantto the accounting standard for leases, during the year ended December 31, 2018: Data center building leases During the year ended December 31, 2018, the Company recorded additional capital leases for seven data center buildings with initial capital leaseobligations totaling RMB1,300,453 through new lease agreements or acquisition of subsidiaries. The leases have terms of 15 or 20 years throughMarch 2033 to June 2038. F-49 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Equipment Leases During the year ended December 31, 2018, the Company entered into five lease agreements with third party lessors in respect of certain data centerequipment. These equipment leases have lease terms of 3 years with initial capital lease obligations totaling RMB108,665. Build-to-suit leases In July and August 2018, the Company entered into two lease agreements with third-party developer-lessors for the development, construction andlease (build-to-suit lease) of two brand new buildings (the “Shanghai 12 Lease” and the “Shanghai 13 Lease”) in Shanghai, China. The Company paiddeposits for the leases to the developer-lessors. Shanghai 12 Lease has an estimated lease term of 15.7 years commencing upon the delivery of therespective completed building to the Company to November 2035. Shanghai 13 Lease has a lease term of 20 years commencing upon the delivery ofthe respective completed building to the Company. The buildings will be constructed based on the Company’s specifications and will not include anyinterior elements, such as electrical wiring, interior walls, ventilation and air conditioning systems, flooring or normal tenant improvements (referred toas cold-shell buildings). Upon completion of constructions and the delivery of the cold-shell buildings, the Company will convert the buildings intodata centers. No rent is paid by the Company during the construction of the buildings. All project hard costs are to be paid by the developer-lessors,including site preparation and construction costs. If the Company terminates the agreements before the construction of the buildings are completed, theCompany is obligated to reimburse the developer-lessors for costs incurred during the construction period, including but not limited to projectapplication costs, project design fees, ground preparation and levelling costs. In accordance with ASC 840-40-55, the Company has determined that it is the owner of the buildings in Shanghai 12 Lease and Shanghai 13 Leaseduring the construction period for financial reporting purposes as it has substantially all of the construction period risks based on the maximumguarantee test (without considering probability that the Company having to make the payments). Accordingly, the Company records an asset for theestimated construction costs incurred of the project and a liability for those costs funded by the lessor-developer during the construction period. F-50 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Operating leases The Company leases data centers, offices and other equipment that are classified as operating leases. The majority of the Company’s operating leasesexpire at various dates though 2037. Future minimum operating lease payments as of December 31, 2018 are summarized as follow: Twelve-months ending December 31, 201995,082202069,541202148,072202241,758202340,952Thereafter407,070Total702,475 Rental expenses were approximately RMB124,712, RMB155,148 and RMB108,550 for the years ended December 31, 2016, 2017 and 2018,respectively. The Company did not sublease any of its operating leases for the periods presented. 13 OTHER LONG-TERM LIABILITIES Other long-term liabilities consisted of the following: As ofDecember 31, 2017 As ofDecember 31, 2018 Consideration payable for acquisitions (Note 8)120,88179,083Payables for purchase of property and equipment195,749206,591Deferred government grants16,7899,771Asset retirement obligations17,64835,879Others7,8319,488 Total358,898340,812 F-51 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 14 REDEEMABLE PREFERRED SHARES Series A Series A* Series B Series B1 Series B2 Series B4 Series B5 Series C Total Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Shares RMB’000 Balance atJanuary 1, 201629,635,045107,4286,916,64539,5752,576,48316,78911,527,74280,14810,435,63967,41914,076,62087,47735,393,262258,038238,526,2411,738,440349,087,6772,395,314Changes inredemptionvalue—(39,098)———(3,921)———————(21,016)—(141,635)—(205,670)Conversion toordinary shares(29,635,045)(72,965)(6,916,645)(43,564)(2,576,483)(13,600)(11,527,742)(88,221)(10,435,639)(74,209)(14,076,620)(96,287)(35,393,262)(248,455)(238,526,241)(1,673,831)(349,087,677)(2,311,132)Foreign exchangeimpact—4,635—3,989—732—8,073—6,790—8,810—11,433—77,026—121,488Balance atDecember 31,2016—————————————————— The Series A, Series B Shares, Series A* Shares, Series B1 Shares, Series B2 Shares, Series B3 Shares, Series B4 Shares, Series B5 Shares and Series C Sharesare collectively referred to as the “preferred shares”. The preferred shares are denominated in US$, which is the functional currency of the issuer,GDS Holdings. F-52 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) In January 2007, the Company issued 53,625,000 Series A redeemable preferred shares (“Series A Shares”) to a group of investors unrelated to theCompany at US$0.3636 (RMB2.8279) per share. Concurrent with the issuance, a holder of bonds payable converted bonds payable of US$3,500(RMB27,222) into 9,625,000 Series A Shares. In March 2011, the Company issued 11,550,000 Series B redeemable preferred shares (“Series B Shares”) to a group of investors unrelated to theCompany at US$0.7792 (RMB5.1087) per share. In June 2014, the Company issued 88,352,558 ordinary shares, 14,149,705 Series A* Shares,33,959,293 Series B1 Shares, 25,618,413 Series B2 Shares, 14,045,432 Series B3 Shares and 23,037,763 Series B4 Shares in connection with theacquisition of EDC Holding Limited (“EDC Holding”). Series B1, B2, B3, B4 Shares are collectively referred to as Series B* Shares. On August 13, 2014, the Company issued 238,526,241 Series C redeemable preferred shares (“Series C Shares”) to an investor unrelated to theCompany at US$1.0365 (RMB6.3779) per share, for cash consideration of US$247,238 (RMB1,521,295). The Company incurred issuance costs ofUS$3,271 (RMB20,128), which were recorded as a reduction in the carrying amount of the redeemable preferred shares. Prior to the completion of the IPO, the Company concluded that it was probable that the redeemable preferred shares will become redeemable. TheCompany has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the redeemablepreferred shares to equal the redemption value at the end of each reporting period. Increases in the carrying amount of the redeemable preferred sharesare recorded by charges against retained earnings or, in the absence of retained earnings, by charges against paid-in capital. Reductions in the carryingamount of the redeemable preferred shares are recognized only to the extent that increases to the initial carrying amount of the redeemable preferredshares were previously recorded. The resulting increases or decreases in the carrying amount of redeemable preferred shares increases or decreases netloss attributable to ordinary shareholders in the calculation of earnings per share. The increase in redemption value of the redeemable preferred shareswas RMB69,116 and RMB110,926 for the years ended December 31, 2014 and 2015, respectively. The decrease in redemption value of theredeemable preferred shares was RMB205,670 for the year ended December 31, 2016 as a result of the preference dividend declared and paid upon thecompletion of the IPO. Extinguishment of preferred shares In connection with the issuance of Series C Shares, on August 13, 2014, the Company repurchased 23,533,064 Series A Shares, 5,503,899 Series A*Shares, 8,413,412 Series B Shares, 13,209,358 Series B1 Shares, 9,964,954 Series B2 Shares, 5,463,340 Series B3 Shares and 8,961,143 Series B4Shares at US$1.0365 (RMB6.3779) per share, for cash consideration of US$77,790 (RMB478,666), of which RMB455,366 was paid in 2014 and theremaining RMB23,300 was paid in 2015. The Company made the offer for the repurchase to all existing preferred shareholders on that date. The reasonfor the repurchase of these various series of preferred shares and the ordinary shares was so that the Series C shareholder would hold no less than 40% ofthe Company’s issued share capital on a fully diluted basis. F-53 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) In accordance with ASC 260-10-S99, the difference between the cash consideration transferred to the holders of the preferred shares and the carryingamount of the preferred shares (net of issuance costs) is added to net loss to arrive at loss attributable to ordinary shareholders in the calculation of lossper share. The Company recorded the difference of US$12,497 (RMB76,900) between the repurchase price of US$77,790 (RMB478,666) and thecarrying amount of such preferred shares of US$65,293 (RMB401,766) against additional paid-in capital, in the absence of retained earnings. On August 13, 2014 and December 22, 2014, the Company exchanged a total of 35,393,262 preferred shares, comprising of 10,081,891 Series AShares, 1,729,161 Series A* Shares, 560,105 Series B Shares and 23,022,105 Series B* Shares (collectively, the “Exchanged Shares”) by re-designatingthose shares into 35,393,262 newly issued Series B5 redeemable preferred shares (“Series B5 Shares”) to facilitate the sale of the Exchanged Sharesheld by certain selling preferred shareholders. Concurrently, the holders sold the 35,393,262 Series B5 Shares to one investor (B5 Holder), at thepurchase price of US$1.0365 (RMB6.3779) per share for a total cash consideration of US$36,685 (RMB225,198). The terms of the B5 Shares wereidentical to the terms of the Series C Shares. The exchange, in substance, is the same as a repurchase of the Exchanged Shares from the selling preferred shareholders and a concurrent issuance ofSeries B5 Shares to the B5 Holder. Accordingly, the Company accounted for the exchange or re-designation of the Exchanged Shares forSeries B5 Shares as an extinguishment. The difference of US$4,812 (RMB29,615) between the fair value of the Series B5 Shares of US$36,685(RMB225,198) and the carrying amount of the Exchanged Shares of US$31,873 (RMB195,583) was recorded against additional paid-in capital, in theabsence of retained earnings. In accordance with ASC 260-10-S99, the difference was added to net loss to arrive at loss attributable to ordinaryshareholders in the calculation of loss per share. Modification of preferred shares In connection with the issuance of Series C Shares on August 13, 2014, the Company and the holders of the remaining Series A, A*, B, B1, B2, B3and B4 Shares (after the above extinguishment) agreed to modify the terms of their respective preferred shares. The redemption date of these Series A,A*, B, B1, B2, B3 and B4 Shares was extended to the same redemption date as Series C Shares. The holders also agreed to modify the redemption priceby reducing the annual rate of return of their respective preferred shares. The Company determines whether an amendment or modification to the terms of its redeemable convertible preferred shares represents anextinguishment based on a fair value approach. If the fair value of the preferred shares immediately before and after the amendment is significantlydifferent (by more than 10%), the amendment or modification represents an extinguishment. The Company has determined that the amendment to theterms of the preferred shares did not represent an extinguishment, and therefore modification accounting was applied by analogy to the modificationguidance contained in ASC 718-20, Compensation—Stock Compensation. Based on a comparison of the fair value of the preferred shares after theamendment to the fair value of the preferred shares immediately before the amendment, the additional fair value change was immaterial. The fair valueof the preferred shares before and after the amendment or modification was determined by management with the assistance of a third partyvaluation firm. F-54 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Preference Dividend On September 29, 2016, the Board of Directors of the Company declared and approved the payment of the preference dividend on the Company’spreferred shares. The entitlement to, and payment of the dividend is conditional on the completion of the Qualified IPO. The amount of the preferencedividend to be paid is determined based on the annual rate of 6% from the date of the issuance of the respective preferred shares to the date of theQualified IPO plus a special rate of return on Series A*, B1, B2 and B4 Shares. The preference dividend is to be paid in either cash or ordinary shares ofthe Company as elected by each preferred shareholder. The number of ordinary shares to be issued to pay the preference dividends is determined basedon the initial public offering price of the Company’s ordinary shares and the dividend amount elected by the preferred shareholder to be paid inordinary shares. The shareholders of Series A, A*, B, B1, B2 redeemable preferred shares have elected to receive the dividend in cash upon thecompletion of the Qualified IPO, and the shareholders of Series B4, B5 and C redeemable preferred shares have elected to receive the dividend inordinary shares of the Company upon the completion of the Qualified IPO. Upon completion of the IPO on November 7, 2016, the Company paid the preference dividend in an aggregate amount of US$50,812 (RMB343,296),of which US$11,449 (RMB76,502) was paid in cash and US$39,363 (RMB266,794) was paid by issuing an aggregate 31,490,164 ordinary shares tothe holders of the preferred shares based on the initial public offering price of US$10.00 per ADS, or US$1.25 per ordinary share. Terms of the preferred shares Key terms of the preferred shares are summarized as follows: Dividends Holders of the preferred shares are entitled to receive preference dividends at an annual rate of 6% per annum of the respective preferred shares issueprice, out of any funds legally available for this purpose, when, as and if declared by the Board of Directors of GDS Holdings. Payment of dividends tocertain series of preferred shares is in preference and priority to any declaration or payment of any distribution on other series of preferred shares, detailsof which are set out in the Company’s Memorandum of Association. The right to receive dividends on the preferred shares shall be cumulative, and theright to such dividends shall accrue to holders of the preferred shares notwithstanding the fact that dividends on said shares are not declared or paid inany calendar year. Conversion The holders of preferred shares have the right to convert all or any portion of their holdings into ordinary shares of GDS Holdings at any time. Eachpreferred share is convertible into one ordinary share, subject to adjustment such as share dividend, share split, consolidation, and recapitalization. In addition, each preferred share shall (a) automatically be converted into ordinary share at then-effective conversion price immediately prior to theclosing of a QIPO, or (b) be converted in to ordinary share at then-effective conversion price with the vote or written consent of the holders of at least85% of the then outstanding Series A Shares, Series A* Shares, Series B Shares, Series B1 Shares, Series B2 Shares, Series B4 Shares and Series B5Shares (voting together as a separate class) and the holders of at least 75% of the then outstanding Series C Shares, in each case on an as convertedbasis. F-55 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) For the purposes of conversion of preferred shares, QIPO refers to a firm commitment underwritten IPO on an internationally recognized securitiesexchange (i) with gross cash proceeds to the Company of at least US$100,000, (ii) at an issue price per share being not less than twenty-five percent(25%) above US$1.0365, as adjusted for any recapitalization from time to time, and (iii) resulting in a free float of not less than twenty percent (20%) ofthe Company’s share capital. The Company evaluated the embedded conversion option in the convertible preferred shares to determine if the embedded conversion option requirebifurcation and accounted for as a derivative. The Company concluded the embedded conversion option did not require it to be bifurcated pursuant toASC 815. The Company also determined that there was no BCF attributable to the convertible preferred shares because the initial conversion price washigher than the fair value of the Company’s ordinary shares. The fair value of the Company’s ordinary shares on the commitment date was estimated bymanagement with the assistance of an independent valuation firm. The Company also determined there was no other embedded derivative to beseparated from the convertible preferred share. Upon completion of the IPO on November 7, 2016, 349,087,677 preferred shares were automatically converted into 349,087,677 ordinary shares on aone-to-one basis. Upon conversion, the carrying amounts of the Series A, A*, B, B1, B2, B4, B5 and C redeemable preferred shares have beenreclassified as shareholders’ equity under ordinary shares (for the par value) and additional paid-in capital (for the excess of the carrying value of theredeemable preferred shares over the par value). Voting rights The holders of the preferred shares have voting rights equivalent to the ordinary shareholders on an “if converted” basis. Liquidation preference In the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary, the holders of preferredshares shall be entitled to be paid out of the assets of the Company available for distributions a liquidation preference in the amount per preferred shareequal to the redemption amount plus all accrued or declared but unpaid dividends. Payment of liquidation preference on certain series of preferred shares is prior and in preference to any payment on other series of preferred shares, andthe liquidation preference in order of priority is Series C, Series B5, Series B*, Series B, Series A*, and Series A, details of which are set out in theCompany’s Memorandum of Association. Redemption Subject to other redemption requirements set out in the Company’s Memorandum of Association, on or after the 4th anniversary of the original issuedate of Series C Shares, the holders of preferred shares may, at the election of the holders of at least 75% of each series of outstanding preferred sharesvoting together as a separate class on an as converted basis, to the extent permitted by applicable laws, redeem all or any portion of the thenoutstanding preferred shares at a redemption price equal to the redemption amount, plus an amount equal to all accrued or declared but unpaiddividends thereon, including the 6% cumulative preference dividends whether declared or not. F-56 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The redemption amount, shall mean, with respect to the Series A Shares, US$0.363636 per share; with respect to the Series B Shares, US$0.77922 pershare, with respect to the Series A* Shares, US$0.1060 per share; with respect to the Series B1 Shares, US$0.5300 per share; with respect to theSeries B2 Shares, US$0.5855 per share; with respect to the Series B4 Shares, US$0.4340 per share; with respect to the Series B5 Shares, US$1.036522per share; and with respect to the Series C Shares, US$1.036522 per share. 15 FAIR VALUE MEASUREMENT As of December 31, 2017 and 2018, there was no asset or liability that was measured at fair value on a recurring basis in periods subsequent to theirinitial recognition. Following is a description of the valuation techniques that the Company uses to measure fair value of financial assets and financial liabilities: · Short-term financial instruments (accounts receivable and payable, short-term borrowings, and accrued expenses and other payables)—costapproximates fair value because of the short maturity period. · Long-term borrowings—fair value is based on the amount of future cash flows associated with each debt instrument discounted at theCompany’s current borrowing rate for similar debt instruments of comparable terms. The carrying values of the long-term borrowingsapproximate their fair values as all the long-term debt carry variable interest rates which approximate rates currently offered by the Company’sbankers for similar debt instruments of comparable maturities. · Convertible bonds payable—the estimated fair value was RMB1,512,677 as of December 31, 2018. The fair value was measured based on theprice in the open market. 16 ORDINARY SHARES Upon incorporation in 2006, the Company issued 110,000,001 ordinary shares with a par value of US$0.00005 (RMB0.000404) each. In June 2014, the Company issued 88,352,558 ordinary shares with a fair value of RMB472,945 to the shareholders of EDC Holding as part of theconsideration to acquire EDC Holding. In August 2014, the holder of the Bonds due 2015 exchanged principal amount of US$27,860 (RMB171,431) for 38,397,655 ordinary shares. In connection with the issuance of Series C Shares, on August 13, 2014, the Company repurchased 18,762,292 ordinary shares from certainshareholders at US$1.0365 (RMB6.3779) per share, for a total consideration of US$19,448 (RMB119,664). Upon the repurchase, the Companycancelled such shares. The reason for the repurchase of the various series of preferred shares (note 14) and these ordinary shares was so that the Series Cshareholder would hold no less than 40% of the Company’s issued share capital on a fully diluted basis. In August 2016, the Company granted 877,400 fully vested restricted shares to its directors to settle a portion of its remuneration obligation to suchdirectors (note 17). F-57 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) On October 18, 2016, the Board approved the reclassification and redesignation of the Company’s existing preferred shares and ordinary shares intoClass A ordinary shares and Class B ordinary shares, whereby immediately prior to the completion of the Company’s initial public offering, (i) all of theCompany’s then issued and outstanding preferred shares and ordinary shares were converted into an equal number of Class A ordinary shares, and(ii) all of the Class A ordinary shares then beneficially owned by Mr. William Wei Huang, the founder, chairman and chief executive officer, or entitiescontrolled by him, were converted into an equal number of Class B ordinary shares. All options, regardless of grant date, entitle their holders to receivethe equivalent number of Class A ordinary shares once the conditions to vesting and exercise of such share-based compensation awards have been met.Class A ordinary shares and Class B ordinary shares carry equal rights, generally rank pari passu with one another and are entitled to one vote per shareat general meetings of shareholders, except for only the following matters at general meetings of shareholders, with respect to which Class B ordinaryshares are entitled to 20 votes per share: (i) the election of a simple majority, or six, of our directors; and (ii) any change to our articles of associationthat would adversely affect the rights of Class B shareholders. With respect to any other matters at general meetings of our shareholders, each Class Aordinary share is entitled to one vote, and each Class B ordinary share is entitled to one vote. For so long as there are Class B ordinary sharesoutstanding, the holders of Class B ordinary shares will also have the right to nominate one less than a simple majority, or five, of the directors to ourboard of directors, which directors shall be subject to the voting arrangements described above. Class B ordinary shares are convertible into Class Aordinary shares, and will automatically convert into Class A ordinary shares under certain circumstances. Any Class A ordinary shares which Class Bshareholders acquire, including upon the exercise of options, will be converted into Class B ordinary shares. On November 7, 2016 and December 6, 2016, the Company successfully completed its IPO of 19,250,000 ADS (or 154,000,000 Class A ordinaryshares) and the underwriters exercised their option to purchase 820,735 additional ADSs (or 6,565,880 Class A ordinary shares), each representing eightof its Class A ordinary shares. Upon completion of the IPO, 349,087,677 preferred shares were automatically converted into 349,087,677 Class Aordinary shares on a one-to-one basis. In addition, an aggregate 31,490,164 Class A ordinary shares were issued to the holders of the preferred shares asa portion of settlement of total preference shares dividend (note 14). In October 2017, the Company issued 64,257,028 Class A ordinary shares to CyrusOne Inc., a third-party investor, at the price of $1.55625 per share. In November 2017, the bond holders of the Convertible Bonds due 2019, exercised the right to convert 100% of the principal amount of the bonds,together with the Accrued Interest thereon into 97,870,263 newly issued Class A ordinary shares at the conversion price of $1.675262 pursuant to theterms of the bonds (note 10). On January 26, 2018, the Company completed a public offering in which the Company offered and sold 8,000,000 ADSs (or 64,000,000 Class Aordinary shares), and SBCVC Holdings Limited (“SBCVC”), one of the Company’s principal shareholders, sold 3,000,000 ADSs (or 24,000,000Class A ordinary shares), at a price of US$26.00 per ADS. On January 29, 2018, the underwriters exercised their option to purchase from the Companyand SBCVC additional 225,000 ADSs (or 1,800,000 Class A ordinary shares) and 1,425,000 ADSs (or 11,400,000 Class A ordinary shares),respectively. The Company raised a total of US$202,696 (RMB1,283,308) in proceeds from this public offering, net of underwriting discounts andcommissions and other issuance costs. As of December 31, 2018, the Company’s outstanding share capital consisted of 939,479,307 Class A ordinary shares and 67,590,336 Class B ordinaryshares. F-58 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 17 SHARE-BASED COMPENSATION Equity Incentive Plans The Company adopted the 2014 Equity Incentive Plan (“the 2014 Plan”) in July 2014 for the granting of share options to key employees, directors andexternal consultants in exchange for their services. The total number of shares, which may be issued under the 2014 Plan, is 29,240,000 shares. The Company adopted the 2016 Equity Incentive Plan (“the 2016 Plan”) in August 2016 for the granting of share options, stock appreciation rightsand other stock-based award (collectively referred to as the “Awards”) to key employees and directors. The maximum aggregate number of shares,which may be subject to Awards under the Plan, is 56,707,560. Options to directors, officers and employees On May 1, 2016, the Company granted 11,084,840 share options under the 2014 Plan to employees, officers and directors. These share options werefully vested upon the date of grant for past services and had an exercise price of US$0.7792 (RMB5.0328) per option. The options have a contractualterm of five years. Options to non-employee consultants In June 2018, the Company granted 500,000 share options under the 2014 Plan to an external consultant at an exercise price of US$0.7792 (RMB5.0)per option, which were immediately vested. The options have a contractual term of five years. The Company recognized the fair value of such optionsgranted and vested amounted to US$2,429 (RMB16,073) immediately to profit and loss. The fair value of such options was determined to beapproximately the difference between the grant date share price and the exercise price. F-59 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) A summary of the option activity is as follows: Weightedaverage Weighted grant-date Number average fair value of options exercise price per option (RMB)(RMB) Options outstanding at January 1, 201617,193,5344.81.9Granted11,551,5075.24.9Forfeited(155,259)4.81.9 Options outstanding at December 31, 201628,589,7825.23.2Granted333,3345.210.6Exercised(816,880)5.31.9Forfeited(19,000)5.31.9 Options outstanding at December 31, 201728,087,2365.13.2Granted500,0005.031.2Exercised(3,614,464)5.24.5Forfeited(193,340)5.06.2 Options outstanding at December 31, 201824,779,4325.32.2 Options vested and expect to vest at December 31, 201824,779,4325.32.2 The following table summarizes information with respect to stock options outstanding and stock options exercisable as of December 31, 2018: Weighted average Weighted Number remaining average of shares contractual life exercise price (years) (RMB) Options outstanding and exercisable24,779,4320.75.3 As of December 31, 2017 and 2018, 266,666 and nil forfeitable and unvested non-employee options, respectively, were treated as unissued foraccounting purposes and were not included in the table above. As of December 31, 2017 and 2018, there were no unvested employee stock options. F-60 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The fair value of the options granted in May 2016 was estimated on the date of grant using the binomial option pricing model with the followingassumptions used. Grant date: May 2016Risk-free rate of return1.98%Volatility28.50%Expected dividend yield—Exercise multiple2.20Fair value of underlying ordinary shareUS$1.51(RMB 9.8)Expected term5 years (1) Volatility The volatility of the underlying ordinary shares during the lives of the options was estimated based on the historical stock price volatility ofcomparable listed companies over a period comparable to the expected term of the options. (2) Risk-free interest rate Risk-free interest rate was estimated based on the yield to maturity of China international government bonds with a maturity period close to theexpected term of the options. (3) Dividend yield The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options. (4) Exercise multiple Exercise multiple represents the value of the underlying share as a multiple of exercise price of the option, which, if achieved, results in exercise ofthe option. (5) Fair value of underlying ordinary shares The estimated fair value of the ordinary shares underlying the options as of the respective grant dates was determined based on a retrospectivevaluation with the assistance of a third party appraiser. F-61 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Settlement of liability-classified restricted shares award In May 2016, the Board resolved to pay RMB 11,733 to its directors, of which RMB4,194 will be settled in cash and RMB7,539 will be settled byissuing of a variable number of the Company’s shares that have an equal value. Accordingly, the Company recorded an expense in general andadministrative expenses and a liability of RMB11,733. In August 2016, the Company paid cash of RMB4,194 and issued 877,400 fully vestedrestricted shares to its directors to fully settle such obligation. Fifty percent (50%) of the restricted shares may not be sold or otherwise disposed of forone year from the grant date. The number of restricted shares required to be issued was determined by the fair value of the restricted shares on the dateof settlement and the share-settled portion of the liability of RMB7,539. In May, August and November 2017, the Company issued a total of 502,000 fully vested restricted shares to its directors to settle a portion of theirremuneration for services provided by the directors, which had been recorded in general and administrative expenses. The number of restricted sharesissued was determined by the fair value of the restricted shares on the date of settlement and the share-settled portion of the liability of RMB4,462. In March, May, August and November 2018, the Company issued a total of 260,560 fully vested restricted shares to its directors to settle a portion oftheir remuneration for services provided by the directors, which had been recorded in general and administrative expenses. The number of restrictedshares issued was determined by the fair value of the restricted shares on the date of settlement and the share-settled portion of the liability ofRMB6,357. Upon issuance of the shares to settle the obligation, equity is increased by the amount of the liability settled in shares and no additional share-basedcompensation expense was recorded. Restricted shares to directors, officers and employees In December 2016, July 2017 and August 2018, the Company granted non-vested restricted shares of 12,910,080, 13,475,060 and 12,941,952,respectively, to employees, officers and directors. The restricted share awards contained service and market conditions, or service and performancecondition, which are tied to the financial performance of the Company. For restricted shares granted, the value of the restricted shares is determined onthe fair value of the acquisition date, on which all criteria for establishing the grant dates were satisfied. The value of restricted shares subject to servicecondition attached is recognized as the compensation expense using the graded-vesting method. The value of restricted shares with performanceconditions attached is recognized as compensation expense using the graded-vesting method only when the achievement of performance conditionsbecomes probable. F-62 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) A summary of the restricted share activity is as follows: Number ofShares Weighted average grant-date fair value per share(RMB) Unvested at January 1, 2016—Granted13,787,4806.1Vested(877,400)8.6Forfeited—— Unvested at December 31, 201612,910,0806.0Granted13,977,0605.2Vested(2,123,120)8.5Forfeited(238,400)6.8 Unvested at December 31, 201724,525,6205.3Granted13,202,51214.5Vested(7,326,620)6.0Forfeited(891,008)5.9 29,510,5049.3 The Company recognized share-based compensation expenses of RMB4,697, RMB56,237 and RMB89,804 for the years ended December 31, 2016,2017 and 2018, respectively, for the restricted share awards. As of December 31, 2018, total unrecognized compensation expense relating to theunvested shares was RMB179,834. The expense is expected to be recognized over a weighted average period of 1.71 years using the graded-vestingattribution method. The Company did not capitalize any of the share-based compensation expenses as part of the cost of any asset for the years endedDecember 31, 2016, 2017 and 2018. The fair value of the restricted shares granted is estimated on the date of grant using the Monte Carlo simulation model with the following assumptionsused. Grant date: December 2016 July 2017 August 2018 Risk-free rate of return0.68 - 1.65%1.29 - 1.63%2.047 - 2.418%Volatility22.35 - 24.80%20.43 - 21.48%71.85%Expected dividend yield———Share price at grant dateUS$1.24US$1.191US$3.125(RMB8.6)(RMB8.0)(RMB21.3)Expected term1 - 5 years2 - 4 years2 – 4 years (1) Volatility Expected volatility is assumed based on the historical volatility of the Company’s comparable companies in the period equal to the expected termof each grant. (2) Risk-free interest rate Risk-free rate equal to the implied yield of zero-coupon United States Government Bond for a term equal to the remaining expected term. F-63 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (3) Dividend yield The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the restricted shares. A summary of share-based compensation expenses for the years ended December 31, 2016, 2017 and 2018 is as follows: Years ended December 31, 2016 2017 2018 Costs of revenue2,1149,94118,008Selling and marketing expenses6,59018,39025,213General and administrative expenses55,40930,86661,707Research and development expenses52646949 Total share-based compensation expenses64,16559,843105,877 18 REVENUE Net revenue consisted of the following: Years ended December 31, 2016 2017 2018 Colocation services770,1451,219,0862,104,259Managed service and others232,870372,774655,231Service revenue1,003,0151,591,8602,759,490Equipment sales52,94524,30632,587 Total1,055,9601,616,1662,792,077 19 INCOME TAX Pursuant to the rules and regulations of the Cayman Islands, GDS Holdings is not subject to any income tax in the Cayman Islands. The Company’s PRC entities are subject to the PRC Corporate Income Tax (“CIT”) rate of 25%. The Company’s Hong Kong SAR entities are subject to the Hong Kong SAR Profits Tax rate of 16.5%. F-64 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The operating results before income tax and the provision for income taxes by tax jurisdictions for the years ended December 31, 2016, 2017 and 2018are as follows: Years ended December 31,2016 2017 2018 Loss before income taxes:PRC144,158130,961237,232Other jurisdictions140,569202,015202,427Total loss before income taxes284,727332,976439,659 Current tax expenses:PRC3115,54627,206Other jurisdictions1,998——Total current tax expenses2,3095,54627,206 Deferred tax benefits:PRC(10,935)(11,683)(36,597)Other jurisdictions31161—Total deferred tax benefits(10,624)(11,622)(36,597) Total income taxes benefits(8,315)(6,076)(9,391) The actual income tax expense reported in the consolidated statements of operations differs from the amount computed by applying the PRC statutoryincome tax rate to loss before income taxes due to the following: Years ended December 31, 2016 2017 2018 PRC enterprise income tax rate25.0%25.0%25.0%Non-PRC entities not subject to income tax(13.7)%(14.8)%(9.2)%Tax differential for entities in non-PRC jurisdiction0.5%(0.8)%(1.2)%Tax effect of current year permanent differences(0.3)%0.0%(1.3)%Expiration of unused net operating losses(2.9)%(2.6)%(10.1)%Change in valuation allowance(5.5)%(5.2)%(1.0)%Return to provision adjustment on permanent differences(0.2)%0.2%(0.1)% 2.9%1.8%2.1% F-65 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The components of deferred tax assets and liabilities are as follows: As of December 31, 2017 2018 Deferred tax assets:Allowance for accounts receivable—48Government subsidy4,1973,643Accrued expenses14,02426,867Asset retirement obligation4,4128,970Net operating loss carry forwards170,267192,505 Total gross deferred tax assets192,900232,033Valuation allowance on deferred tax assets(152,241)(155,852) Deferred tax assets, net of valuation allowance40,65976,181 Deferred tax liabilities:Property and equipment(52,417)(80,544)Intangible assets(82,305)(116,156)Prepaid land use rights(1,693)(1,653)Obligation under capital lease and other financing obligations(14,216)(12,732) Total deferred tax liabilities(150,631)(211,085) Net deferred tax liabilities(109,972)(134,904) Analysis as:Deferred tax assets14,30536,974Deferred tax liabilities(124,277)(171,878) Net deferred tax liabilities(109,972)(134,904) The following table presents the movement of the valuation allowance for the deferred tax assets: Years ended December 31, 2016 2017 2018 Balance at the beginning of the year118,952134,935152,241Increase during the year15,98317,3063,611 Balance at the end of the year134,935152,241155,852 F-66 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Management believes it is more likely than not that the deferred tax asset, net of the valuation allowance as of December 31, 2018, will be realized.However, the amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income during thecarry forward period are reduced. As of December 31, 2018, the valuation allowance of RMB155,852 was related to the deferred tax asset of certainsubsidiaries of the Company. These entities were in a cumulative loss position, which is a significant negative indicator to overcome that sufficientincome will be generated over the periods in which the deferred income tax assets are deductible or utilized. The ultimate realization of deferredincome tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences becomedeductible or utilized. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income and taxplanning strategies in making this assessment. The net operating losses carry forwards of the Company’s PRC subsidiaries amounted to RMB722,276 as of December 31, 2018, of which RMB34,591, RMB65,233, RMB59,735, RMB183,984 and RMB378,733 will expire if unused by December 31, 2019, 2020, 2021, 2022 and 2023,respectively. Uncertainties exist with respect to how the current income tax law in the PRC applies to the Company’s overall operations, and more specifically, withregard to tax residency status. The 2008 EIT Law includes a provision specifying that legal entities organized outside the PRC are considered residentsfor Chinese income tax purposes if the place of effective management or control is within the PRC. The implementation rules to the New EIT Lawprovide that non-resident legal entities are considered PRC residents if substantial and overall management and control over the manufacturing andbusiness operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting from the limited PRC taxguidance on the issue, the Company does not believe that the legal entities organized outside the PRC should be treated as residents for 2008 EIT lawpurposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC are deemed residententerprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%. If the Company were to be non-resident for PRC tax purposes, dividends paid to it from profits earned by the PRC subsidiaries after January 1, 2008would be subject to a withholding tax. The CIT law and its relevant regulations impose a withholding tax at 10%, unless reduced by a tax treaty oragreement, for dividends distributed by a PRC-resident enterprise to its non-PRC-resident corporate investor for earnings generated beginning onJanuary 1, 2008. Undistributed earnings generated prior to January 1, 2008 are exempt from such withholding tax. The Company has not recognizedany deferred tax liability for the undistributed earnings of the PRC-resident enterprise as of December 31, 2017 and 2018, as the Company plans topermanently reinvest these earnings in the PRC. Each of the PRC subsidiaries does not have a plan to pay dividends in the foreseeable future andintends to retain any future earnings for use in the operation and expansion of its business in the PRC. F-67 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 20 DISTRIBUTION OF PROFIT Pursuant to the laws and regulations of the PRC, the Company’s PRC entities are required to allocate at least 10% of their after tax profits, after makinggood of accumulated losses as reported in their PRC statutory financial statements, to the general reserve fund and have the right to discontinueallocations to the general reserve fund if the balance of such reserve has reached 50% of their registered capital. The general reserves are not availablefor distribution to the shareholders (except in liquidation) and may not be transferred in the form of loans, advances, or cash dividend. These PRC entities are restricted in their ability to transfer the registered capital and general reserve fund to GDS Holdings in the form of dividends,loans or advances. The restricted portion amounted to RMB2,495,075 and RMB4,768,715 as of December 31, 2017 and 2018, respectively, includingnon-distributable general reserve fund of RMB214 and RMB579 as of December 31, 2017 and 2018, respectively. The parent company financialinformation of GDS Holdings is disclosed in note 26. 21 LOSS PER ORDINARY SHARE The computation of basic and diluted loss per share is as follows: Years ended December 31, 2016 2017 2018 Net loss(276,412)(326,900)(430,268) Change in redemption value of redeemable preferred shares (i)205,670——Dividend on preferred shares (ii)(332,660)—— Net loss attributable to ordinary shareholders(403,402)(326,900)(430,268) Weighted average number of ordinary shares outstanding-basic and diluted (iii)299,093,937784,566,371990,255,959 Loss per ordinary share - basic and diluted(1.35)(0.42)(0.43) Note (i): The amount of change in redemption value of redeemable preferred shares for the year ended December 31, 2016 represents the net effectof the accretion to redemption value through the date of automatic conversion into ordinary shares of RMB97,274 and the reductionrelated to the preference dividends (note 14) declared in respect of those redeemable preferred shares of RMB302,944 for which accretionto redemption was previously recorded. Note (ii): For the year ended December 31, 2016, the amount represented the preference dividend declared and paid of RMB343,296 (note 14)upon the IPO less the cumulative dividend on preferred shares amounting to RMB3,509 and RMB7,127 for the year ended December 31,2014 and 2015, respectively. Note (iii): During the year ended December 31, 2017, the Company issued 20,000,000 ordinary shares to its share depository bank which have beenand will continue to be used to settle stock option and restricted share awards upon their exercise. No consideration was received by theCompany for this issuance of ordinary shares. These ordinary shares are legally issued and outstanding but are treated as escrowed sharesfor accounting purposes and, therefore, have been excluded from the computation of loss per ordinary share. Any ordinary shares not usedin the settlement of stock option and restricted share awards will be returned to the Company. F-68 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) The following securities were excluded from the computation of diluted loss per share as inclusion would have been anti-dilutive. Years ended December 31, 2016 2017 2018 Share options/restricted shares41,499,86252,612,85654,289,936Convertible bonds payable93,977,837—46,527,600 Total135,477,69952,612,856100,817,536 22 SEGMENT INFORMATION The Company has one operating segment, which is the design, build-out and operation of data centers. The Company’s chief operating decision makeris the chief executive officer of the Company who reviews the Company’s consolidated results of operations in assessing performance of and makingdecisions about resource allocations to this segment. Accordingly, no reportable segment information is presented. During the year ended December 31, 2016, 2017 and 2018, substantially all of the Company’s operations are in the PRC. As of December 31, 2017 and2018, the long-lived assets amounted to RMB6,695 and RMB742,390, respectively, were located in Hong Kong SAR, and substantially all of theremaining long-lived assets were in the PRC. 23 MAJOR CUSTOMERS During the year ended December 31, 2016, the Company had two contracting customers, which generated over 10% of the Company’s total revenues orRMB169,052 and RMB153,863, respectively. During the year ended December 31, 2017, the Company had three contracting customers, whichgenerated over 10% of the Company’s total revenues or RMB318,359, RMB166,384 and RMB163,719, respectively. During the year endedDecember 31, 2018, the Company had three contracting customers, which generated over 10% of the Company’s total revenues or RMB563,698,RMB490,523 and RMB376,881, respectively. F-69 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 24 COMMITMENTS AND CONTINGENCIES (a) Capital commitments Capital commitments outstanding at December 31, 2017 and 2018 not provided for in the financial statements were as follows: As ofDecember 31, 2017As ofDecember 31, 2018 Contracted for1,065,5511,017,325 (b) Lease commitments The Company’s lease commitments are disclosed in note 12. (c) Litigation contingencies In August 2018, the Company and its chief executive officer and chief financial officer were named as defendants in a consolidated class actionlawsuit filed in the United States District Court. The complaints in the action allege that the Company’s registration statements containedmisstatements or omissions regarding its business, operation, and compliance in violation of the U.S. securities laws. As the case remains in itspreliminary stage, the likelihood of any unfavorable outcome or any estimate of the amount or range of any potential loss cannot be reasonablyestimated at the issuance of this report. As a result, the Company did not record any liabilities pertaining to this. 25 RELATED PARTY TRANSACTIONS In addition to the related party information disclosed elsewhere in the consolidated financial statements, the Company entered into the followingmaterial related party transactions. In 2016, 2017 and 2018, the related parties of the Company are as follows: Name of partyRelationship William Wei Huang (Mr. Huang)Director and CEO of the CompanySTT GDCPrincipal ordinary shareholder of the CompanyGlobal Data Solutions Ltd.Principal ordinary shareholder of the CompanySBCVC Holdings Limited (“SBCVC”)Principal ordinary shareholder of the CompanyCyrusOne Inc.President and chief executive officer of CyrusOne Inc. is a member of boardof director of the Company F-70 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) (a) Major transactions with related parties Years ended December 31, 2016 2017 2018 Commission incomeCyrusOne Inc.(i)——140 Preference dividendsSTT GDC(ii)223,225——SBCVC109,665——Other non-principal preferred shareholders10,406——343,296—— Repayment of a related party loan(iii)65,474—— Convertible bonds from a related party(iii)327,580—— Conversion of convertible bonds from a related party(iii)—366,958— Interest expensesSTT GDC(iii)32,24530,078— (b) Balances with related parties Except the commission receivable from CyrusOne of RMB140 as of December, 31, 2018, as of December 31, 2017 and 2018, the Company didnot have any other significant balances with related parties. Note (i): During the year ended December 31, 2018, the Company successfully referred customers to CyrusOne Inc. and recognized RMB140 ascommission income. The uncollected amount due from CyrusOne Inc. was included in “Accounts Receivable” as of December 31, 2018. Note (ii): Upon completion of the IPO on November 7, 2016, the Company paid the preference dividend in an aggregate amount of US$50,812(RMB343,296), of which US$11,449 (RMB76,502) was paid in cash and US$39,363 (RMB266,794) was paid by issuing an aggregate31,490,164 ordinary shares to the holders of the preferred shares based on the initial public offering price of US$10.00 per ADS, or US$1.25per ordinary share. Note (iii): During the year ended December 31, 2016, the Company repaid a loan of US$10,000 (RMB64,936) which was borrowed from STT GDC in2015. The interest expenses on the loan amounted to US$397 (RMB2,579). On January 29, 2016, the Company received the second tranche of US$50,000 (RMB327,580) from STT GDC for subscription ofConvertible Bonds due 2019, of which US$10,000 (RMB65,474) was used to settle the outstanding short-term loan of US$10,000(RMB65,474). During the years ended December 31, 2016 and 2017, the related interest expense arising from the Convertible Bonds due 2019 subscribedby STT GDC amounted to RMB32,245 and RMB30,078, respectively. In November 2017, the Convertible Bonds due 2019 and the Accrued Interest thereon due to STT GDC were fully converted into32,540,515 newly issued Class A ordinary shares at the conversion price of $1.675262. In addition, upon conversion, the accrued butunpaid Cash Interest due to STT GDC of RMB4,991 was relinquished. F-71 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) 26 PARENT ONLY FINANCIAL INFORMATION The following condensed parent company financial information of GDS Holdings has been prepared using the same accounting policies as set out inthe accompanying consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries. As ofDecember 31, 2018, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemptionrequirements of redeemable stocks or guarantees of GDS Holdings, except for those, which have been separately disclosed in the consolidated financialstatements. Condensed Balance Sheets As of December 31,20172018 AssetsCurrent assetsCash999,194801,701Prepaid expenses6,2956,716Other current assets—17,940Total current assets1,005,489826,357Restricted cash—15,787Investment and loans to subsidiaries3,477,3317,118,336Other non-current assets14,936—Total assets4,497,7567,960,480Liabilities and Shareholders’ Equity Current liabilitiesAccounts payable3,597166Accrued expenses and other payables9,97334,442Due to subsidiaries843913Total current liabilities14,41335,521 Long-term borrowings—388,832Convertible bonds payable—2,004,714Other long-term liabilities7,8319,488Total liabilities22,2442,438,555 Shareholders’ equityOrdinary shares (US$0.00005 par value; 2,002,000,000 shares authorized; 873,679,343 and 939,479,307Class A ordinary shares issued and outstanding as of December 31, 2017 and December 31, 2018,respectively; 67,590,336 Class B ordinary shares issued and outstanding as of December 31, 2017 andDecember 31, 2018, respectively)320341Additional paid-in capital5,861,4457,275,945Accumulated other comprehensive loss(200,688)(139,254)Accumulated deficit(1,185,565)(1,615,107)Total shareholders’ equity4,475,5125,521,925Commitments and contingencies Total liabilities and shareholders’ equity4,497,7567,960,480 F-72 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Condensed Statements of Operations Years ended December 31,2016 2017 2018 Net revenue———Cost of revenue(2,381)(10,392)(21,132)Gross loss(2,381)(10,392)(21,132) Operating expensesSelling and marketing expenses(8,914)(22,528)(26,595)General and administrative expenses(82,794)(59,500)(96,581)Research and development expenses(52)(646)(949)Loss from operations(94,141)(93,066)(145,257) Other income (expenses):Interest income163,90114,907Interest expenses(97,603)(90,408)(48,809)Equity in loss of subsidiaries(84,952)(147,340)(251,085)Others, net26813(24)Loss before income taxes(276,412)(326,900)(430,268) Income tax expenses———Net loss(276,412)(326,900)(430,268) Condensed Statements of Comprehensive Loss Years ended December 31,2016 2017 2018 Net loss(276,412)(326,900)(430,268)Other comprehensive (loss) income:Foreign currency translation adjustments, net of nil tax(130,131)(8,608)61,434 Comprehensive loss(406,543)(335,508)(368,834) F-73 Table of Contents GDS HOLDINGS LIMITED AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of RMB, except share data and per share data, or otherwise noted) Condensed Statements of Cash Flows Years ended December 31,2016 2017 2018 Operating activities:Net cash used in operating activities(62,591)(58,068)(33,729) Investing activitiesDeposit paid for a potential acquisition(15,000)——Increase of due from subsidiaries(990,617)(588,768)(3,846,353)Net cash used in investing activities(1,005,617)(588,768)(3,846,353) Financing activities:Proceeds from exercise of stock options—3,37716,866Proceeds from long-term borrowings——413,433Payment of issuance cost of borrowings——(25,751)Net proceeds from issuance of convertible bonds327,580—1,867,304Repayment of a related party loan(65,474)——Net proceeds from issuance of ordinary shares1,221,518649,8341,283,308Payment of preferred shares dividends(76,502)——Net cash provided by financing activities1,407,122653,2113,555,160Effect of exchange rate changes on cash and restricted cash47,787(37,808)143,216 Net increase (decrease) in cash and restricted cash386,701(31,433)(181,706)Cash and restricted cash at beginning of year643,9261,030,627999,194Cash and restricted cash at end of year1,030,627999,194817,488 Supplemental disclosures of cash flow informationInterest paid45,49533,92024,308 Supplemental disclosures of non-cash investing and financing activitiesSettlement of liability-classified restricted share award7,5394,4626,357Issuance of ordinary shares to settle preference dividend266,794——Conversion of convertible bonds—1,106,227— 27 SUBSEQUENT EVENTS New loan facility In January 2019, the Company entered into a facility agreement with a third-party bank for a total amount of RMB309,000. The term of thefacilities is 60 months from January 24, 2019, and the interest agreed under the facility agreement is 6.30% per annum. The Company could beobligated to prepay any loans outstanding immediately if certain conditions were to be triggered. In addition, the loan facilities contain financialcovenants that limit certain financial ratios during the relevant period, as defined in the facility agreement. As of March 11, 2019, the Companyhas drawn down loans of RMB110,323 under such facilities. F-74 Exhibit 4.5 Special Seal for Contract Review of Jiangsu Trust Law Compliance Department Single Fund Trust Loan Contract on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. Contract No.: DK (2017-0647) WGSJ Jiangsu International Trust Corporation Limited [December] 2017 Single Fund Trust Loan Contract on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. Borrower: EDC (Chengdu) Industry Co., Ltd. Legal Representative: Huang Wei Registered Address: Room 2302, East Hope Center, No. 333 North Section of Yizhou Boulevard, High-tech Industrial Development Zone, Chengdu, SichuanProvince Contact Address: 2/F, Building 2, Ziyou Shiji Square, No. 428 Yanggao South Road, Pudong New Area, Shanghai Post Code: 200127 Mobile Phone: 13764264086 Fax: Lender: Jiangsu International Trust Corporation Limited Legal Representative: Hu Jun Contact Address: 22-26F, No. 2 Changjiang Road, Xuanwu District, Nanjing Post Code: 210005 Telephone: 025-89667635 Fax: 025-89667619 1 The Lender agrees to advance loans to the Borrower pursuant to the provisions of the Single Fund Trust Loan Contract on the Trust Loan Applied for byEDC (Chengdu) Industry Co., Ltd. (EDC Chengdu) with No. ZJXT (2017-327) WGSJ (hereinafter referred to as “Trust Contract”) entered into by and betweenTianjin Heju Big Data Technology Partnership (LP) (hereinafter referred to as the “Trustor”) and the Lender. According to the Trust Law of the People’sRepublic of China, the Contract Law of the People’s Republic of China and other relevant laws, regulations and rules, the Lender and the Borrower agree toconclude this Contract upon mutual negotiation for their joint observance thereof. Article 1 Definitions and Interpretation For the purpose of this Contract, unless the context is otherwise interpreted or stated, the following words have the following meaning: Borrower: means EDC (Chengdu) Industry Co., Ltd. Lender: means Jiangsu International Trust Corporation Limited. Both Parties: mean the Borrower and the Lender. GDS Beijing: means Beijing Wanguo Chang’an Science &Technology Co., Ltd., a company established under the laws of the PRC, with its registeredaddress at Room 211, No. 36 Building, No. 1 North Di Sheng Road, Beijing Economic & Technological Development Zone, Beijing, PRC. GDS Suzhou: means Global Data Solutions Co., Ltd., a company established under the laws of the PRC, with its registered address at Unit A0503-1, International Science & Technology Park, No. 1355, Jinjihu Avenue, Suzhou Industrial Park, PRC. EDC Holdings: means EDC China Holdings Limited, a company established in Hong Kong, with its registered address at Units 323-325, 3 Floor, CoreBuilding 2, Hong Kong Science Park, Shatin, NT. GDS Holdings: means GDS Holdings Limited, a NASDAQ-listed company, (Stock Symbol: GDS), a company established under the laws of the CaymanIslands, with its registered address at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand CaymanKY1-1111, Cayman Islands. Obligors: mean the Borrower, GDS Beijing, GDS Suzhou, EDC Holdings, GDS Holdings and all of other contracting parties other than the Lender underthe Finance Documents. Alibaba Group: means Alibaba (China) Network Technology Co., Ltd. or its Affiliates. Telecom: means China Telecom Corporation Ltd. Sichuan Branch Yunjin Sichuan Operation Center or its Affiliates. 2rd Letter of Intent: means a Letter of Intent with its final customer being Alibaba Group entered into by and between GDS Beijing and Telecom. Finance Documents: mean this Contract, Control Agreement, Real Estate Mortgage Agreement (Phase I), Real Estate Mortgage Agreement (Phase II),Equity Pledge Agreement, Pledges over Receivables, Guarantee of GDS Beijing, Guarantee of DGS Holdings, Subordinated Debt Agreement and any otherdocument specified from time to time as a Finance Document by the Lender and the Borrower. Real Estate Pledge Agreement (Phase I): means a real estate pledge agreement (No.: DYDB (2017-0561) WGSJ) in respect of the responding land andhousing mortgage of Phase I Project entered into by and between the Borrower and the Lender at the same time on the date of this Contract, and any of itsamendments and supplements to that legal document. Real Estate Pledge Agreement (Phase II): means a real estate pledge agreement (No.: DYDB (2017-0571) WGSJ) in respect of the responding housingmortgage of Phase II Project entered into by and between the Borrower and the Lender after the corresponding housing of Phase II Project obtains theHousing Ownership Certificate, and any of its amendments and supplements to that legal document. Equity Pledge Agreement: means a pledge agreement (No.: ZYDB (2017-0598) WGSJ) in respect of 100% of equity held by EDC Holdings in theBorrower entered into by and among the Borrower, EDC Holdings and the Lender at the same time on the date of this Contract, and any of its amendmentsand supplements to that legal document. Pledge over Receivables of the Borrower: means a pledge agreement (No.: ZYDB (2017-0599) WGSJ) entered into by and between the Borrower andthe Lender at the same time on the date of this Contract in respect of their pledge over the account receivables under the Back-to-Back Agreement and otherrelevant agreements, and any of its amendments and supplements to that legal document. Pledge over Receivables of GDS Beijing: means a pledge agreement (No.: ZYDB (2017-0600) WGSJ) entered into by and between the GDS Beijing andthe Lender at the same time on the date of this Contract in respect of their pledge over the account receivables under the Service Contract (GDS Beijing) andother relevant agreements, and any of its amendments and supplements to that legal document. Pledge over Receivables of GDS Suzhou: means a pledge agreement (No.: ZYDB (2017-0601) WGSJ) entered into by and between the GDS Suzhou andthe Lender at the same time on the date of this Contract in respect of their pledge over the account receivables under Service Contract (GDS Suzhou) andother relevant agreements, and any of its amendments and supplements to that legal document. Pledges over Receivables: means Pledge over Receivables of the Borrower, Pledge over Receivables of GDS Beijing and Pledge over Receivables ofGDS Suzhou. Guarantee of GDS Beijing: means a deed of guarantee (No.: BZDB (2017-0623) WGSJ) for guaranteeing that all Obligors’ debts under FinanceDocuments are fully repaid, entered into by and between GDS Beijing and the Lender at the same time on the date of this Contract, and any of itsamendments and supplements to that legal document. 3 Control Agreement: means a control agreement (No.: XY (2017-1035) WGSJ) entered into by and among the Lender, Custodian Bank, the Borrower,GDS Beijing and GDS Suzhou at the same time on the date of this Contract in respect of the receipt account and special loan account respectively opened bythem in the Custodian Bank, and any of its amendments and supplements to that legal document. Subordinated Debt Agreement: means a subordinated debt agreement (No.: XY (2017-1034) WGSJ) in respect of the repayment of the loans by theBorrower to EDC Holdings, GDS Beijing and GDS Suzhou subordinated to the arrangement of the Loans under this Contract, entered into by and among theBorrower, EDC Holdings, GDS Beijing and GDS Suzhou as the subordinated lender and the Lender at the same time on the date of this Contract, and any ofits amendments and supplements to that legal document. Guarantee of GDS holdings: means a deed of guarantee (No.: BZDB (2017-0624) WGSJ) for guaranteeing that all Obligors’ debts under FinanceDocuments are repaid, entered into by and between GDS Holdings and the Lender at the same time on the date of this Contract, and any of its amendmentsand supplements to that legal document. Back-to-Back Agreement: means an agreement entered into by and between the Borrower and GDS Beijing and/or GDS Suzhou, under which theBorrower shall provide GDS Beijing and/or GDS Suzhou with data center outsourcing service, and GDS Beijing and/or GDS Suzhou shall pay theconsideration thereof to the Borrower. Service Contract (GDS Beijing): means a service contract in relation to the Target Project entered into by and between GDS Beijing and its customers,under which GDS Beijing shall provide its customers with data storage and other relevant services, which is subject to the Service Contract as defined inPledge over Receivables of GDS Beijing. Service Contract (GDS Suzhou): means a service contract entered into by and between GDS Suzhou and its customers, under which GDS Suzhou shallprovide relevant services in respect of project operation and management, which is subject to the Service Contract as defined in Pledge over Receivables ofGDS Suzhou. Existing Liabilities: mean (i) all of outstanding loan principal, interest thereon and relevant fees as of the date of this Contract under the FacilityAgreement in the total amount of RMB 310,000,000 Yuan dated on December 16, 2016 and made by and between the Borrower and DBS Bank (China)Limited Shanghai Branch, Shanghai Huarui Bank Corporation Ltd. and the relevant parties; (ii) all of corporate payables and receivables as of the date of thisContract between the Borrower and its Affiliates (other than the shareholders of the Borrower). Affiliate: means, in relation to any person, a Subsidiary or holding company of that person, or any other Subsidiary of that holding company. 4 Group: means GDS Holdings and the Subsidiaries existing from time to time. Subsidiary means, in relation to any company or corporation, a company or corporation: (i) which is controlled, directly or indirectly, by the first mentioned company or corporation; (ii) more than half the issued equity/share capital of which is beneficially owned, directly or indirectly, by the first mentioned company orcorporation; or (iii) which is a Subsidiary of another Subsidiary of the first mentioned company or corporation, and for this purpose, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct itsaffairs and/or to control the composition of its board of directors or equivalent body and/or exercise the control through VIE contract. Event of Default means that: (1) any Obligor fails to comply with any provisions under any Finance Document (including the event that the representations and warranties made byany Obligor under the relevant Finance Documents are confirmed to be false, the commitments given thereunder fail to be completed and theobligations to be performed thereunder fails to be performed), which would have any material adverse effect on the capacity of the correspondingObligors to fulfill the Finance Documents (including but not limited to occurrence of any event as set out in sub-paragraphs (2)-(20) under such“Event of Default”); (2) the Borrower fails to pay off any other finance debt due (including being announced to be early due); or the Borrower fails to perform theobligations to be performed or breach its obligations under other agreements, which has any material adverse effect on the capacity of the Borrowerto fulfill the Finance Documents; (3) any Obligor goes out of its business, dissolves, goes to liquidation, suspends its business, is revoked of its business license, is discharged or filed forbankruptcy; (4) the Borrower’s profitability, solvency and operating capacity, cash flow and other financial indicators deteriorate, which have caused or would haveany adverse effect on the performance of its obligations under this Contract; (5) any asset of the Borrower is sealed up, detained or enforced; (6) the Borrower is or would be involved in material economic disputes, lawsuits or arbitrations; 5 (7) the Borrower’s performance of Finance Documents becomes illegal, or any clause of Finance Documents is illegal or is held to be invalid; (8) the Borrower fails to, within 25 Business Days after the first utilisation and before the second advance of the Loans, repay all Existing Liabilities infull and mortgage the corresponding land and housing of Phase I Project held by the Borrower in the name of the Lender pursuant to the Real EstateMortgage Agreement (Phase I), except for the delay caused by the reasons of the registration organ; (9) the Borrower fails to, within 60 Business Days after the first utilization and before the second advance of the Loans, complete the formalities forpledge of 100% of equity held by EDC Holdings in the Borrower; (10) the Borrower fails to, within 40 Business Days after receipt of the second batch of the Loans and before the third advance of the Loans, provide theLender with the Service Contract with its final customer being Ailibaba Group duly entered into by and between GDS Beijing and Telecom inconnection with the Letter of Intent; (11) the Borrower fails to use the Loans for the purposes as specified in this Contract, the Obligors fail to perform the requirements on fund controlpursuant to the provisions or breach the restrictions under this Contract; (12) the Borrower fails to repay the corresponding principal and interest of the Loans in full on the date of repayment thereof as specified in thisContract, and other Obligors fail to make up for such difference within three (3) Business Days; (13) GDS Beijing fails to maintain its value-added telecom business license held, or the value-added telecom business license is revoked, invalid orsuspended, or GDS Beijing is unable to continue to engage in its existing IDC data center business; (14) without prior written consent of the Lender, GDS Beijing transfers to any other person other data center projects which it currently manages and thebusiness agreement or contract already executed in respect thereof; (15) without prior written consent of the Lender, the Borrower mortgages its project under construction held to any other person, or transfers to any otherperson the Target Project and the relevant business agreement or contract already executed in respect thereof; (16) on the date of expiration of three years after the first utilisation, the Borrower has less than 4000 cabinets installed under the Target Project whichhave been actually on the market and the service fees of which are charged; (17) on the date of expiration of five years after the first utilization, the Borrower has less than 6000 cabinets installed under the Target Project whichhave been actually on the market and the service fees of which are charged; 6 (18) there is any circumstance which, in the opinions of the Trustor and the Lender, would have any material adverse effect on the Lender’s claims underthis Contract; (19) without the consent of the Trustor and the Lender, the Borrower newly adds the liabilities other than the shareholder loans; or (20) during the Life of the Loans, the Borrower repays the shareholder loans or provide the Affiliates with loans. Target Project: means the all data center service projects (including Phase I and Phase II Projects) of EDC on the land use right (the correspondingownership certificate No.: [Cheng Gao Guo Yong (2011) No. 1575]) with an area of 50,160.18 square meters at Southwestern Region, West Park, High-techIndustrial Development Zone, Chengdu, among which, Phase I Project means the date center service project under the land use right with an area of50,160.18 square meters at Southwestern Region, West Park, High-tech Industrial Development Zone, Chengdu and the workshop with an area of 23,764.57square meters above the ground, and Phase II Project means the data center project under the subsequently built workshop other than Phase I Project on theland with an area of 50,160.18 square meters at Southwestern Region, West Park, High-tech Industrial Development Zone, Chengdu, which are subject to theownership certificate issued by the competent department. Single Fund Trust: means “Single Fund Trust on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd.” under the Trust Contract. Loans: mean the loans advanced to the Borrower by the Lender as the Trustee under the Single Fund Trust out of the trust fund pursuant to the TrustDocument and this Contract. Unless otherwise specified in this context, the “Loan” in this Contract shall have the same meaning with the “Trust Loan”. Life of the Loans: means the life of the Loans as specified in Article 5 of this Contract. Interest Payment Date: means the date when the interest of the Loans is due and payable, namely, the date when the interest is due and payable by theBorrower as specified in Article 8 of this Contract. The Borrower shall pay the interest accrued as of the Interest Payment Date on each Interest Payment Date.If the Interest Payment Date (excluding Repayment Date) is a legal holiday, it shall be postponed to the first Business Day immediately following that legalholiday. Interest Settlement Date: means the date on which the calculation of the interest to be paid by the Borrower ends as specified in Article 8 of thisContract. Repayment: means the repayment of any principal of the Loans specified in this Contract. Repayment Date: means the date when the principal of the Loans under this Contract is repaid, namely, the date when the principal of the Loans is dueand payable by the Borrower as specified in Article 8 of this Contract; if the Repayment Date is a legal holiday, it shall be advanced to the last Business Dayimmediately preceding that legal holiday. 7 Custodian Bank: means a trust loan fund Custodian Bank as jointly designed by the Lender and the Borrower through relevant agreements. Trust Document: means the Single Fund Trust Loan Contract on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. Advance Date: means that the Lender actually advances the Trust Loan to the Borrower according to the provisions of this Contract; in the event that theLoans is advanced by installments, means the date of first advance, unless specially stated. Due or Expire: means any of the following circumstances: (1) it is the Interest Payment Date or Repayment Date; (2) the Loans are announced by theBorrower accelerated. Date Falling N Month(s) from the Advance Date: means a day immediately preceding the numerically corresponding day of the N month after themonth during which the Advance Date falls; if the N month has no that numerically corresponding day, the last day of the N month shall be the date falling NMonth(s) from the Advance Date. Loan Account: means a bank account which is designated by the Borrower as being used to receive the Loans advanced by the Lender; if the Lenderdesignates the Custodian Bank at the time of advancing the Trust Loan, then such account is concurrently taken as the custodial account. Utilization Request: means the Utilization Request of the Single Fund Trust Loan on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. Loan Note: means the Single Fund Trust Loan Note on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. Business Day: means a day (other than a legal holiday) on which the Lender is open for business. RMB: means the legal currency of China (namely, the People’s Republic of China, for the purposes of this Contract, excluding Hong Kong and MacaoSpecial Administrative Regions and Taiwan, similarly hereinafter). Yuan: means the monetary unit of RMB. The headings of clauses and appendices under this Contract are for convenience and reference only, and shall not be deemed as the interpretation of suchclauses or appendices. 8 Article 2 Loan Type The Loans hereunder shall be specially used by the Borrower to construct all data center service projects on the 50,160.18 square meters of land use rightat Southwestern Region, West Park, High-tech Industrial Development Zone, Chengdu, to repay the Existing Liabilities of the Borrower other than theshareholder loans and supplement the operating working capital of the Borrower. Article 3 Loan Currency The Loans hereunder shall be in RMB currency. Article 4 Purpose of Loan The Loans hereunder shall be used by the Borrower to construct data center service projects on the 50,160.18 square meters of land use right atSouthwestern Region, West Park, High-tech Industrial Development Zone, Chengdu, to repay the Existing Liabilities of the Borrower other than shareholderloans and supplement the operating working capital of the Borrower. The Borrower may not use the loan proceeds in restricted industries, fields and otherfields prohibited by laws and regulations, such as the resource industry with high pollution and energy consumption, and major infrastructure projectsincluding railways, highways, airports and water conservancy projects, among others. Article 5 Loan Amount and Life of Loan 1. The total principal amount of the Loans hereunder shall be up to Renminbi One Billion Ten Million Yuan (RMB 1,010,000,000), which shall be advancedin three installments, of which the first installment shall be RMB 345 million, intended to be used for repayment of the Existing Liabilities of the Borrowerother than the shareholder loans and supplement the operating working capital of the Borrower, the second installment shall be RMB 500 million,intended to be used for the construction and operation of the Borrower’s Target Project, and the third installment shall be RMB 165 million, intended to beused for the construction and operation of the Borrower’s Target Project. The Loan principal of each installment shall be subject to the actual amountadvanced. The Lender will advance the Loan of each installment hereunder to the Borrower with the trust funds of each installment actually delivered bythe Trustor under the Single Fund Trust. 2. The Life of the Loans of each installment hereunder shall be 84 months in total, counting from the Initial Utilization until the expiration of the 84th monththereafter. 3. Subject the conditions stipulated herein, if the Lender declares the Loan accelerated; the due date fixed by the notice of such declaration shall be theexpiration date of the Life of the Loans. 9 Article 6 Interest Rate and Interest of Loan 1. The initial interest rate for the Loans hereunder shall be 7.35%. In particular, both Parties agree that in the event of an increase in the benchmark interestrate of the People’s Bank of China during the Life of the Loans, the annual interest rate of the Loans shall be increased accordingly on such adjustmentdate to ensure that the difference between the annual interest rate of the Loans and the benchmark interest rate of the People’s Bank of China remains thesame before and after the increase. However, both Parties acknowledge that the interest rate of the Loans shall not be changed in case of the reduction ofthe People’s Bank of China benchmark interest rate during the Life of the Loans. 2. The interest of the Loans hereunder shall be calculated from the Advance Date on a daily basis according to the formula as follows: Interest = Loan Principal Balance × Number of Loan Days × Daily Interest Rate, Daily Interest Rate = Annual Interest Rate÷ 360. 3. Each time the Borrower repays the principal of the Loans, regardless of whether the Repayment Date falls on an Interest Payment Date or not, it shall payoff the accrued interest (that is, all the interest that has accrued on the Loans but remains outstanding as of such repayment date). Article 7 Conditions and Method of Loan Advance 1. The Loans hereunder shall be advanced in the way of (1) below. (1) Consigned Disbursement to the Custodian Bank. The Lender shall advance the Loans in one lump sum or in installments to the special loan accountestablished by the Borrower with the Custodian Bank, and the Custodian Bank shall control the use of the loan proceeds in accordance with theprovisions of the Control Agreement. (2) Self-controlled Disbursement to the Borrower. The Lender shall advance the Loans in one lump sum or in installments to the Borrower. 10 2. Lender’s Loan Advance Plan (1) The Loan of the first installment shall amount to RMB 345 million, which shall be advanced within 60 days after the execution hereof under thecircumstance where the trust funds are actually received, provided that: (A) the Borrower, GDS Beijing and GDS Suzhou have provided copies of theiraudited financial statements with official seals of the past three years (or otherwise have provided all the audited financial statements from theirestablishment until the execution date hereof), and copies of their unaudited financial statements with official seals as of the end of May 2017; (B) theLender and the Borrower have completed their internal decision-making procedures and issued the original decision documents for the Trust Loanaccordingly; (C) each Obligor has duly obtained its internal authorization to sign each Finance Document and each Finance Document has been dulysigned (except the Real Estate Mortgage Agreement (Phase II)); (D) in the Target Project, the quantity of cabinets that have been installed shall not be lessthan 1,000, and the quantity of cabinets that have been actually used and started charging shall not be less than 400, for which the Trustor has received satisfactory supporting documents (subject to the operators’ and customers’ confirmations on the bills and/or invoices), and the Lender has received thewritten statement from the Trustor stating that conditions in terms of the quantity of the aforementioned cabinets installed and charged units have beensatisfied; (E) the Borrower has signed the Service Agreement with the finance consultant CCB International (China) Limited without any default; (F) theLender and the Trustor have received the copies of the latest basic organizational documents of each Obligor (including the certificate of incorporation,business license and articles of association, among others); (G) any other documents that the Lender and the Trustor may require from time to time havebeen provided; (H) the Lender has applied for pre-registration of the trust products two Business Days before the advance of the first installment of TrustLoan, obtained the unique product code in China Trust Registration Co., Ltd., and the pre-registration status of the Trust in the Trust Registration Systemshows as “Normal End”. (2) The Loan of the second installment shall amount to RMB 500 million, which shall be advanced within one year after the advance of the Loan of the firstinstallment under the circumstance where the trust funds have been actually received, provided only that: (A) the registration of land and house mortgageunder the Real Estate Mortgage Agreement (Phase I) has been completed; (B) the registration of the equity pledge under the Equity Pledge Agreement hasbeen completed; (C) the registration of the receivables pledge under the Pledges over Receivables has been completed; (D) GDS Beijing has signed aLetter of Intent with Telecom for the data center service of the Phase I Project and provided the copies thereof with official seals to the Lender and theTrustor; (E) the Trustor has obtained satisfactory supporting documents (including but not limited to the certification issued by the regulatory company)to prove that all the buildings in the Phase II Project (the Phase II data center buildings and their supporting buildings that are located on the land underRef. Cheng Gao Guo Yong (2011) No. 1575 at Southwestern Region, West Park, High-tech Industrial Development Zone, Chengdu) have completed, andthe Lender has received the written statement from the Trustor stating that the conditions therefor have been satisfied; (F) any other documents that theLender and the Trustor may require from time to time have been provided. 11 (3) The Loan of the third installment shall amount to RMB 165 million, which shall be advanced within one year after the advance of the Loan of the firstinstallment under the circumstance where the trust funds have been actually received, provided only that: (A) the corresponding house proprietarycertificates for the houses under the Phase II Project have been obtained, and the mortgage registration thereof has been completed according to theprovisions of the Real Estate Mortgage Agreement (Phase II); (B) the first stage of the Phase II Project has been completed, pending to be signed and putinto use by customers at any time, and the quantity of cabinets in use under the service agreements/sales contracts entered into by the relevant Obligorsand the relevant customers shall not be less than 1,500, and the Lender has received the written statement from the Trustor stating that the conditionstherefor have been satisfied; (C) except the loan proceeds hereunder, the funds available to the Borrower have been fully received, which shall not be lessthan the equivalent USD of RMB 337 million at the average exchange rate of 5 days prior to the advance of the Loan of the third installment; (D) anyother documents that the Lender and the Trustor may require from time to time have been provided. If the Advance Date is inconsistent with the loan advance plan agreed above, the Advance Date shall prevail. 3. Except for the specific conditions precedent to the advance of Loan of each installment, the Lender shall not be obligated to advance the Loan of eachinstallment specified in Paragraph 2 of Article 7 hereof to the Borrower unless all the following conditions are met: (1) The Lender and the Borrower have entered into this Contract, and this Contract has been established and come into effect; (2) The Borrower has completed and submitted the irrevocable Utilization Request as required by the Lender; (3) The trust contract has come into effect after duly signed by the Trustor and the trustee; (4) The transactions under the Finance Documents of each Obligor have been approved by its internal organizations duly authorized (including but notlimited to the shareholders, the board of shareholders or the board of directors, subject to the articles of association of each Obligor), and the approvalproof have been provided to the Lender and the Trustor; (5) The list of current directors of each Obligor has been provided to the Lender and the Trustor; (6) Each Obligor has borne or has evidence to prove that it will bear various expenses incurred in the course of the corresponding loan advance; (7) The Lender has received the Notice on Delivery of Trust Funds in Installments issued by the Trustor or its authorized agent, and the trust funds specifiedtherein have been transferred to the special trust property account; (8) The Lender has obtained other documents signed or provided by the Borrower, the guarantor and their related parties for the cooperation under the SingleFund Trust; 12 (9) No Event of Default has occurred under any of such Finance Documents as this Contract, and the Borrower has not breached any representations,warranties and commitments hereunder, nor has it breached any of its responsibilities and obligations hereunder. 4. Where it becomes illegal for the Lender to provide the Trust Loan to the Borrower or the Lender is unable to provide the Trust Loan to the Borrower dueto any change of laws, regulations or policies of the regulatory authorities, the Lender shall not be liable to the Borrower for any breach of contract. 5. The Lender shall transfer the loan proceeds to the following account of the Borrower: Account Name: EDC (Chengdu) Industry Co., Ltd. Bank: Bank of Jiangsu Shanghai Branch Business Department Account Number: 18200188000375804 6. Once the Loans hereunder are transferred out of the Lender’s account, it shall be deemed that the Lender has fulfilled its obligation to advance the Loansand the Borrower has accepted the Loans. 7. The Borrower shall, before the establishment of the Single Fund Trust, submit the irrevocable Utilization Request recognized by the Lender for the Loans,failing which, the Borrower shall be deemed to have abandoned the Loans automatically, the Loans hereunder shall be canceled correspondingly, and theLender shall have the right to hold the Borrower liable for breach of contract. 8. Upon receipt of the Loans, the Borrower shall submit to the Lender on the Advance Date an irrevocable Loan Note corresponding to the amount of theLoans. Article 8 Interest Settlement and Repayment 1. Unless otherwise agreed herein, the Borrower shall be obligated to repay the principal and interest of the Loans in the following manner: (1) The interest of the Trust Loan hereunder shall be settled quarterly (as per the calendar quarter, the same below) on the 20 day of the last month of eachquarter and on the Repayment Date, and shall be paid on the 15 day of the last month of each quarter and the Repayment Day. If the Interest PaymentDate (excluding the Repayment Day) falls on a holiday, it shall be postponed to the first Business Day after the holiday. For the avoidance of ambiguity,the Borrower acknowledges that it has voluntarily accepted the arrangement to prepay the current interest on the Interest Payment Date prior to theInterest Settlement Date, and agrees that such arrangement merely bring effect to prepay the current interest, which will in no way affect the principalbalance of the Loans or be construed as a deduction of the principal of the Loans. 13thth (2) The Borrower shall repay the Loans hereunder in installments commencing from the fourth year after the Initial Utilization (after the date rather than thecalendar year of the Initial Utilization) according to the specific repayment schedule as follows. Each time the Borrower repays the principal of the Loans,it shall pay off the accrued interest payable which shall be calculated up to the day prior to the Repayment Date. Repayment Date Ratio of the repayment amountto the aggregate amount ofaccumulative Loans utilized bythe Borrower hereunder The first Interest Payment Date from the expiration of three years after the Initial Utilization4% The second Interest Payment Date from the expiration of three years after the Initial Utilization4% The third Interest Payment Date from the expiration of three years after the Initial Utilization4% The forth Interest Payment Date from the expiration of three years after the Initial Utilization4% The first Interest Payment Date from the expiration of four years after the Initial Utilization5% The second Interest Payment Date from the expiration of four years after the Initial Utilization5% The third Interest Payment Date from the expiration of four years after the Initial Utilization5% The forth Interest Payment Date from the expiration of four years after the Initial Utilization5% The first Interest Payment Date from the expiration of five years after the Initial Utilization8% The second Interest Payment Date from the expiration of five years after the Initial Utilization8% The third Interest Payment Date from the expiration of five years after the Initial Utilization8% The forth Interest Payment Date from the expiration of five years after the Initial Utilization8% The first Interest Payment Date from the expiration of six years after the Initial Utilization8% The second Interest Payment Date from the expiration of six years after the Initial Utilization8% The third Interest Payment Date from the expiration of six years after the Initial Utilization8% Final Maturity Date of the Loans8% 14 For the avoidance of ambiguity, the Parties make it clear that the “repayment amount” set out in the above table shall always be calculated by acorresponding ratio on the basis of the “aggregate amount of accumulative Loans utilised by the Borrower hereunder” as a fixed base. In other words, thecalculation base of the “repayment amount” is fixed as the aggregate amount of accumulative Loans, which shall not be adjusted with the repayment. Notwithstanding the Borrower shall repay in accordance with the repayment schedule above, as long as the Borrower’s repayment is able to meet therepayment schedule and corresponding requirement for repayment amount, the Borrower shall have the option to prepay on the corresponding RepaymentDate by increasing the repayment amount, provided, however, that the Borrower shall give the Lender and the Trustor no less than twenty (20) BusinessDays’ prior written notice. The amount prepaid by the Borrower in excess of the repayment ratio set out in the above table shall, in the reverse order of therepayment schedule, offset the repayment of the Borrower in each installment. If the Borrower, upon giving the Lender no less than twenty (20) Business Days’ prior written notice in accordance with the provisions hereof, prepaysthe whole principal and interest of the Loans, the interest shall be calculated according to the actual number of days for which the loan proceeds are used andthe balance of the Loans. In particular, from the date after expiration of six years upon the Initial Utilisation, the Borrower may raise funds from other banks, financial institutionsor third parties to repay the Loans hereunder. The funds obtained through refinancing shall only be used to repay the principal and interest relating to theBorrower hereunder or to pay other expenses under the Finance Documents, the amount of which shall fully cover all outstanding principal, interest andrelated expenses relating to the Borrower at the time. The Borrower, and the Lender and the Trustor may negotiate to terminate part of the guaranteearrangements for the purpose of refinancing according to the specific situation thereat. 15 2. If the Lender has the right to declare the Loans accelerated pursuant hereto, the Lender may require the Borrower to prepay the principal and interest of theLoans. Except as otherwise specified herein, where the Lender declare the acceleration of the Loans, the Borrower shall repay the principal of the Loansand pay off the interest thereon in a lump sum on the prepayment date fixed by the Lender, at the time of which, the interest payable by the Borrower onthe outstanding principal of the Loans shall be calculated for the full Life of the Loans agreed in Paragraph 2 of Article 5 hereof. 3. The Borrower shall deposit the payables (interest, principal, etc.) in full into a special trust account of the Single Fund Trust designated by the Lender onthe Interest Payment Date or the Repayment Date or in any other manner approved by the Lender. 4. If the Borrower fails to pay off the principal, interest and relevant expenses payable, the amount paid by the Borrower to the Lender shall be transferred bythe Lender for and in the order of liquidated damages, indemnity, compound interest, late penalty interest, interest, principal and other payables, and theLender shall have the right to adjust the said order. Article 9 Sources of Principal Repayment and Interest Payment, Guarantee and Fund Custody 1. The Borrower’s sources of funds for repaying the principal and interest of the Loans hereunder include but are not limited to: (1) the daily operating income of the Borrower and its Affiliates; (2) the capital contributions made and funds raised by the Borrower’s shareholders or the execution funds of any guarantee provided by its affiliates for theTrust Loan; and (3) other incomes of the Borrower or its Affiliates. 2. Regardless of any stipulation on the sources of funds for repaying the principal and paying interest payable by the Borrowers in any other contract towhich the Borrower is a party, such stipulation shall not affect the performance of the Borrower’s obligation to repay the principal and pay interesthereunder. Under no circumstances shall the Borrower invoke the provisions of Paragraph 1 of this Article to refuse to perform its obligations of repayingthe principal and paying interest hereunder. 3. The natural and/or legal person concerned shall provide the Lender with the following credit enhancement measures to guarantee the Borrower’sperformance of any its obligations and liabilities hereunder: (1) the mortgage of land and houses under the Phase I Project, subject to the Real Estate Mortgage Agreement (Phase I); (2) the mortgage of houses under the Phase II Project, subject to the Real Estate Mortgage Agreement (Phase II); 16 (3) the pledge of the 100% equity in the Borrower held by EDC Holdings, the shareholder of the Borrower, subject to the Equity Pledge Agreement; (4) the pledge of all account receivables of the Borrower under its Back-to-Back Agreement with GDS Beijing and GDS Suzhou and under other relevantagreements, subject to the Pledge over Receivables of the Borrower; (5) the pledge of account receivables of GDS Beijing under all its service contracts and other relevant agreements with its customers for the Target Project,subject to the Pledge over Receivables of GDS Beijing; (6) the pledge of account receivables of GDS Suzhou under all its service contracts and other relevant agreements with its customers for the Target Project,subject to the Pledge over Receivables of GDS Suzhou; (7) the unconditional and irrevocable guarantee for all liabilities of the Borrower under the Finance Documents provided by GDS Beijing, subject to theGuarantee of GDS Beijing; (8) the unconditional and irrevocable guarantee for all liabilities of the Borrower under the Finance Documents provided by GDS Holdings, subject to theGuarantee of GDS Holdings; (9) the commitments made by the Borrower, its shareholder EDC Holdings and its Affiliates of not requiring the Borrower to repay the Affiliates loans (butexcluding the Existing Liabilities which are proposed to be repaid through the Trust Loan) of whatever credit line until the Trust Loan hereunder hasbeen fully repaid, subject to the Subordinated Debt Agreement entered into by and among the Borrower, EDC Holdings and the Borrower’s Affiliates. 4. In order to ensure that the Borrower performs any of its obligations and responsibilities hereunder, the Parties agree to the following fund custodyarrangements: (1) The borrower shall, and shall procure GDS Beijing and GDS Suzhou respectively to, establish a receiving account with the Custodian Bank for the receiptof all operating incomes related to the Target Project. Specifically, GDS Beijing shall ensure that all its incomes under all its service contracts/salescontracts with its customers related to the Target Project shall be paid to the receiving account opened by it with the Custodian Bank, GDS Suzhou shallalso ensure that all its incomes under all its service contracts/sales contracts with its customers related to the Target Project shall be paid to the receivingaccount established by it in the Custodian Bank, and the Borrower shall ensure that all incomes under its Back-to-Back Agreement with GDS Beijing orGDS Suzhou shall be paid to the receiving account opened with the Custodian Bank; 17 (2) The Borrower, GDS Beijing and GDS Suzhou shall, on the 20th day of the last month of each quarter, provide the Lender and the Trustor with the incomedetails of each receiving account; (3) The funds in each receiving account can only be used for the construction and operation of the Target Project (including, among others, the relatedcapital expenditure, utility bills, wages of personnel on the project site and related fees, service fees for GDS Suzhou and the Borrower’s financialexpenses), or for the repayment of Loans to the Lender. The Borrower, GDS Beijing or GDS Suzhou shall first obtain the prior written consent of thecustodian in accordance with the provisions of the Control Agreement for a single withdrawal amount or an accumulative amount received by a singlepayee that reaches or exceeds RMB 8 million (excluding repayment of the Loans to the Lender and payment of interest and charges relating thereto).Each time the Borrower, GDS Beijing or GDS Suzhou makes payments by withdrawals from the receiving accounts, they shall provide the Lender, theTrustor and the Custodian Bank with the corresponding fund use document evidencing the relevant funds are used for the intended purposes above. TheTrustor shall, if it considers that the funds in the receiving accounts are used for purposes other than the intended ones, have the right to direct theCustodian Bank through the Lender to refuse the withdrawals made by the Borrower, GDS Beijing and GDS Suzhou; (4) Before the advance of the Loan of the first installment, the Borrower shall also open a special deposit account with the Custodian Bank as a special loanand/or repayment account (subject to the provisions of the Control Agreement) to collect, pay and repay the principal and interest of the loan proceedshereunder. The Borrower shall, on the 20th day of the last month of each quarter, provide the Lender with the relevant payment details of the special loanand/or repayment account; (5) Except for the special loan account and the receiving account opened by the Borrower with the Custodian Bank, the Borrower shall ensure that itsexisting accounts shall be closed in accordance with and subject to the provisions of the Control Agreement; (6) For the avoidance of ambiguity, the Parties acknowledge that the fund custody arrangements referred to in this Article 9 are commercial arrangementsagreed upon by the Parties. In addition to this Contract, the relevant parties involved in the fund custody arrangements shall sign the relevant controlagreement at the same time of signing this Contract, the specific arrangements of which shall be subject to the Control Agreement separately signed bythe Parties. 18 Article 10 Rights and Obligations of Both Parties 1. Rights and Obligations of the Borrower (1) To furnish to the Lender an irrevocable Loan Note of an amount equal to the Loan amount pursuant to the terms hereof; and to repay and pay theprincipal amount and interest on the Loans hereunder in full and in the time specified herein; (2) To apply the loan proceeds according to the purposes specified herein, and not to embezzle the loan proceeds, or use it in any field or purpose that isprohibited for production or operation by laws of the state; (3) To be responsible for the truthfulness, accuracy and completeness of the documents furnished by it to the Lender; (4) To accept and actively assist the Lender in the post-loan management and inspection by the Lender pursuant to the terms hereof, without interfering withthe normal production and operation of the Borrower; (5) To pay expenses and expenditures, if any, hereunder in accordance with the applicable Chinese laws, regulations or judgment of a court, including,without limitation, expenses incurred for certification, appraisal, registration etc; (6) To sign to acknowledge the receipt of and return the payment demand or collection notice sent or otherwise served by the Lender on it within 3 daysafter the receipt thereof; (7) To obtain the consent of the Lender if it conducts any contracting, reform into an equity corporate structure, business association, joint venture, capitalreduction, merger, division, external investment, equity transfer, transfer of any major assets, provision of any security for others’ or its obligations, anysubstantial increase of debt financing or other important activities; (8) To give a written notice to the Lender within 7 days after any change to its place of business, mailing address, business scope, legal representative andany other issues for industrial and commercial registration; (9) To timely give a written notice to the Lender in the case of any other event that jeopardizes its normal operation or results in any material adverse effecton its repayment and payment of the principal amount and interest hereunder, including, without limitation, any major business dispute, bankruptcy,deterioration of financial conditions; (10) To give a written notice to the Lender within 5 days after any closure, dissolution, shutdown for rectification, revocation of business license orcancellation, and to immediately early repay and pay all principal amount and interest hereunder (all interests payable by the Borrower on any principalamount outstanding shall be computed according to a full loan period set forth in Paragraph 2 of Article 5); (11) To reimburse the Lender for expenses incurred by the Lender in the recovery of claims, including, without limitation, any litigation cost, attorney’s fee,appraisal cost, auction cost; (12) To furnish to the Lender applicable financial and accounting documents and documents related to its production and operation as required by theLender, including, without limitation, the balance sheet for the current quarter, the profit and loss statement as of that quarter, within 20 days after thelast calendar month of each quarter, and the cash flow statement for the current year, information on all banks of deposit at the end of each year (20 daysafter the last month). The Borrower shall be responsible for the truthfulness, accuracy and validity of documents furnished by it, and shall cooperate inthe investigation, review and inspection conducted by the Lender. 19 (13) The Borrower further represents and warrants to the Lender that: (A) Each Obligor is a corporate entity or organization duly established under the law of the place of its incorporation, and has the necessary qualification forthe conduct of the business as set forth in its business license, documents or articles of association at its place of incorporation or the place of its mainbusiness, and is qualified as a borrower under the applicable law of the place of its incorporation; (B) The use of the Loan is compliant with applicable laws, regulations and applicable policies; (C) The principal amount proposed to be borrowed by it does not exceed the amount of the trust fund; (D) Obligations set forth in each Finance Document required to be assumed by each Obligor are lawful, valid, binding and enforceable; (E) All authorizations or approvals required for the execution of the Finance Documents by each Obligor have been obtained, and execution andperformance of this Contract by each Obligor do not violate its articles of association or applicable laws and regulations, and do not contravene anyother contracts entered into by it or being performed by it; (F) Each Obligor is conducting its business in compliance with law, and has good credit conditions, and does not have any record of any credit default,avoidance or evasion of any debt or otherwise; (G) All documents, statements, instruments and other information as furnished by each Obligor to the Lender and Trustor as requested by the Lender andrelated to the Target Project and this Loan are true, accurate, complete and valid in all aspects, and are free from any fraudulent representations, majoromissions or misleading representations; (H) the Borrower has not concealed from the Lender or Trustor any event that has or is occurring and that may result in any effect on its financial conditionsand solvency; (I) As of the execution date of this Contract, there is no pending lawsuit, arbitration, other administrative proceedings or claim that may adversely influenceeach Obligor’s execution or performance of Finance Documents and repayment of obligations hereunder. (14) The Borrower further undertakes to the Lender that: (A) The Borrower shall withdraw and apply the Loan in accordance with the periods and purposes provided herein, and shall not apply the same for anypurpose that is prohibited or restricted by applicable laws and regulations; 20 (B) The Borrower shall repay and pay the principal amount, interest and other payable amounts pursuant to the terms hereof; (C) Except for the securities provided herein, without the prior written consent of the Lender and Trustor, the Borrower is not allowed to create any securityinterests in any form on any of its assets or incomes, or provide any security in any form for any third party, except for any security for the ExistingLiabilities; (D) Where the Borrower fails to repay or pay the principal amount or interest or other payable amounts pursuant to the terms hereof, the Borrower shallreimburse for the expenses incurred by the Lender and Trustor in the enforcement of the claims hereunder, including, without limitation, any attorney’sfee, appraisal cost, auction cost and any commission or management fee incurred in the collection of debts; (E) The Borrower shall ensure that at any time the ratio that the aggregate amount of Loans hereunder bears to the actual paid-in registered capital plus allshareholder loans available shall not be greater than 3:1, namely, at the time of the first advance, the Borrower shall ensure the sum of its paid-inregistered capital and all shareholder loans available shall not be less than RMB 115 million in US Dollars, and at the second advance, RMB 282 millionin US Dollars, and at the third advance, RMB 337 million in US Dollars. (F) Except for the Loans hereunder and Existing Liabilities, without the prior written consent of the Lender and Trustor, the Borrower shall not conduct anyfinancing or incur any debt to any person other than its shareholders; (G) Without the prior written consent of the Lender and Trustor, the Borrower shall not advance to any third party (including its Affiliates) any loan orprovide any guarantee or indemnification, except as permitted by the Finance Documents; (H) Without the prior written consent of the Lender and Trustor, the Borrower may not at any time repay any loan between it and any of its Affiliates or payany interest thereon or make other forms of distribution, and may not repay any shareholder loan; (I) The Borrower shall ensure that the aggregate liquidated damages payable for any default under any financing debt by any one or more members of theGroup with which it is affiliated (namely, the Group Company to which the Borrower and each Obligor are parties, which shall be subject to theinformation made publicly available by GDS Holdings) shall not exceed RMB 50 million; (J) The Borrower shall procure that Mr. Huang Wei maintain his status as the actual controller of GDS Holdings at all times. “Actual controller” mentionedabove shall refer to “any person that has the power to direct the election of no less than a majority of members of the board of directors through theownership of voting shares of GDS Holdings, or to otherwise actually control GDS Holdings through any investment, agreement or other arrangements; (K) The Borrower shall procure that GDS Holdings maintain the full control of GDS Beijing at all times, including, without limitation, through a VIE(Variable Interest Entities) agreement, in the form and substance to the reasonable satisfaction of the Trustor; 21 (L) The Borrower shall, on the 20 day of the last month of each quarter during the term of the Loans, furnish a management report to the Lender and Trustorin the form and substance to the reasonable satisfaction of the Lender and Trustor, which shall at least sets forth the number of cabinets installed, numberof cabinets accruing a fee and financial data related to the Target Project; (M) The Borrower shall, within forty five (45) days after the end of each financial quarter during the term of the Loan, furnish to the Lender and Trustor itsunaudited quarterly financial statements, and within ninety (90) days after the end of each half financial year, its unaudited semi-annual financialstatements, and within one hundred and fifty (150) days after each financial year, its audited financial statements. 2. Rights and Obligations of the Lender (1) Rights of the Lender (A) To request the Borrower to supply all documents related to the Loans; (B) To request the Borrower to timely or early repay and pay the principal amount and interest pursuant to the terms hereof; (C) To take necessary actions, whether legal, economic or administrative or otherwise, against the Borrower in the case the Borrower avoids the oversight ofthe Lender, defaults in repayment or payment of any principal amount or interest or otherwise, so as to protect its interests; (D) The Lender may engage a third party to exercise the rights of the Lender hereunder on its behalf, including, without limitation, rights of collection ofprincipal and interest, dispute resolution, filing a lawsuit, post-loan management; (E) The Lender is entitled to enquire about information on the Borrower at the financial credit information basic database established by the state, andprovide information on the Borrower to such database; (F) Other rights conferred by this Contract. (2) Obligations of the Lender (A) Advancement loans to the Borrower pursuant to the terms hereof, except for any delay due to anything attributable to the Borrower; (B) Other obligations provided herein. Article 11 Post-loan Management 1. The loan proceeds hereunder shall be applied by the Borrower for the purposes set forth in item (1) in the following: (1) After the loan proceeds hereunder are remitted to the exclusive loan account opened by the Borrower with the Custodian Bank, the Borrower shallapply the proceeds in the manner provided in applicable agreements by entrusting the Custodian Bank with the payment thereof on its behalf; 22th (2) After the loan proceeds hereunder are remitted to the Borrower’s account under Paragraph 6 of Article 7 hereof, the Borrower may apply the same for anypurposes determined at its discretion pursuant to this Contract. 2. The Lender may conduct inspection of the Borrower on its performance of agreements, credit conditions, cash outflow etc. The Borrower is obligated toaccept the inspection by making available applicable documents to the Lender as required by the Lender. Article 12 Representations and Warranties 1. The Borrower hereby represents and warrants as follows: (1) It is an incorporated entity duly registered and validly existing under applicable laws, and has the power to dispose of the assets as being operated andmanaged by it, and has the power and authority to engage in the business related to the purpose of the Loans hereunder and execute and perform thisContract; (2) Its execution of this Contract has been approved or authorized by its general meeting or its board of directors; (3) Execution and performance by it of this Contract does not conflict in any manner with any laws, regulations, the articles of association and other rules bywhich it and its assets are bound (including, without limitation, any security created by it for others and/or itself); (4) All documents, instruments furnished by it to the Lender, including, without limitation, financial statements, outstanding loan contracts between it andany other financial institute, any security provided for others and/or itself, are true, accurate, lawful and valid; (5) No lawsuit, arbitration or criminal penalty or administrative penalty is filed at the time of execution of this Contract or will be filed during the valid termhereof that will have a material adverse effect on the Borrower or any of its major assets. In the case of any of the above, the Borrower shall immediatelynotify the Lender pursuant to the terms hereof; (6) The Borrower has the capacity to maintain it as a going concern, and has lawful sources of fund to repay and pay the principal amount and interestthereon; (7) The Borrower’s credit conditions are satisfactory, and it has no record of any credit default, avoidance or evasion of bank loans. 2. The Lender represents and warrants that: (1) It is a trust company lawfully approved by the China Banking Regulatory Commission to engage in the trust services, including the handling of theissue hereunder. It has the full civil capacity as a Chinese non-banking financial institute. (2) It makes available Trust Loans to the Borrower from the trust funds under the Single Fund Trust, and it has the lawful power to dispose of the trust assets. 23 Article 13 Default Liabilities 1. Each Party shall fulfill its obligations hereunder after this Contract takes effect. Any party that fails to perform or fully perform its obligations hereunderor breaches any of its representations, warranties or covenants hereunder, or has any Event of Default under Article 1 hereof, shall be liable for breach ofcontract according to law. 2. Where the Borrower fails to fully and timely repay or pay the principal amount or interest hereunder, the Lender is entitled to request the Borrower torepay or pay the same within a specified period, and charge a late penalty on the principal amount of the Loan outstanding at that time at a late penaltyrate of 18% per annum (simple interest) on a daily basis (without charging the normal interests on such Loan), until all amounts payable by the Borrowerhereunder are fully repaid and paid; where the Borrower fails to pay the loan interests hereunder in time and in full, the Lender is entitled to request it topay the same within a specified period as well as charge a compound interest at the late penalty interest rate mentioned above on a daily basis, and theLender may declare all Loans accelerated immediately. 3. Where the Borrower fails to apply the loan proceeds in a manner consistent with the purposes set forth herein, the Lender is entitled to declare the Loanaccelerated as well as early recover part or all of the Loans, and charge the Borrower a late penalty at the interest rate applicable to fund embezzlement(18% per annum (simple interest)) on the loan proceeds that are applied in violation of the permitted purposes on a daily basis. 4. In the case of any Event of Default during the valid term hereof, the Borrower shall be deemed in default hereunder, and unless it is waived by theLender, the Lender may cease the advancement of the Loan, declare the Loan accelerated, early recover the Loan, and may directly deduct the principalamount and interest from the account of the Borrower without giving a prior notice to the Borrower. In addition to the rights mentioned in the first paragraph, in the case of any event set forth in this Article, unless such event is waived by the Lender, theLender may also have the following rights: (1) Charge the Borrower a late penalty interest on the principal amount of the Loan outstanding at that time at a rate of 18% (simple interest) per annumon a daily basis from the date of occurrence of the Event of Default until all amounts payable by the Borrower hereunder are repaid in full; theLender will charge a compound interest regarding any interest that is due but not paid, which will be paid by the Borrower to the Lender on eachinterest payment date; (2) Enforce the guarantee or other security under the related Finance Document; (3) Other actions the Lender is entitled to take according to applicable laws and regulations. 5. If during the valid term hereof any change to any applicable laws or regulations or policies of any regulatory authorities results in the Trust Loan to beadvanced by the Lender to the Borrower being illegal, the Lender is entitled to cease the advancement of the Loan, declare the Loan accelerated, and theBorrower shall immediately repay all outstanding Loans. 24 Article 14 Validity, Change, Cancellation and Termination 1. This Contract shall take effect on the date it is signed or sealed by the legal representative (person in charge) or authorized representative of eachParty and affixed the common seal or contract (business) seal of each Party, and shall terminate on the date all principal amounts, interests,compound interests, late penalty interests, liquidated damages and all other payable amounts hereunder are repaid and paid. 2. After this Contract takes effect, any transfer by the Lender of all or part of its claims as a result of the Loan hereunder to a third party shall only be subjectto a written notice to the Borrower without obtaining the consent of the Borrower, and after a written notice served on the Borrower, the transferee isentitled to request the Borrower to perform its obligations and responsibilities hereunder. 3. After this Contract takes effect, the Borrower may not assign all or part of its obligations hereunder to any third party without the written consent of theLender. 4. Unless as otherwise provided herein, neither party may change or terminate this Contract after this Contract takes effect. Any change or termination shallbe made by a written amendment agreed by both Parties, and this Contract shall continue to be implemented prior to the written amendment. 5. Where the single fund trust fails to be established, this Contract shall be automatically terminated, and neither Party shall be liable to the other for breachof contract and/or damages, except where the failure of establishment is due to any breach of the Borrower. The Lender shall not be liable for breach ofcontract and/or damages in the case the Lender fails to advance any applicable Loans due to the Borrower as a result of the failure by the Trustor todeliver the trust funds required to be delivered for any period in time and in full. Article 15 Special Provisions 1. The obligations of the Borrower of repayment and payment of the principal amount and interest hereunder shall not be exempted as a result of anychange to the financial conditions, operation method, corporate bylaws or legal status of the Borrower or as a result of any other agreement or documentbetween the Borrower and others. 2. Source of loan proceeds: the loan proceeds hereunder are from the trust funds under a single fund trust, namely, the Single Fund Trust Loan on TrustLoan Applied for by EDC (Chengdu) Industry Co., Ltd. 3. The Borrower undertakes that, there exists no repeated financing on the Target Project, and the Target Project will not, during the loan period set forth inParagraph 2 of Article 5 hereof, conduct financing from any third party in reliance on the Target Project or any interests under the project. 4. Any issues uncovered herein shall be subject to the applicable Chinese laws and regulations. In the absence of such laws, regulations, the Lender and theBorrower may enter into a written supplementary agreement to be attached hereto as an appendix, which shall have the same force and effect as thisContract. 25 5. Definitions and interpretation herein (definitions in Article 1 and other articles) shall, in addition to serving as the basis for interpretation of relevantterms, be an integral part of this Contract as the appendices, if any, and shall have the same force and effect as this Contract. Article 16 Dispute Resolution 1. This Contract shall be governed by the law of the People’s Republic of China. Any dispute arising out of this Contract shall be resolved throughnegotiation between both Parties. If negotiation fails, each Party shall bring a lawsuit at the people’s court at the place of the Lender. 2. During the negotiation between the Lender and the Borrower and during the legal proceedings or during the period an enforcement is sought against theBorrower, other terms hereof that are not related to the issue in dispute shall continue to be implemented. Article 17 Notice and Force Majeure Event 1. Unless as otherwise provided herein, all notices sent hereunder, including letters, notices served by a court, government authority or other competentauthority, may be sent via fax, mail, special courier, e-mail, or other means mutually agreed between both Parties, to the following addresses: The Lender’s address: Floors 22-26, No. 2 Changjiang Road, Nanjing, Jiangsu Province, postal code: 210005 Attention: Rao Siwen Telephone: 025-89667635 Email box: raosiwen@jsitc.net Mailing address of the Borrower: 2/F, Building 2, Ziyou Shiji Square, No. 428 Yanggao South Road, Pudong New Area, Shanghai 200127 Attention: Ma Yongqiang Telephone: 13764264086 Email box: mayongqiang@gds-services.com 2. Any notice accompanied with a receipt shall be deemed served on the date indicated on the receipt, a notice without a receipt shall be deemed served onthe following dates: if sent by personal delivery, the date the recipient acknowledges the receipt by signature; if sent by fax, the date the transmission ofthe fax is confirmed; if sent by a registered mail (postage prepaid), the 5 day after the notice is mailed (subject to that indicated on the post stamp); ifsent by a special courier service (postage prepaid), the 3 day after the notice is sent (subject to that indicated on the post stamp); if sent by Email, thetime when the Email is received by the system of the recipient. For the avoidance of doubt, each Party acknowledges that, the above mailing addressesand contact information shall be applicable to the service of all notices, agreements that are generated not during any legal proceedings and documentsand legal process in the case of any dispute arising out of this Contract, and service of legal process during the trial of first instance, trial of secondinstance and court enforcement proceedings when the dispute enters into the arbitration, civil litigation proceedings. 26thrd 3. In the case of any change to the mailing address or contact information of either party, that party shall immediately give a written notice to the otherparty, and the changing party shall be liable for any loss incurred as a result of failure to timely give a notice. 4. In the case of any failure to timely make advancement of loan or repay and pay any principal amount and interest by any party due to any force majeureevent, such party shall give a notice to the other party and shall take effective actions to prevent the expansion of such losses. The party affected by suchforce majeure event shall, within 15 days after the occurrence of such event, furnish to the other party a document evidencing the details of the event anda proof issued by the relevant government authority, and the Lender and the Borrower shall timely resolve the same through negotiation. Provided,however, that neither party may refuse to fulfill the obligations of loan advancement or repayment of the principal amount and payment of interest on theground of existence of such event. Article 18 Confidentiality Each Party shall be bound by the confidentiality obligations regarding the existence of this Contract and issues related to this Contract, and without thewritten consent of the other Party, neither Party may disclose any issue related to this Contract to any third party other than the Parties hereto, except for thedisclosures below: (1) The Lender is required under the information disclosure obligations provided by applicable laws, regulations or the trust document to make disclosuresto Trustor/Beneficiary under the Single Fund Trust; (2) Any disclosure made to any auditor, legal counsel or other professionals engaged by it during the normal course of business, provided, however, thatsuch persons shall be bound by the confidentiality obligations regarding the information related to this Contract to which they have access inconnection with their services; (3) Such documents or instruments may be publicly available, or the disclosure of such documents is required by any applicable law or regulation; (4) Any disclosure that is required to be made to a court or under a pre-litigation disclosure procedures or similar procedures, or any disclosure that is relatedto this Contract under such legal proceedings; (5) Any disclosure made by the Lender to the financial regulatory authority as required by such authority; or (6) Any disclosure made to one or more parties that provide any security for the obligations or liabilities of the Borrower hereunder. 27 Article 19 Others 1. This Contract shall be in ten copies, of which each Party shall keep two, with the remaining copies to be reserved for other purposes, each having thesame force and effect. 2. The irrevocable Loan Note furnished by the Borrower to the Lender shall be the certificate for the Loans hereunder, and shall have the same force andeffect as this Contract. 3. Any interests, fees other than the principal amount of the Trust Loan hereunder shall be tax-inclusive amounts. 4. The Lender has reasonably brought into the Borrower’s attention the clauses hereof on liability exemption or restriction, and has made sufficientexplanation regarding applicable clauses as required by the Borrower; and the Lender and the Borrower have no dispute regarding theinterpretation of all clauses hereof. (No text below) 28 (This Page is a signature page of the Single Fund Trust Loan Contract on Trust Loan Applied for by EDC (Chengdu) Industry Co., Ltd. numbered DK(2017-0647)WGJS, no text on this page) Before execution of this Contract, each Party has read and has no objection to all terms hereof, and has accurate understanding of the legal implicationsof the legal relationship between the Parties, and clauses hereof on rights, obligations and liabilities. The Borrower: EDC (Chengdu) Industry Co., Ltd. (seal) Legal representative (person in charge) or authorized representative (signature or seal): The Lender: Jiangsu International Trust Corporation Limited (Seal) Legal representative (person in charge) or authorized representative (signature or seal): Place of execution: No. 2 Changjiang Road, Xuanwu District, Nanjing, Jiangsu Province Date of execution: [December 6], 2017 29 Exhibit 4.36 EXECUTION VERSION GDS HOLDINGS LIMITED and The Bank of New York Mellon as Trustee INDENTURE Dated as of June 5, 2018 US$300,000,000 2.00% CONVERTIBLE SENIOR NOTES DUE 2025 TABLE OF CONTENTS ARTICLE 1 Definitions1 Section 1.01Definitions1Section 1.03References to Interest10 ARTICLE 2 Issue, Description, Execution, Registration and Exchange of Notes10 Section 2.01Designation and Amount10Section 2.02Form of Notes10Section 2.03Date and Denomination of Notes; Payments of Interest and Defaulted Amounts10Section 2.04Execution, Authentication and Delivery of Notes11Section 2.05Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary12Section 2.06Mutilated, Destroyed, Lost or Stolen Notes20Section 2.07Temporary Notes21Section 2.08Cancellation of Notes Paid, Converted, Etc.21Section 2.09CUSIP Numbers21Section 2.10Additional Notes; Repurchases21 ARTICLE 3 SATISFACTION AND DISCHARGE22 Section 3.01Satisfaction and Discharge22 ARTICLE 4 PARTICULAR COVENANTS OF THE COMPANY22 Section 4.01Payment of Principal and Interest22Section 4.02Maintenance of Office or Agency22Section 4.03Appointments to Fill Vacancies in Trustee’s Office23Section 4.04Provisions as to Paying Agent23Section 4.05Existence24Section 4.06Rule 144A Information Requirement and Annual Reports24Section 4.07Additional Amounts25Section 4.08Stay, Extension and Usury Laws28Section 4.09Compliance Certificate; Statements as to Defaults28Section 4.10Further Instruments and Acts29 ARTICLE 5 LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE29 Section 5.01Lists of Holders29Section 5.02Preservation and Disclosure of Lists29 ARTICLE 6 DEFAULTS AND REMEDIES29 Section 6.01Events of Default29Section 6.02Acceleration; Rescission and Annulment30Section 6.03Additional Interest31Section 6.04Payments of Notes on Default; Suit Therefor32Section 6.05Application of Monies or Property Collected by Trustee33Section 6.06Proceedings by Holders33Section 6.07Proceedings by Trustee34Section 6.08Remedies Cumulative and Continuing34Section 6.09Direction of Proceedings and Waiver of Defaults by Majority of Holders34Section 6.10Notice of Defaults and Events of Default35 ii Section 6.11Undertaking to Pay Costs35 ARTICLE 7 CONCERNING THE TRUSTEE35 Section 7.01Duties and Responsibilities of Trustee35Section 7.02Reliance on Documents, Opinions, Etc.37Section 7.03No Responsibility for Recitals, Etc.38Section 7.04Trustee, Paying Agents, Conversion Agents or Note Registrar May Own Notes39Section 7.05Monies to Be Held in Trust39Section 7.06Compensation and Expenses of Trustee39Section 7.07Officers’ Certificate as Evidence39Section 7.08Eligibility of Trustee40Section 7.09Resignation or Removal of Trustee40Section 7.10Acceptance by Successor Trustee41Section 7.11Succession by Merger, Etc.41Section 7.12Trustee’s Application for Instructions from the Company41 ARTICLE 8 CONCERNING THE HOLDERS42 Section 8.01Action by Holders42Section 8.02Proof of Execution by Holders42Section 8.03Who Are Deemed Absolute Owners42Section 8.04Company-Owned Notes Disregarded42Section 8.05Revocation of Consents; Future Holders Bound42 ARTICLE 9 HOLDERS’ MEETINGS43 Section 9.01Purpose of Meetings43Section 9.02Call of Meetings by Trustee43Section 9.03Call of Meetings by Company or Holders43Section 9.04Qualifications for Voting43Section 9.05Regulations44Section 9.06Voting44Section 9.07No Delay of Rights by Meeting44 ARTICLE 10 SUPPLEMENTAL INDENTURES45 Section 10.01Supplemental Indentures Without Consent of Holders45Section 10.02Supplemental Indentures with Consent of Holders45Section 10.03Effect of Supplemental Indentures46Section 10.04Notation on Notes47Section 10.05Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee47 ARTICLE 11 CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE47 Section 11.01Company May Consolidate, Etc. on Certain Terms47Section 11.02Successor Corporation to Be Substituted48Section 11.03Opinion of Counsel to Be Given to Trustee48 ARTICLE 12 IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS48 Section 12.01Indenture and Notes Solely Corporate Obligations48 iii ARTICLE 13 [RESERVED]49 ARTICLE 14 CONVERSION OF NOTES49 Section 14.01Conversion Privilege49Section 14.02Conversion Procedure; Settlement Upon Conversion49Section 14.03Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-WholeFundamental Change and Tax Redemption51Section 14.04Adjustment of Conversion Rate53Section 14.05Adjustments of Prices60Section 14.06Ordinary Shares to Be Fully Paid60Section 14.07Effect of Recapitalizations, Reclassifications and Changes of the Ordinary Shares60Section 14.08Certain Covenants62Section 14.09Responsibility of Trustee62Section 14.10Notice to Holders Prior to Certain Actions62Section 14.11Shareholder Rights Plans63Section 14.12Termination of Depositary Receipt Program63 ARTICLE 15 REPURCHASE OF NOTES AT OPTION OF HOLDERS63 Section 15.01Repurchase at Option of Holders63Section 15.02Repurchase at Option of Holders Upon a Fundamental Change65Section 15.03Withdrawal of Repurchase Notice or Fundamental Change Repurchase Notice67Section 15.04Deposit of Repurchase Price or Fundamental Change Repurchase Price68Section 15.05Covenant to Comply with Applicable Laws Upon Repurchase of Notes68 ARTICLE 16 REDEMPTION ONLY FOR TAXATION REASONS69 Section 16.01No Redemption Except for Taxation Reasons69Section 16.02Notice of Tax Redemption69Section 16.03Payment of Notes Called for Tax Redemption for Taxation71Section 16.04Holders’ Right to Avoid Redemption71Section 16.05Restrictions on Tax Redemption71Section 16.06Withdrawal of Notice of Election to Avoid a Tax Redemption71 ARTICLE 17 MISCELLANEOUS PROVISIONS71 Section 17.01Binding on Company’s Successors71Section 17.02Official Acts by Successor Corporation72Section 17.03Addresses for Notices, Etc.72Section 17.04Governing Law; Jurisdiction73Section 17.05Submission to Jurisdiction; Service of Process73Section 17.06Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to Trustee74Section 17.07Legal Holidays74Section 17.08No Security Interest Created74Section 17.09Benefits of Indenture75Section 17.10Table of Contents, Headings, Etc.75Section 17.11Execution in Counterparts75Section 17.12Judgment Currency75Section 17.13Severability75Section 17.14Waiver of Jury Trial75Section 17.15Force Majeure75Section 17.16Calculations75Section 17.17USA PATRIOT Act76 iv EXHIBITS Exhibit AForm of NoteA-1 Exhibit BForm of Authorization CertificateB-1 v INDENTURE dated as of June 5, 2018, between GDS Holdings Limited, a Cayman Islands exempted company, as issuer (the “Company”, as morefully set forth in Section 1.01) and The Bank of New York Mellon, a national banking association, as trustee (the “Trustee”, as more fully set forth inSection 1.01). WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issuance of its 2.00% Convertible Senior Notes due 2025 (the“Notes”), in the aggregate principal amount of US$300,000,000 (including US$50,000,000 in aggregate principal amount of additional Notes purchased bythe Initial Purchasers pursuant to the exercise of their option to purchase additional Notes as set forth in the Purchase Agreement), and in order to provide theterms and conditions upon which the Notes are to be authenticated, issued and delivered, the Company has duly authorized the execution and delivery ofthis Indenture; and WHEREAS, the Form of Note, the certificate of authentication to be borne by each Note, the Form of Notice of Conversion, the Form of FundamentalChange Repurchase Notice, the Form of Repurchase Notice, the Form of Assignment and Transfer, the Form of Certificate Re: Exchange for Regulation SNote or Rule 144A Note, as the case may be, to be borne by the Notes are to be substantially in the forms hereinafter provided; and WHEREAS, all acts and things necessary to make the Notes, when executed by the Company and authenticated and delivered by the Trustee, as inthis Indenture provided, the valid, binding and legal obligations of the Company, and this Indenture a valid agreement according to its terms, have beendone and performed, and the execution of this Indenture and the issuance hereunder of the Notes have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE That in order to declare the terms and conditions upon which the Notes are, and are to be, authenticated, issued and delivered, and in considerationof the premises and of the purchase and acceptance of the Notes by the Holders thereof, the Company covenants and agrees with the Trustee for the equal andproportionate benefit of the respective Holders from time to time of the Notes (except as otherwise provided below), as follows: ARTICLE 1DEFINITIONS Section 1.01 Definitions. The terms defined in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwiserequires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. Thewords “herein,” “hereof,” “hereunder,” and words of similar import refer to this Indenture as a whole and not to any particular Article, Section or othersubdivision. The terms defined in this Article include the plural as well as the singular. “Additional ADSs” shall have the meaning specified in Section 14.03(a). “Additional Amounts” shall have the meaning specified in Section 4.07(a). “Additional Interest” means all amounts, if any, payable pursuant to Section 4.06(d), Section 4.06(e), and Section 6.03, as applicable. “ADS” means an American Depositary Share, issued pursuant to the Deposit Agreement, representing eight ordinary shares of the Company as of thedate of this Indenture, and deposited with the ADS Custodian. “ADS Custodian” means JPMorgan Chase Bank, N.A., with respect to the ADSs delivered pursuant to the Deposit Agreement, or any successor entitythereto. “ADS Depositary” means JPMorgan Chase Bank, N.A., as depositary for the ADSs. “ADS Price” shall have the meaning specified in Section 14.03(c). “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect commoncontrol with such specified Person. For the purposes of this definition, “control,” when used with respect to any specified Person means the power to direct orcause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract orotherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing. “Agents” means the Paying Agent, the Note Registrar and the Conversion Agent. “Applicable Tax Law” shall have the meaning specified in Section 4.07. “Applicable Taxes” shall have the meaning specified in Section 4.07. “Board of Directors” means the board of directors of the Company or a committee of such board duly authorized to act for it hereunder. “Board Resolution” means a copy of a resolution certified by the Secretary of the Company to have been duly adopted by the Board of Directors,and to be in full force and effect on the date of such certification, and delivered to the Trustee. “Business Day” means, with respect to any Note, any day other than a Saturday, Sunday or day on which banking institutions or trust companies inthe Cayman Islands, Hong Kong or Beijing are, or the Federal Reserve Bank of New York is, authorized or required by law or executive order to close or to beclosed. “Capital Stock” means, for any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of orinterests in (however designated) stock issued by that entity. “Change in Law” has the meaning set forth in the definition of “Fundamental Change”. “Change in Tax Law” shall have the meaning specified in Section 16.01(a). “Class B shares” means the Class B ordinary shares of the Company, par value US$0.00005 per share, at the date of this Indenture. “Clause A Distribution” shall have the meaning specified in Section 14.04(c). “Clause B Distribution” shall have the meaning specified in Section 14.04(c). “Clause C Distribution” shall have the meaning specified in Section 14.04(c). “close of business” means 5:00 p.m. (New York City time). “Code” means the U.S. Internal Revenue Code of 1986, as amended. “Commission” means the U.S. Securities and Exchange Commission. “Common Equity” of any Person means ordinary share capital or Capital Stock of such Person that is generally entitled (a) to vote in the election ofdirectors of such Person or (b) if such Person is not a corporation, to vote or otherwise participate in the selection of the governing body, partners, managers orothers that will control the management or policies of such Person. “Company” shall have the meaning specified in the first paragraph of this Indenture, and subject to the provisions of Article 11, shall include itssuccessors and assigns. “Company Group” has the meaning set forth in the definition of “Fundamental Change”. 2 “Company Notice” shall have the meaning specified in Section 15.01(a). “Company Order” means a written order of the Company, signed by an Officer of the Company and delivered to the Trustee. “Conversion Agent” shall have the meaning specified in Section 4.02. “Conversion Date” shall have the meaning specified in Section 14.02(c). “Conversion Obligation” shall have the meaning specified in Section 14.01. “Conversion Rate” shall have the meaning specified in Section 14.01. “Corporate Trust Office” means an office of the Trustee at which at any time its corporate trust business shall be administered, which office at thedate hereof is located at 101 Barclay Street, New York, NY 10286, United States of America and shall include a reference to the Hong Kong Branch located atLevel 24, Three Pacific Place, 1 Queen’s Road East, Hong Kong, Attention: Global Corporate Trust, Fax: +852 2295 3283 , or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the corporate trust office of anysuccessor trustee (or such other address as such successor trustee may designate from time to time by notice to the Holders and the Company). “Default” means any event that is, or after notice or passage of time, or both, would be, an Event of Default. “Defaulted Amounts” means any amounts on any Note (including, without limitation, the Repurchase Price, the Tax Redemption Price, theFundamental Change Repurchase Price, principal and interest) that are payable but are not punctually paid or duly provided for (without taking into accountany applicable grace period). “Deposit Agreement” means the deposit agreement dated as of November 1, 2016, by and among the Company, the ADS Depositary and all holdersfrom time to time of ADSs issued thereunder or, if amended or supplemented as provided therein, as so amended or supplemented (including, withoutlimitation, by the certain Restricted Issuance Agreement among GDS Holdings Limited, JP Morgan Chase Bank, N.A., as Depositary, and Holders ofRestricted American Depositary Receipts). “Depositary” means, with respect to each Global Note, the Person specified in Section 2.05(c) as the Depositary with respect to such Notes, until asuccessor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, “Depositary” shall mean orinclude such successor. “Distributed Property” shall have the meaning specified in Section 14.04(c). “Effective Date” shall have the meaning specified in Section 14.03(c). “Event of Default” shall have the meaning specified in Section 6.01. “Ex-Dividend Date” means the first date on which the ADSs trade on the applicable exchange or in the applicable market, regular way, without theright to receive the issuance, dividend or distribution in question, from the Company or, if applicable, from the seller of the ADSs on such exchange or market(in the form of due bills or otherwise) as determined by such exchange or market. “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. “Expiration Date” shall have the meaning specified in Section 14.04(e). 3 “Expiring Rights” means any rights, options or warrants to purchase ordinary shares or ADSs that expire on or prior to the Maturity Date. “FATCA” shall have the meaning specified in Section 4.07. “Form of Assignment and Transfer” shall mean the “Form of Assignment and Transfer” attached as Attachment 4 to the Form of Note attachedhereto as Exhibit A. “Form of Fundamental Change Repurchase Notice” shall mean the “Form of Fundamental Change Repurchase Notice” attached as Attachment 2to the Form of Note attached hereto as Exhibit A. “Form of Notice of Conversion” shall mean the “Form of Notice of Conversion” attached as Attachment 1 to the Form of Note attached hereto asExhibit A. “Form of Repurchase Notice” shall mean the “Form of Repurchase Notice” attached as Attachment 3 to the Form of Note attached hereto asExhibit A. “Fundamental Change” shall be deemed to have occurred at the time after the Notes are originally issued if any of the following occurs: (a) (1) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act, other than: (x) the Company and its Subsidiaries, and (y) any party (together with any other “person” or “group” subject to aggregation of the Class A ordinary share capital of theCompany (including Class A ordinary share capital held in the form of ADSs) with such party under Section 13(d) of the ExchangeAct) that has filed a Schedule 13D with the Securities and Exchange Commission pursuant to the Exchange Act indicating that, asof the date of the Offering Memorandum, such party is the “beneficial owner” of at least 20.0% of the voting power of theCompany’s Class A ordinary share capital (including Class A ordinary share capital held in the form of ADSs) (such party a “MajorShareholder”), files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct orindirect “beneficial owner” of the Class A ordinary share capital (including Class A ordinary share capital held in the form of ADSs) of theCompany representing more than 50.0% of the number of the Class A shares outstanding (including Class A ordinary shares held in theform of ADSs) of the Company; or (2) any Major Shareholder (together with any other “person” or “group” subject to aggregation of the Class A ordinary share capital(including ordinary share capital held in the form of ADSs) of the Company with such Major Shareholder under Section 13(d) of theExchange Act) has become the direct or indirect “beneficial owners” of the ordinary share capital (including ordinary share capital held inthe form of ADSs) of the Company representing, in the aggregate, more than 66.67% of the voting power of the Class A ordinary sharecapital (including Class A ordinary share capital held in the form of ADSs) of the Company; provided that, as used in this clause (a)(1), the term “beneficial owner” shall have the meaning defined in Rule 13d-3 under the ExchangeAct; (b) the consummation of (1) any recapitalization, reclassification or change of the ordinary shares or the ADSs (other than changes resultingfrom a subdivision or combination) as a result of which the ordinary shares or the ADSs would be converted into, or exchanged for, stock,other securities, other property or assets; (2) any share exchange, consolidation or merger of the Company, or any similar transaction,pursuant to which the ordinary shares or the ADSs will be converted into cash, 4 securities or other property; or (3) any conveyance, sale, lease or other transfer in one transaction or a series of transactions of all orsubstantially all of the consolidated assets of the Company and its Subsidiaries, taken as a whole, to any Person other than one of theCompany’s wholly-owned Subsidiaries; provided, however, that a transaction described in clause (2) in which the holders of all classes ofthe ordinary share capital of the Company immediately prior to such transaction own, directly or indirectly, more than 50% of all classes ofcommon equity of the continuing or surviving corporation or transferee or the parent thereof immediately after such transaction shall not bea fundamental change pursuant to this clause (b); (c) the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company (other than in atransaction described in clause (b) above); (d) the ADSs of the Company (or other common equity or ADSs underlying the Notes into which the Notes are then convertible) cease to belisted on any of The New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global Market (or any of theirrespective successors); or (e) (i) there is any change in or amendment to the laws, regulations and rules of the People’s Republic of China (including any politicalsubdivision or regulatory authority thereof or therein) or the official interpretation or official application thereof (any such event, a“Change in Law”) that results in (x) the Company, the Company’s Subsidiaries and its consolidated affiliated entities (collectively, the“Company Group”) (as in existence immediately subsequent to such Change in Law), as a whole, being legally prohibited from operatingsubstantially all of the business operations conducted by the Company Group (as in existence immediately prior to such Change in Law) asof the last date of the period described in the Company’s consolidated financial statements for the most recent fiscal quarter and (y) theCompany being unable to continue to derive substantially all of the economic benefits from the business operations conducted by theCompany Group (as in existence immediately prior to such Change in Law) in the same manner as reflected in the Company’s consolidatedfinancial statements for the most recent fiscal quarter and (ii) the Company has not furnished to the Trustee, prior to the date that is sixmonths after the date of the Change in Law, an opinion from an independent financial advisor or an independent legal counsel statingeither (x) that the Company is able to continue to derive substantially all of the economic benefits from the business operations conductedby the Company Group (as in existence immediately prior to such Change in Law), taken as a whole, as reflected in the Company’sconsolidated financial statements for the most recent fiscal quarter (including after giving effect to any corporate restructuring orreorganization plan of the Company Group) or (y) that such Change in Law would not materially adversely affect the Company’s ability tomake principal and interest payments on the Notes when due or to convert the Notes in accordance herewith; provided, however, that a transaction or event described in clause (b) above shall not constitute a Fundamental Change, if at least 90% of theconsideration received or to be received by holders of the ADSs (excluding cash payments for fractional ADSs) in the transaction or event that wouldotherwise constitute a Fundamental Change consists of shares of Common Equity or ADSs in respect of Common Equity that are listed on The NewYork Stock Exchange, the NASDAQ Global Select Market or The NASDAQ Global Market (or any of their respective successors) or that will be solisted when issued or exchanged in connection with such transaction or event that would otherwise constitute a Fundamental Change under clause(b) of the definition thereof, and as a result of such transaction or event, the Notes become convertible into such consideration, excluding cashpayments for any fractional ADSs (subject to settlement in accordance with the provisions of Article 14); for the avoidance of doubt, an event that isnot considered a Fundamental Change pursuant to this proviso shall not be a Fundamental Change solely because such event could also be subjectto clause (a) above. “Fundamental Change Company Notice” shall have the meaning specified in Section 15.02(b). “Fundamental Change Repurchase Date” shall have the meaning specified in Section 15.02. 5 “Fundamental Change Repurchase Notice” shall have the meaning specified in Section 15.02(a)(i). “Fundamental Change Repurchase Price” shall have the meaning specified in Section 15.02. “Global Note” shall have the meaning specified in Section 2.05(b). “Holder,” as applied to any Note, or other similar terms (but excluding the term “beneficial holder”), shall mean any Person in whose name at thetime a particular Note is registered on the Note Register. “Indenture” means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. “Initial Purchasers” means J.P. Morgan Securities LLC, Citigroup Global Markets Inc., and RBC Capital Markets, LLC. “Interest Payment Date” means each June 1 and December 1 of each year, beginning on December 1, 2018. “Judgment Currency” shall have the meaning specified in Section 17.12. “Last Reported Sale Price” of the ADSs on any Trading Day means the closing sale price per ADS (or if no closing sale price is reported, theaverage of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported incomposite transactions for the principal U.S. national or regional securities exchange on which the ADSs are listed. If the ADSs are not listed for trading on aU.S. national or regional securities exchange on the relevant date, the “Last Reported Sale Price” shall be the last quoted bid price for the ADSs in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If the ADSs are not so quoted, the “Last ReportedSale Price” shall be the average of the mid-point of the last bid and ask prices for the ADSs on the relevant date from each of at least three nationallyrecognized independent investment banking firms selected by the Company for this purpose. “Major Shareholder” has the meaning set forth in the definition of “Fundamental Change”. “Market Disruption Event” means, if the ADSs of the Company are listed for trading on The NASDAQ Global Market or listed on another UnitedStates national or regional securities exchange, the occurrence or existence during the one-half hour period ending on the scheduled close of trading on anyscheduled Trading Day of any material suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by thesecurities exchange or otherwise) in the ADSs of the Company or in any options, contracts or futures contracts relating to the ADSs of the Company. “Make-Whole Fundamental Change” means any transaction or event described in clause (a), (b), (c) or (d) of the definition of Fundamental Change(determined after giving effect to any exceptions to or exclusions from such definition, including in the proviso immediately succeeding clause (d) of thedefinition thereof, but without regard to the proviso in clause (b) of the definition thereof). “Maturity Date” means June 1, 2025. “Merger Event” shall have the meaning specified in Section 14.07(a). “Note” or “Notes” shall have the meaning specified in the first paragraph of the recitals of this Indenture. “Notes Fungibility Date” means the date, if any, following the Resale Restriction Termination Date on which all of the Rule 144A Notes and all ofthe Regulation S Notes are no longer Restricted Securities, do not bear the restrictive legend required by Section 2.05(c), are fungible for U.S. securities lawpurposes and are assigned an identical, unrestricted CUSIP number. 6 “Note Register” shall have the meaning specified in Section 2.05(a). “Note Registrar” shall have the meaning specified in Section 2.05(a). “Notice of Conversion” shall have the meaning specified in Section 14.02(b). “Offering Memorandum” means the preliminary offering memorandum dated May 29, 2018, as supplemented by the pricing term sheet datedMay 30, 2018, relating to the offering and sale of the Notes. “Officer” means, with respect to the Company, the Executive Chairman, the Directors, the Chief Executive Officer, the Chief Financial Officer or theSecretary (whether or not designated by a number or numbers or word or words added before or after the title “Vice President”). “Officers’ Certificate,” when used with respect to the Company, means a certificate that is delivered to the Trustee and that is signed by any twoOfficers of the Company. Each such certificate shall include the statements provided for in Section 17.06 if and to the extent required by the provisions ofsuch Section. One of the Officers giving an Officers’ Certificate pursuant to Section 4.09 shall be the principal executive, financial or accounting officer ofthe Company. “open of business” means 9:00 a.m. (New York City time). “Opinion of Counsel” means an opinion in writing signed by legal counsel and in a form reasonably acceptable to the Trustee, who may be anemployee of or counsel to the Company, or other counsel acceptable to the Trustee, that is delivered to the Trustee. Each such opinion shall include thestatements provided for in Section 17.06 if and to the extent required by the provisions of such Section 17.06. “ordinary shares” means the Class A ordinary shares of the Company, par value US$0.00005 per share, at the date of this Indenture, subject toSection 14.07. “outstanding,” when used with reference to Notes, shall, subject to the provisions of Section 8.04, mean, as of any particular time, all Notesauthenticated and delivered by the Trustee under this Indenture, except: a) Notes theretofore canceled by the Trustee or accepted by the Trustee for cancellation; b) Notes, or portions thereof, that have become due and payable and in respect of which monies in the necessary amount shall have beendeposited with the Trustee or with any Paying Agent (other than the Company) or shall have been set aside and segregated in trust by theCompany (if the Company shall act as its own Paying Agent); c) Notes that have been paid pursuant to Section 2.06 or Notes in lieu of which, or in substitution for which, other Notes shall have beenauthenticated and delivered pursuant to the terms of Section 2.06 unless proof satisfactory to the Trustee is presented that any such Notesare held by protected purchasers in due course; d) Notes converted pursuant to Article 14 and required to be cancelled pursuant to Section 2.08; and e) Notes repurchased by the Company pursuant to Section 2.10. “Paying Agent” shall have the meaning specified in Section 4.02. “Person” means an individual, a corporation, a limited liability company, an association, a partnership, a joint venture, a joint stock company, atrust, an unincorporated organization or a government or an agency or a political subdivision thereof. 7 “Physical Notes” means permanent certificated Notes in registered form issued in minimum denominations of US$1,000 principal amount andmultiples thereof. “PRC Enterprise Income Tax Law” means the Enterprise Income Tax Law of the People’s Republic of China, adopted on March 16, 2007 (assubsequently amended or substituted); “Predecessor Note” of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by suchparticular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 2.06 in lieu of or in exchange for a mutilated,lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note that it replaces. “Purchase Agreement” means that certain Purchase Agreement, dated as of May 30, 2018 among the Company and the Initial Purchasers relating tothe issuance and sale of the Notes. “Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of the ordinary shares (directly orin the form of ADSs) (or other applicable security) have the right to receive any cash, securities or other property or in which the ordinary shares (directly or inthe form of ADSs) (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed fordetermination of security holders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors, statute,contract or otherwise). “Reference Property” shall have the meaning specified in Section 14.07(a). “Regular Record Date,” with respect to any Interest Payment Date, shall mean the May 15 or November 15 (whether or not such day is a BusinessDay) immediately preceding the applicable June 1 or December 1 Interest Payment Date, respectively. “Regulation S” means Regulation S under the Securities Act or any successor to such regulation. “Regulation S Notes” means the Notes initially offered and sold pursuant to Regulation S. “Relevant Taxing Jurisdiction” shall have the meaning specified in Section 4.07(a). “Repurchase Date” shall have the meaning specified in Section 15.01(a). “Repurchase Expiration Time” shall have the meaning specified in Section 15.01(a). “Repurchase Notice” shall have the meaning specified in Section 15.01(a). “Repurchase Price” shall have the meaning specified in Section 15.01(a). “Resale Restriction Termination Date” shall have the meaning specified in Section 2.05(c). “Responsible Officer” means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee having directresponsibility for the administration of this Indenture, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiaritywith the particular subject and who shall have direct responsibility for the administration of this Indenture. “Restricted Securities” shall have the meaning specified in Section 2.05(c). “Rule 144A” means Rule 144A as promulgated under the Securities Act. “Rule 144A Notes” means the notes initially offered and sold pursuant to Rule 144A. 8 “Scheduled Trading Day” means a day that is scheduled to be a trading day on the primary United States national or regional securities exchange ormarket on which the ADSs of the Company are listed or admitted for trading. If the ADSs of the Company are not so listed or admitted for trading, “ScheduledTrading Day” means a “Business Day.” “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. “Significant Subsidiary” means a Subsidiary of the Company that meets the definition of “significant subsidiary” in Article 1, Rule 1-02 ofRegulation S-X under the Exchange Act. “Spin-Off” shall have the meaning specified in Section 14.04(c). “Subsidiary” means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of thetotal voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency)to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person;(ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person. “Successor Company” shall have the meaning specified in Section 11.01(a). “Tax Redemption” shall have the meaning specified in Section 16.01. “Tax Redemption Date” shall have the meaning specified in Section 16.02(a). “Tax Redemption Notice” shall have the meaning specified in Section 16.02(a). “Tax Redemption Price” means, for any Notes to be redeemed pursuant to Section 16.01, 100% of the principal amount of such Notes, plus accruedand unpaid interest, if any, to, but excluding, the Tax Redemption Date (unless the Tax Redemption Date falls after a Regular Record Date but on or prior tothe immediately succeeding Interest Payment Date, in which case the Tax Redemption Price will be equal to 100% of the principal amount of such Notes)including, for the avoidance of doubt, any Additional Amounts with respect to such amount. “Trading Day” means a scheduled trading day on which (i) trading in the ADSs of the Company generally occurs on The NASDAQ Global Marketor, if the ADSs are not then listed on The NASDAQ Global Market, on the principal other United States national or regional securities exchange on which theADSs are then listed or, if the ADSs are not then listed on a United States national or regional securities exchange, on the principal other market on which theADSs are then traded, and (ii) there is no Market Disruption Event; if the ADSs are not so listed or traded, “Trading Day” means a “Business Day.” “transfer” shall have the meaning specified in Section 2.05(c). “Trigger Event” shall have the meaning specified in Section 14.04(c). “Trust Indenture Act” means the Trust Indenture Act of 1939, as amended, as it was in force at the date of execution of this Indenture; provided,however, that in the event the Trust Indenture Act of 1939 is amended after the date hereof, the term “Trust Indenture Act” shall mean, to the extent requiredby such amendment, the Trust Indenture Act of 1939, as so amended. “Trustee” means the Person named as the “Trustee” in the first paragraph of this Indenture until a successor trustee shall have become such pursuantto the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder. “unit of Reference Property” shall have the meaning specified in Section 14.07(a). 9 “U.S. Person” shall have the meaning as such term is defined under Regulation S. “Valuation Period” shall have the meaning specified in Section 14.04(c). Section 1.03 References to Interest. Unless the context otherwise requires, any reference to interest on, or in respect of, any Note in thisIndenture shall be deemed to include Additional Interest if, in such context, Additional Interest is, was or would be payable pursuant to any ofSection 4.06(d), Section 4.06(e) and Section 6.03. Unless the context otherwise requires, any express mention of Additional Interest in any provision hereofshall not be construed as excluding Additional Interest in those provisions hereof where such express mention is not made. ARTICLE 2ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF NOTES Section 2.01 Designation and Amount. The Notes shall be designated as the “2.00% Convertible Senior Notes due 2025” and shall bear interestat the rate of 2.00% per annum. The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is initially limited toUS$300,000,000 issuance of its 2.00% Convertible Senior Notes due 2025 (the “Notes”), subject to Section 2.10 and except for Notes authenticated anddelivered upon registration or transfer of, or in exchange for, or in lieu of other Notes pursuant to Section 2.05, Section 2.06, Section 2.07, Section 10.04,Section 14.02 and Section 15.04. Section 2.02 Form of Notes. The Notes and the Trustee’s certificate of authentication to be borne by such Notes shall be substantially in therespective forms set forth in Exhibit A, the terms and provisions of which shall constitute, and are hereby expressly incorporated in and made a part of thisIndenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms andprovisions and to be bound thereby. To the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of thisIndenture shall govern and be controlling. Any Global Note may be endorsed with or have incorporated in the text thereof such legends or recitals or changes not inconsistent with theprovisions of this Indenture as may be required by the Depositary, or as may be required to comply with any applicable law or any regulation thereunder orwith the rules and regulations of any securities exchange or automated quotation system upon which the Notes may be listed or traded or designated forissuance or to conform with any usage with respect thereto, or to indicate any special limitations or restrictions to which any particular Notes are subject. Any of the Notes may have such letters, numbers or other marks of identification and such notations, legends or endorsements as the Officersexecuting the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of thisIndenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securitiesexchange or automated quotation system on which the Notes may be listed or designated for issuance, or to conform to usage or to indicate any speciallimitations or restrictions to which any particular Notes are subject. Each Global Note shall represent such principal amount of the outstanding Notes as shall be specified therein and shall provide that it shall representthe aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notesrepresented thereby may from time to time be increased or reduced to reflect repurchases, redemptions, cancellations, conversions, transfers or exchangespermitted hereby. Any endorsement of the Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes representedthereby shall be made by the Trustee or the Note Registrar in such manner and upon instructions given by the Holder of such Notes in accordance with thisIndenture. Payment of principal (including the Repurchase Price, the Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of,and accrued and unpaid interest on, the Global Note shall be made to the Holder of such Note on the date of payment, unless a record date or other means ofdetermining Holders eligible to receive payment is provided for herein. Section 2.03 Date and Denomination of Notes; Payments of Interest and Defaulted Amounts. (a) The Notes shall be issuable in registered formwithout coupons in minimum denominations of US$1,000 principal 10 amount and integral multiples of US$1,000 in excess thereof. Each Note shall be dated the date of its authentication and shall bear interest from the datespecified on the face of such Note. Accrued interest on the Notes shall be computed on the basis of a 360-day year composed of twelve 30-day months and,for partial months, on the basis of actual days elapsed over a 30-day month. (b) The Person in whose name any Note (or its Predecessor Note) is registered on the Note Register at the close of business on anyRegular Record Date with respect to any Interest Payment Date shall be entitled to receive the interest payable on such Interest Payment Date.Interest shall be payable at the office or agency of the Company maintained by the Company for such purposes, which shall initially be theCorporate Trust Office. The Company shall pay, or cause the Paying Agent to pay, interest (i) on Physical Notes, if any, (A) to Holders holdingPhysical Notes, if any, having an aggregate principal amount of US$1,000,000 or less, by check mailed (at the Company’s expense) to the Holders ofthese Notes at their address as it appears in the Note Register and (B) to Holders holding Physical Notes having an aggregate principal amount ofmore than US$1,000,000, either by check mailed (at the Company’s expense) to such Holders or, upon application by such Holder to the NoteRegistrar not later than the relevant Regular Record Date, by wire transfer in immediately available funds to that Holder’s account within the UnitedStates, which application shall remain in effect until the Holder notifies, in writing, the Note Registrar to the contrary or (ii) on any Global Note bywire transfer of immediately available funds to the account of the Depositary or its nominee. (c) Any Defaulted Amounts shall forthwith cease to be payable to the Holder on the relevant payment date but shall accrue interest perannum at the rate per annum borne by the Notes plus 1.00%, subject to the enforceability thereof under applicable law, from, and including, suchrelevant payment date, and such Defaulted Amounts together with such interest thereon shall be paid by the Company as provided inSection 2.03(d) below. (d) The Company may elect to make payment of any Defaulted Amounts to the Persons in whose names the Notes (or their respectivePredecessor Notes) are registered at the close of business on a special record date for the payment of such Defaulted Amounts, which shall be fixed inthe following manner. The Company shall notify the Trustee in writing of the amount of the Defaulted Amounts proposed to be paid on each Noteand the date of the proposed payment (which shall be not less than 25 days after the receipt by the Trustee of such notice), and at the same time theCompany shall deposit with the Trustee an amount of money equal to the aggregate amount to be paid in respect of such Defaulted Amounts or shallmake arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to beheld in trust for the benefit of the Persons entitled to such Defaulted Amounts as in this clause provided. Thereupon the Company shall fix a specialrecord date for the payment of such Defaulted Amounts which shall be not more than 15 days and not less than 10 days prior to the date of theproposed payment, and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Company shall promptlynotify the Trustee in writing of such special record date and the Trustee, in the name and at the expense of the Company, shall cause notice of theproposed payment of such Defaulted Amounts and the special record date therefor to be mailed, first-class postage prepaid (at the Company’sexpense), to each Holder at its address as it appears in the Note Register or, in the case of Global Notes, sent electronically in accordance with theapplicable procedures of the Depositary, not less than 10 days prior to such special record date, in the form of notice prepared by the Company.Notice of the proposed payment of such Defaulted Amounts and the special record date therefor having been so sent, such Defaulted Amounts shallbe paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such special recorddate. Section 2.04 Execution, Authentication and Delivery of Notes. The Notes shall be signed in the name and on behalf of the Company by themanual or facsimile signature of its Chief Executive Officer or Chief Financial Officer. With the delivery of this Indenture, the Company is furnishing, andfrom time to time thereafter may furnish, a certificate substantially in the form of Exhibit B (an “Authorization Certificate”) identifying and certifying theincumbency and specimen (and/or facsimile) signatures of its active authorized Officers. Until the Trustee receives a subsequent Authorization Certificate,the Trustee shall be entitled to conclusively rely on the last Authorization Certificate delivered to it for purposes of determining the relevant authorizedOfficers. Typographical 11 and other minor errors or defects in any signature shall not affect the validity or enforceability of any Note which has been duly authenticated and deliveredby the Trustee. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company tothe Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes, and the Trustee in accordance with suchCompany Order shall authenticate and deliver such Notes, without any further action by the Company hereunder. The Company Order shall specify the amount of Notes to be authenticated (including the initial amount of Rule 144A Notes and the initial amountof Regulation S Notes), the applicable rate at which interest will accrue on such Notes, the date on which the original issuance of such Notes is to beauthenticated, the date from which interest will begin to accrue, the date or dates on which interest on such Notes will be payable and the date on which theprincipal of such Notes will be payable and other terms relating to such Notes. The Trustee shall thereupon authenticate and deliver said Notes to or upon thewritten order of the Company (as set forth in such Company Order). The Trustee shall have the right to decline to authenticate and deliver any Notes under this Indenture (a) unless and until it receives from theCompany a Company Order instructing it to so authenticate and deliver such Notes and an Officers’ Certificate and Opinion of Counsel in accordance withSection 17.06 hereof ; (b) if the Trustee determines that such action may not lawfully be taken; or (c) if the Trustee determines that such action would exposeto Trustee to personal liability, unless indemnity and/or security and/or pre-funding satisfactory to the Trustee against such liability is provided to theTrustee and Note Registrar. Only such Notes as shall bear thereon a certificate of authentication substantially in the form set forth on the form of Note attached as Exhibit Ahereto, executed manually by an authorized officer of the Trustee, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose.Such certificate by the Trustee upon any Note executed by the Company shall be conclusive evidence that the Note so authenticated has been dulyauthenticated and delivered hereunder and that the Holder is entitled to the benefits of this Indenture. In case any Officer of the Company who shall have signed any of the Notes shall cease to be such Officer before the Notes so signed shall have beenauthenticated and delivered by the Trustee, or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of asthough the Person who signed such Notes had not ceased to be such Officer of the Company; and any Note may be signed on behalf of the Company by suchPersons as, at the actual date of the execution of such Note, shall be the Officers of the Company, although at the date of the execution of this Indenture anysuch Person was not such an Officer. Section 2.05 Exchange and Registration of Transfer of Notes; Restrictions on Transfer; Depositary. (a) The Company shall cause to be kept aregister (the register maintained in such office or in any other office or agency of the Company designated pursuant to Section 4.02, the “Note Register”) inwhich, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. Suchregister shall be in written form or in any form capable of being converted into written form within a reasonable period of time. The Trustee is hereby initiallyappointed the “Note Registrar” for the purpose of registering Notes and transfers of Notes as herein provided. The Company may appoint one or more co-Note Registrars in accordance with Section 4.02. Prior to the Notes Fungibility Date, upon surrender for registration of transfer of any physical Rule 144A Note or physical Regulation S Note, as thecase may be, to the Note Registrar or any co-Note Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.05, the Companyshall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new physical Rule 144ANotes or physical Regulation S Notes, as the case may be, of any authorized denominations and of a like aggregate principal amount and bearing suchrestrictive legends as may be required by this Indenture. Following the Notes Fungibility Date, upon surrender for registration of transfer of any Physical Noteto the Note Registrar or any co-Note Registrar, and satisfaction of the requirements for such transfer set forth in this Section 2.05, the Company shall execute,and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Physical Notes of any authorizeddenominations and of a like aggregate principal amount and not bearing the restrictive legends required by Section 2.05(c). 12 Prior to the Notes Fungibility Date, Rule 144A Notes and Regulation S Notes, as the case may be, may be exchanged for other Rule 144A Notes orRegulation S Notes, as the case may be, of any authorized denominations and of a like aggregate principal amount, upon surrender of the Rule 144A Notes orRegulation S Notes, as the case may be, to be exchanged at any such office or agency maintained by the Company pursuant to Section 4.02. Prior to theNotes Fungibility Date, (A) Regulation S Notes (or beneficial interests therein) may be exchanged for Rule 144A Notes (or an increase in the aggregateprincipal amount represented by a Global Note that constitutes a Rule 144A Note) only if (1) such exchange occurs in connection with a transfer of the Notes(or a beneficial interest therein) under Rule 144A and (2) the transferor first delivers to the Trustee a written certificate, in the form attached to such Note, tothe effect that the Notes (or such beneficial interest) are being transferred to a Person (a) who the transferor reasonably believes to be a QIB; (b) purchasing forits own account or the account of a QIB in a transaction meeting the requirements of Rule 144A; and (c) in accordance with all applicable securities laws ofthe states of the United States and other jurisdictions and (B) Rule 144A Notes (or beneficial interests therein) may only be exchanged for Regulation S Notes(or an increase in the aggregate principal amount represented by a Global Note that constitutes a Regulation S Note) if the transferor first delivers to theTrustee a written certificate, in the form attached to such Note, to the effect that such transfer is being made in accordance with Rule 903 or 904 of RegulationS. Whenever any Rule 144A Notes or Regulation S Notes, as the case may be, are so surrendered for exchange, the Company shall execute, and the Trusteeshall authenticate and deliver, the Rule 144A Notes or Regulation S Notes, as the case may be, that the Holder making the exchange is entitled to receive,bearing registration numbers not contemporaneously outstanding. Following the Notes Fungibility Date, Notes may be exchanged for other Notes of anyauthorized denominations and of a like aggregate principal amount but not bearing the restrictive legend required by Section 2.05(c), upon surrender of theNotes to be exchanged at any such office or agency maintained by the Company pursuant to Section 4.02. Whenever any Notes are so surrendered forexchange, the Company shall execute, and the Trustee shall, upon receipt of a Company Order, authenticate and deliver, the Notes that the Holder makingthe exchange is entitled to receive, bearing registration numbers not contemporaneously outstanding. All Notes presented or surrendered for registration of transfer or for exchange, redemption, repurchase or conversion shall (if so required by theCompany, the Trustee, the Note Registrar or any co-Note Registrar) be duly endorsed, or be accompanied by a written instrument or instruments of transfer inform satisfactory to the Note Registrar and Trustee and duly executed, by the Holder thereof or its attorney-in-fact duly authorized in writing. No service charge shall be imposed by the Company, the Note Registrar, any co-Note Registrar or the Paying Agent for any exchange or registrationof transfer of Notes, but the Company may require a Holder to pay a sum sufficient to cover any documentary, stamp or similar issue or transfer tax required inconnection therewith as a result of the name of the Holder of new Notes issued upon such exchange or registration of transfer being different from the name ofthe Holder of the old Notes surrendered for exchange or registration of transfer. None of the Company, the Trustee, the Note Registrar or any co-Note Registrar shall be required to exchange or register a transfer of (i) any Notessurrendered for conversion or, if a portion of any Note is surrendered for conversion, such portion thereof surrendered for conversion or (ii) any Notes, or aportion of any Note, surrendered for repurchase (and not withdrawn) in accordance with Article 15. All Notes issued upon any registration of transfer or exchange of Notes in accordance with this Indenture shall be the valid obligations of theCompany, evidencing the same debt, and entitled to the same benefits under this Indenture as the Notes surrendered upon such registration of transfer orexchange. The Trustee shall have no responsibility or obligation to any direct or indirect participant or any other Person with respect to the accuracy of thebooks or records, or the acts or omissions, of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest inthe Notes or with respect to the delivery to any direct or indirect participant or other Person (other than the Depositary) of any notice (including any notice ofredemption) or the payment of any amount, under or with respect to such Notes. All notices and communications to be given to the Holders and all paymentsto be made to Holders under the Notes shall be given or made only to or upon the order of the registered Holders (which shall be the Depositary or itsnominee in the case of a Global Note). The rights of beneficial owners in any Global Note shall be exercised only through the Depositary subject to thecustomary procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary withrespect to its direct or indirect participants. 13 The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under thisIndenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among direct or indirectparticipants in any Global Note) other than to require delivery of such certificates as are expressly required by, and to do so if and when expressly requiredby, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. (b) So long as the Notes are eligible for book-entry settlement with the Depositary, unless otherwise required by law, subject to thefourth paragraph from the end of Section 2.05(c) all Notes shall be represented by one or more Notes in global form (each, a “Global Note”)registered in the name of the Depositary or the nominee of the Depositary. The transfer and exchange of beneficial interests in a Global Note thatdoes not involve the issuance of a Physical Note shall be effected through the Depositary in accordance with this Indenture (including therestrictions on transfer set forth herein) and the procedures of the Depositary therefor. Prior to the Notes Fungibility Date, the Rule 144A Notes shallbe represented by one or more Global Notes and the Regulation S Notes shall be represented by one or more separate Global Notes. Following theNotes Fungibility Date, the Rule 144A Notes and the Regulation S Notes may be represented by one or more of the same Global Notes. (c) Every Note that bears or is required under this Section 2.05(c) to bear the legend set forth in this Section 2.05 (c) (together with anyADSs (including the ordinary shares represented thereby) delivered upon conversion of the Notes that is required to bear the legend set forth inSection 2.05(d), collectively, the “Restricted Securities”) shall be subject to the restrictions on transfer set forth in this Section 2.05(c) (includingthe legend set forth below), unless such restrictions on transfer shall be eliminated or otherwise waived by written consent of the Company, and theHolder of each such Restricted Security, by such Holder’s acceptance thereof, agrees to be bound by all such restrictions on transfer. As used in thisSection 2.05(c) and Section 2.05(d), the term “transfer” encompasses any sale, pledge, transfer or other disposition whatsoever of any RestrictedSecurity. Until the date (the “Resale Restriction Termination Date”) that is the later of (1) the date that is one year after the last date of original issuance ofthe Notes, or such shorter period of time as permitted by Rule 144 under the Securities Act or any successor provision thereto, and (2) such later date, if any,as may be required by applicable law, any certificate evidencing a Rule 144A Note (and all securities issued in exchange therefor or substitution thereof,other than ADSs (including the ordinary shares represented thereby) issued upon conversion thereof, which shall bear the legend set forth in Section 2.05(d),if applicable) shall bear a legend in substantially the following form (unless such Rule 144A Notes have been transferred pursuant to a registration statementthat has become or been declared effective under the Securities Act and that continues to be effective at the time of such transfer, or sold pursuant to theexemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, or unless otherwise agreed by the Companyin writing, with notice thereof to the Trustee): THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS SECURITY AND THE CLASS AORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE ‘‘SECURITIES ACT’’) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCEWITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER: (1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (WITHIN THEMEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (b) NOT A U.S. PERSON AND LOCATED OUTSIDE THE UNITED STATES(WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETIONWITH RESPECT TO EACH SUCH ACCOUNT AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THEIMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF GDS HOLDINGS LIMITED (THE ‘‘COMPANY’’), AND (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THISSECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR 14 TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LAST ORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIODOF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATERDATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (D) TO A U.S. PERSON OUTSIDE THE UNITED STATES AND THEREAFTER OUTSIDE THE UNITED STATES, IN EACH CASE INACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E)PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY, THE DEPOSITARY AND THETRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE ASMAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCEWITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT. NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT (“RULE 144”)) OF THE COMPANY OR PERSON THAT HAS BEENAN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE THREE IMMEDIATELYPRECEDING MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS NOTE OR A BENEFICIAL INTEREST HEREIN. Until the Resale Restriction Termination Date, any certificate evidencing a Regulation S Note (and all securities issued in exchange therefor orsubstitution thereof, other than ADSs (including the ordinary shares represented thereby) issued upon conversion thereof, which shall bear the legend setforth in Section 2.05(d), if applicable) shall bear a legend in substantially the following form (unless such Regulation S Notes have been transferred pursuantto a registration statement that has become or been declared effective under the Securities Act and that continues to be effective at the time of such transfer, orsold pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, or unless otherwiseagreed by the Company in writing, with notice thereof to the Trustee): THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS SECURITY AND THE CLASS AORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE ‘‘SECURITIES ACT’’) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCEWITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER: (1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (WITHIN THEMEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (b) NOT A U.S. PERSON AND LOCATED OUTSIDE THE UNITED STATES(WITHIN THE 15 MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITHRESPECT TO EACH SUCH ACCOUNT AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THE IMMEDIATELYPRECEDING THREE MONTHS, AN AFFILIATE OF GDS HOLDINGS LIMITED (THE ‘‘COMPANY’’), AND (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THISSECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LASTORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT ORANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (D) TO A U.S. PERSON OUTSIDE THE UNITED STATES AND THEREAFTER OUTSIDE THE UNITED STATES, IN EACH CASE INACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY, THE DEPOSITARY AND THETRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE ASMAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCEWITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT. NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT (“RULE 144”)) OF THE COMPANY OR PERSON THAT HAS BEENAN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE THREE IMMEDIATELYPRECEDING MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS NOTE OR A BENEFICIAL INTEREST HEREIN. No transfer of any Note prior to the Resale Restriction Termination Date will be registered by the Note Registrar unless the applicable box on theForm of Assignment and Transfer has been checked. Any Note (or security issued in exchange or substitution therefor) as to which such restrictions on transfer shall have expired in accordance withtheir terms may, upon surrender of such Note for exchange to the Note Registrar in accordance with the provisions of this Section 2.05, be exchanged for anew Note or Notes, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.05(c) and shall not beassigned a restricted CUSIP number. The Company shall be entitled to instruct the Trustee in writing to so surrender any Global Note as to which suchrestrictions on transfer shall have expired in accordance with their terms for exchange, and, upon such instruction, and provided that all applicableprocedures of the Depositary in connection with any such exchange have been complied with, the Trustee shall so surrender such Global Note for exchange;and any new Global Note so exchanged therefor shall not bear the restrictive legend specified in this 16 Section 2.05(c) and shall not be assigned a restricted CUSIP number. The Company shall promptly notify the Trustee upon the occurrence of the ResaleRestriction Termination Date and after a registration statement, if any, with respect to the Notes or the ADSs (including the ordinary shares representedthereby) issued upon conversion of the Notes has been declared effective under the Securities Act. Notwithstanding any other provisions of this Indenture (other than the provisions set forth in this Section 2.05(c)), a Global Note may not betransferred as a whole or in part except (i) by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or anothernominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary and (ii) for transfersof portions of a Global Note in certificated form made upon request of a member of, or a participant in, the Depositary (for itself or on behalf of a beneficialowner) by written notice given to the Trustee by or on behalf of the Depositary in accordance with customary procedures of the Depositary and in compliancewith this Section 2.05(c). The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to actas Depositary with respect to each Global Note. Initially, each Global Note shall be issued to the Depositary, registered in the name of Cede & Co., as thenominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co. If (i) the Depositary notifies the Company at any time that the Depositary is unwilling or unable to continue as depositary for the Global Notes and asuccessor depositary is not appointed within 90 days, (ii) the Depositary ceases to be registered as a clearing agency under the Exchange Act and a successordepositary is not appointed within 90 days or (iii) an Event of Default with respect to the Notes has occurred and is continuing and a beneficial owner of anyNote requests that its beneficial interest therein be issued as a Physical Note, the Company shall execute, and the Trustee, upon receipt of an Officers’Certificate and a Company Order for the authentication and delivery of Notes, shall authenticate and deliver (x) in the case of clause (iii), a Physical Note tosuch beneficial owner in a principal amount equal to the principal amount of such Note corresponding to such beneficial owner’s beneficial interest and(y) in the case of clause (i) or (ii), Physical Notes to each beneficial owner of the related Global Notes (or a portion thereof) in an aggregate principal amountequal to the aggregate principal amount of such Global Notes in exchange for such Global Notes, and upon delivery of the Global Notes to the Trustee suchGlobal Notes shall be canceled. Physical Notes issued in exchange for all or a part of the Global Note pursuant to this Section 2.05(c) shall be registered in such names and in suchauthorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee in writing.Upon execution and authentication, the Trustee shall deliver such Physical Notes to the Persons in whose names such Physical Notes are so registered. At such time as all interests in a Global Note have been converted, canceled, redeemed, repurchased or transferred, such Global Note shall be, uponreceipt thereof, canceled by the Trustee in accordance with standing procedures and existing instructions of the Depositary. At any time prior to suchcancellation, if any interest in a Global Note is exchanged for Physical Notes, converted, canceled, repurchased or transferred to a transferee who receivesPhysical Notes therefor or any Physical Note is exchanged or transferred for part of such Global Note, the principal amount of such Global Note shall, inaccordance with the standing procedures and existing instructions of the Depositary, be appropriately reduced or increased, as the case may be, and anendorsement shall be made on such Global Note, by the Trustee, to reflect such reduction or increase. None of the Company, the Trustee, the Paying Agent, any agent of the Company or any agent of the Trustee shall have any responsibility or liabilityfor any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Note or maintaining, supervising orreviewing any records relating to such beneficial ownership interests. (d) Until the Resale Restriction Termination Date, any certificate representing ADSs (including the ordinary shares representedthereby) issued upon conversion of a Rule 144A Note shall bear a legend in substantially the following form (unless the Rule 144A Note or suchADSs (including the ordinary shares represented thereby) have been transferred pursuant to a registration statement that has become or been declaredeffective under the Securities Act and that continues to be effective at the time of 17 such transfer, or pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, orsuch ADSs or the ordinary shares represented thereby have been issued upon conversion of Rule 144A Notes that have been transferred pursuant to aregistration statement that has become or been declared effective under the Securities Act and that continues to be effective at the time of suchtransfer, or pursuant to the exemption from registration provided by Rule 144 or any similar provision then in force under the Securities Act, orunless otherwise agreed by the Company with written notice thereof to the Trustee and any transfer agent for the ADSs): THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS SECURITY AND THE CLASS AORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE ‘‘SECURITIES ACT’’) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCEWITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER: (1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (WITHIN THEMEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (b) NOT A U.S. PERSON AND LOCATED OUTSIDE THE UNITED STATES(WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETIONWITH RESPECT TO EACH SUCH ACCOUNT AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THEIMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF GDS HOLDINGS LIMITED (THE ‘‘COMPANY’’), AND (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THISSECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LASTORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT ORANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (D) TO A U.S. PERSON OUTSIDE THE UNITED STATES AND THEREAFTER OUTSIDE THE UNITED STATES, IN EACH CASE INACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY, THE DEPOSITARY AND THETRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE ASMAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCEWITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT. 18 NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT (“RULE 144”)) OF THE COMPANY OR PERSON THAT HAS BEENAN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE THREE IMMEDIATELYPRECEDING MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS NOTE OR A BENEFICIAL INTEREST HEREIN. Until the Resale Restriction Termination Date, any stock certificate representing ADSs (including the ordinary shares represented thereby) issuedupon conversion of a Regulation S Note shall bear a legend in substantially the following form (unless the Regulation S Note or such ADSs (including theordinary shares represented thereby) have been transferred pursuant to a registration statement that has become or been declared effective under the SecuritiesAct and that continues to be effective at the time of such transfer, or pursuant to the exemption from registration provided by Rule 144 or any similarprovision then in force under the Securities Act, or such ADSs (including the ordinary shares represented thereby) have been issued upon conversion ofRegulation S Notes that have been transferred pursuant to a registration statement that has become or been declared effective under the Securities Act andthat continues to be effective at the time of such transfer, or pursuant to the exemption from registration provided by Rule 144 or any similar provision thenin force under the Securities Act, or unless otherwise agreed by the Company with written notice thereof to the Trustee and any transfer agent for the ADSs): THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS SECURITY AND THE CLASS AORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE ‘‘SECURITIES ACT’’) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCEWITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER: (1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (WITHIN THEMEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (b) NOT A U.S. PERSON AND LOCATED OUTSIDE THE UNITED STATES(WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETIONWITH RESPECT TO EACH SUCH ACCOUNT AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THEIMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF GDS HOLDINGS LIMITED (THE ‘‘COMPANY’’), AND (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THISSECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LASTORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT ORANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (D) TO A U.S. PERSON OUTSIDE THE UNITED STATES AND THEREAFTER OUTSIDE THE UNITED STATES, IN EACH CASE INACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). 19 PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY, THE DEPOSITARY AND THETRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE ASMAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCEWITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT. NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT (“RULE 144”)) OF THE COMPANY OR PERSON THAT HAS BEENAN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE THREE IMMEDIATELYPRECEDING MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS NOTE OR A BENEFICIAL INTEREST HEREIN. Any such ADSs as to which such restrictions on transfer shall have expired in accordance with their terms may, upon surrender of the certificatesrepresenting such ADSs for exchange in accordance with the procedures of the transfer agent for the ADSs, be exchanged for a new certificate or certificatesfor a like aggregate number of ADSs, which shall not bear the restrictive legend required by this Section 2.05(d). (e) Any Note or ADS delivered upon the conversion or exchange of a Note that is repurchased or owned by any Affiliate of theCompany may not be resold by such Affiliate unless registered under the Securities Act or resold pursuant to an exemption from, or in a transactionnot subject to, the registration requirements of the Securities Act in a transaction that results in such Note or ADS, as the case may be, no longerbeing a “restricted security” (as defined under Rule 144 under the Securities Act). The Company shall cause any Note that is repurchased or ownedby it to be surrendered to the Trustee for cancellation in accordance with Section 2.08. Section 2.06 Mutilated, Destroyed, Lost or Stolen Notes. In case any Note shall become mutilated or be destroyed, lost or stolen, the Companyin its discretion may execute, and upon the receipt of a Company Order, the Trustee shall authenticate and deliver, a new Note, bearing a registration numbernot contemporaneously outstanding, in exchange and substitution for the mutilated Note, or in lieu of and in substitution for the Note so destroyed, lost orstolen. In every case the applicant for a substituted Note shall furnish to the Company and to the Trustee such security and/or indemnity as may be requiredby them to save each of them harmless from any loss, liability, cost or expense caused by or connected with such substitution, and, in every case ofdestruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft ofsuch Note and of the ownership thereof. The Trustee may authenticate any such substituted Note and deliver the same upon the receipt of such security and/or indemnity as the Trustee andthe Company may require. No service charge shall be imposed by the Company, the Note Registrar, any co-Note Registrar or the Paying Agent upon theissuance of any substitute Note, but the Company and the Trustee may require a Holder to pay a sum sufficient to cover any documentary, stamp or similarissue or transfer tax required in connection therewith as a result of the name of the Holder of the new substitute Note being different from the name of theHolder of the old Note that became mutilated or was destroyed, lost or stolen. In case any Note that has matured or is about to mature or has been surrenderedfor required repurchase or redemption or is about to be converted in accordance with Article 14 shall become mutilated or be destroyed, lost or stolen, theCompany may, in its sole discretion, instead of issuing a substitute Note, pay or authorize the payment of, or convert or authorize the conversion of, the same(without surrender thereof except in the case of a mutilated Note), as the case may be, if the applicant for such payment or conversion shall furnish to theCompany and to the Trustee such security and/or indemnity as may be required by them to save each of them harmless for any loss, liability, cost or expensecaused by or connected with such substitution, and, in every case of destruction, loss or theft, evidence satisfactory to the Company, and the Trustee evidenceof their satisfaction of the destruction, loss or theft of such Note and of the ownership thereof. 20 Every substitute Note issued pursuant to the provisions of this Section 2.06 by virtue of the fact that any Note is destroyed, lost or stolen shallconstitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Note shall be found at any time, and shall beentitled to all the benefits of (but shall be subject to all the limitations set forth in) this Indenture equally and proportionately with any and all other Notesduly issued hereunder. To the extent permitted by law, all Notes shall be held and owned upon the express condition that the foregoing provisions areexclusive with respect to the replacement or payment or conversion or repurchase or redemption of mutilated, destroyed, lost or stolen Notes and shallpreclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacementor payment or redemption or conversion of negotiable instruments or other securities without their surrender. Section 2.07 Temporary Notes. Pending the preparation of Physical Notes, the Company may execute and the Trustee shall, upon receipt of aCompany Order, authenticate and deliver temporary Notes (printed or lithographed). Temporary Notes shall be issuable in any authorized denomination, andsubstantially in the form of the Physical Notes but with such omissions, insertions and variations as may be appropriate for temporary Notes, all as may bedetermined by the Company. Every such temporary Note shall be executed by the Company and authenticated by the Trustee upon the same conditions andin substantially the same manner, and with the same effect, as the Physical Notes. Without unreasonable delay, the Company shall execute and deliver to theTrustee Physical Notes (other than any Global Note) and thereupon any or all temporary Notes (other than any Global Note) may be surrendered in exchangetherefor, at each office or agency maintained by the Company pursuant to Section 4.02 and the Trustee shall, upon receipt of a Company Order, authenticateand deliver in exchange for such temporary Notes an equal aggregate principal amount of Physical Notes. Such exchange shall be made by the Company atits own expense and without any charge therefor. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits and subject tothe same limitations under this Indenture as Physical Notes authenticated and delivered hereunder. Section 2.08 Cancellation of Notes Paid, Converted, Etc. The Company shall cause all Notes surrendered for the purpose of payment,repurchase, redemption, registration of transfer or exchange or conversion, if surrendered to any Person other than the Trustee (including any of theCompany’s agents, Subsidiaries or Affiliates), to be delivered and surrendered to the Trustee for cancellation. All Notes delivered to the Trustee shall becanceled promptly by it, and, except in the case of Notes surrendered for registration of transfer or exchange, no Notes shall be authenticated in exchangethereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall cancel such Notes in accordance with its customaryprocedures and, after such cancellation, shall deliver a certificate of such cancellation to the Company, at the Company’s written request in a Company Order. Section 2.09 CUSIP Numbers. The Company in issuing the Notes may use “CUSIP” numbers (if then generally in use), and, if so, the Trusteeshall use “CUSIP” numbers in all notices issued to Holders as a convenience to such Holders; provided that any such notice may state that no representationis made as to the correctness of such numbers either as printed on the Notes or on such notice and that reliance may be placed only on the other identificationnumbers printed on the Notes. The Company shall promptly notify the Trustee in writing of any change in the “CUSIP” numbers. Prior to the NotesFungibility Date, the Rule 144A Notes and the Regulation S Notes shall have different “CUSIP” numbers. Following the Notes Fungibility Date, theRule 144A Notes and the Regulation S Notes shall have the same “CUSIP” number if exchanged in accordance with the applicable procedures of theDepositary. Section 2.10 Additional Notes; Repurchases. The Company may, without the consent of the Holders and notwithstanding Section 2.01, reopenthis Indenture and issue additional Notes hereunder with the same terms and with the same CUSIP number (or, if prior to the Fungibility Date, the same CUSIPnumbers as the Rule 144A Notes or the Regulation S Notes, as applicable) as the Notes initially issued hereunder (except for any differences in the issueprice, issue date and interest accrued, if any) in an unlimited aggregate principal amount; provided that any such additional Notes must be issued under aseparate CUSIP number from both the Rule 144A Notes and the Regulation S Notes, unless (i) they are fungible with the Rule 144A Notes or the RegulationS Notes, as applicable, for securities law purposes and (ii) they are issued pursuant to a “qualified reopening” of the Rule 144A Notes or the Regulation SNotes, as applicable, are otherwise treated as part of the same “issue” of debt instruments as the Rule 144A Notes or the Regulation S Notes, as applicable, orare issued with no more than a de minimis amount of original discount, in each case for U.S. federal income tax purposes. Prior to the issuance of any suchadditional 21 Notes, the Company shall deliver to the Trustee a Company Order, an Officers’ Certificate and an Opinion of Counsel, such Officers’ Certificate and Opinionof Counsel to cover such matters, in addition to those required by Section 17.06, as the Trustee shall reasonably request. The Rule 144 Notes, the RegulationS Notes and any additional Notes would be treated as a single class for all purposes under the Indenture and would vote together as one class on all matterswith respect to the Notes. In addition, the Company may, to the extent permitted by law, and directly or indirectly (regardless of whether such Notes aresurrendered to the Company), repurchase Notes in the open market or otherwise, whether by the Company or through its Subsidiaries or through a private orpublic tender or exchange offer or through counterparties to private agreements. The Company shall cause any Notes so repurchased to be surrendered to theTrustee for cancellation in accordance with Section 2.08 and upon receipt of a Company Order, the Trustee shall cancel all Notes so surrendered and suchNotes shall no longer be considered outstanding under this Indenture upon their repurchase. The Company may also enter into cash-settled swaps or otherderivatives with respect to the Notes. For the avoidance of doubt, any Notes underlying such cash-settled swaps or other derivatives shall not be required tobe surrendered to the Trustee for cancellation in accordance with Section 2.08 and will continue to be considered outstanding for purposes of this Indenture,subject to the provisions of Section 8.04. ARTICLE 3SATISFACTION AND DISCHARGE Section 3.01 Satisfaction and Discharge. This Indenture shall, upon request of the Company contained in an Officers’ Certificate cease to be offurther effect, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture,when (a) (i) all Notes theretofore authenticated and delivered (other than (x) Notes which have been destroyed, lost or stolen and which have been replaced orpaid as provided in Section 2.06 and (y) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by theCompany and thereafter repaid to the Company or discharged from such trust, as provided in Section 4.04(d)) have been delivered to the Trustee forcancellation; or (ii) the Company has deposited cash with the Trustee or delivered ADSs to Holders (solely to satisfy the Company’s Conversion Obligation,if applicable), as applicable, after the Notes have become due and payable, whether on the Maturity Date, the Repurchase Date, any Fundamental ChangeRepurchase Date, upon Tax Redemption or conversion or otherwise, sufficient to pay all of the outstanding Notes and all other sums due and payable underthis Indenture by the Company (including, without limitation sums due to the Trustee with respect to the Notes); and (b) the Company has delivered to theTrustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction anddischarge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to theTrustee under Section 7.06 shall survive. ARTICLE 4PARTICULAR COVENANTS OF THE COMPANY Section 4.01 Payment of Principal and Interest. The Company covenants and agrees that it will cause to be paid the principal (including theRepurchase Price, the Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, each of theNotes at the places, at the respective times and in the manner provided herein and in the Notes. Section 4.02 Maintenance of Office or Agency. The Company will maintain an office or agency (which will be the Corporate Trust Officeinitially) where the Notes may be surrendered for registration of transfer or exchange or for presentation for payment or repurchase (“Paying Agent”) or forconversion (“Conversion Agent”) and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. TheCompany will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Companyshall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices anddemands may be made at the Corporate Trust Office; provided, however, the legal service of process against the Company shall in no circumstances be madeat an office of the Trustee. The Company may also from time to time designate as co-Note Registrars one or more other offices or agencies where the Notes may be presented orsurrendered for any or all such purposes and may from time to time 22 rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in thelocation of any such other office or agency. The terms “Paying Agent” and “Conversion Agent” include any such additional or other offices or agencies, asapplicable. The Company hereby initially designates the Trustee as the Paying Agent, Note Registrar and Conversion Agent, and the office or agency of theTrustee shall be considered as one such office or agency of the Company for each of the aforesaid purposes. Section 4.03 Appointments to Fill Vacancies in Trustee’s Office. The Company, whenever necessary to avoid or fill a vacancy in the office ofTrustee, will appoint, in the manner provided in Section 7.09, a Trustee, so that there shall at all times be a Trustee hereunder. Section 4.04 Provisions as to Paying Agent. (a) If the Company shall appoint a Paying Agent other than the Trustee, the Company will causesuch Paying Agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of thisSection 4.04: (i) that it will hold all sums held by it as such agent for the payment of the principal (including the Repurchase Price, TaxRedemption Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, the Notes for thebenefit of the Holders of the Notes; (ii) that it will give the Trustee prompt notice of any failure by the Company to make any payment of the principal(including the Repurchase Price, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued andunpaid interest on, the Notes when the same shall be due and payable; and (iii) that at any time during the continuance of an Event of Default, upon request of the Trustee, it will forthwith pay to theTrustee all sums so held. The Company shall, on or before each due date of the principal (including the Repurchase Price, Tax Redemption Price and the FundamentalChange Repurchase Price, if applicable) of, or accrued and unpaid interest on, the Notes, deposit with the Paying Agent a sum sufficient to pay such principal(including the Repurchase Price, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) or accrued and unpaid interest and(unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure to take such action; provided that such deposit must bereceived by the Paying Agent by 10:00 a.m., New York City time, on the Business Day immediately preceding the relevant due date. The Paying Agent shallnot be bound to make any payment until it has received, in immediately available and cleared funds, an amount which shall be sufficient to pay, asapplicable, the aggregate amount of principal (including Repurchase Price, Tax Redemption Price and Fundamental Change Repurchase Price, if applicable)of, or accrued and unpaid interest on, the Notes when such principal or interest shall become due and payable. The Paying Agent shall not be responsible orliable for any delay in making the payment if it does not receive funds before 10:00 a.m. on the payment date. The Company shall procure that, before 10:00a.m., New York City time, on the second Business Day before each Payment Date, the bank effecting payment for it has confirmed by facsimile to the PayingAgent the payment instructions relating to such payment. (b) If the Company shall act as its own Paying Agent, it will, on or before each due date of the principal (including the RepurchasePrice, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, the Notes, setaside, segregate and hold in trust for the benefit of the Holders of the Notes a sum sufficient to pay such principal (including the Repurchase Price,Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) and accrued and unpaid interest so becoming due and willpromptly notify the Trustee in writing of any failure to take such action and of any failure by the Company to make any payment of the principal(including the Repurchase Price, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of, or accrued and unpaidinterest on, the Notes when the same shall become due and payable. Upon an Event of Default under Section 6.01(i) or Section 6.01(j), the Trusteeshall automatically become the Paying Agent. 23 (c) Anything in this Section 4.04 to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining asatisfaction and discharge of this Indenture, or for any other reason, pay, cause to be paid or deliver to the Trustee all sums or amounts held by theCompany in trust or by any Paying Agent as required by this Section 4.04, such sums or amounts to be held by the Trustee upon the trusts hereincontained and upon such payment or delivery by the Company or any Paying Agent to the Trustee, the Company or such Paying Agent shall bereleased from all further liability but only with respect to such sums or amounts. (d) Subject to applicable abandoned property law and the Trustee’s and the Paying Agent’s customary procedures, any moneydeposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of principal (including the Repurchase Price,Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of, and accrued and unpaid interest on, any Note and remainingunclaimed for two years after such principal (including consideration upon conversion, the Repurchase Price, Tax Redemption Price and theFundamental Change Repurchase Price, if applicable) or interest has become due and payable shall be paid or delivered, as the case may be, to theCompany on request of the Company contained in an Officers’ Certificate, or (if then held by the Company) shall be discharged from such trust; andthe Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of theTrustee or such Paying Agent with respect to such money, and all liability of the Company as trustee thereof, shall thereupon cease; provided,however, that the Trustee or such Paying Agent, before being required to make any such repayment or delivery, may at the expense of the Companycause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of generalcirculation in The Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein,which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid ordelivered to the Company. Section 4.05 Existence. Subject to Article 11, the Company shall do or cause to be done all things necessary to preserve and keep in full forceand effect its corporate existence. The Company shall promptly provide the Trustee with written notice of any change to its name, jurisdiction ofincorporation or change to its corporate organization. Section 4.06 Rule 144A Information Requirement and Annual Reports. (a) At any time the Company is not subject to Section 13 or 15(d) of theExchange Act, the Company shall, so long as any of the Notes, any ADSs deliverable upon conversion thereof or any ordinary shares underlying ADSsdeliverable upon conversion thereof shall, at such time, constitute “restricted securities” within the meaning of Rule 144(a)(3)under the Securities Act,promptly provide to the Trustee and shall, upon written request, provide to any Holder, beneficial owner or prospective purchaser of such Notes or the ADSsdeliverable upon conversion of such Notes, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to facilitate theresale of such Notes or ADSs pursuant to Rule 144A. The Company shall take such further action as any Holder or beneficial owner of such Notes or suchADSs may reasonably request, to the extent from time to time required to enable such Holder or beneficial owner to sell such Notes or ADSs in accordancewith Rule 144A, as such rule may be amended from time to time. (b) The Company shall provide to the Trustee within 15 days after the same are required to be filed with the Commission, copies ofany documents or reports that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act (givingeffect to any applicable grace period provided by Rule 12b-25 under the Exchange Act). Any such document or report that the Company files withthe Commission via the Commission’s EDGAR system (or any successor thereto) shall be deemed to be provided to the Trustee for purposes of thisSection 4.06 (b) at the time such documents are filed via the EDGAR system (or any successor thereto). The Trustee shall have no obligation todetermine if and when the Company’s statements or reports are publically available and/or accessible electronically. (c) Delivery of the reports and documents described in this Section 4.06 to the Trustee is for informational purposes only, and theTrustee’s receipt of such shall not constitute actual or constructive notice or knowledge of any information contained therein or determinable frominformation contained 24 therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely on anOfficers’ Certificate). (d) If, at any time during the six-month period beginning on, and including, the date that is six months after the last date of originalissuance of the Notes, the Company fails to timely file any document or report that it is required to file with the Commission pursuant to Section 13or 15(d) of the Exchange Act, as applicable (after giving effect to all applicable grace periods thereunder and other than reports on Form 6-K), or theNotes are not otherwise freely tradable by Holders other than the Company’s Affiliates or Holders that were the Company’s Affiliates at any timeduring the three months immediately preceding (as a result of restrictions pursuant to U.S. securities laws or the terms of this Indenture or the Notes),the Company shall pay Additional Interest on the Notes. Such Additional Interest shall accrue on the Notes at the rate of 0.50% per annum of theprincipal amount of the Notes outstanding for each day during such period for which the Company’s failure to file has occurred and is continuing orthe period during which the Notes are not freely tradable by Holders that are not Affiliates of the Company (or are not the Company’s Affiliates atany time during the three months immediately preceding), as the case may be, without restrictions pursuant to U.S. securities laws or the terms of thisIndenture or the Notes. As used in this Section 4.06(d), documents or reports that the Company is required to “file” with the Commission pursuant toSection 13 or 15(d) of the Exchange Act do not include documents or reports that the Company furnishes to the Commission pursuant to Section 13or 15(d) of the Exchange Act. (e) If, and for so long as, the restrictive legend on the Notes specified in Section 2.05(c) has not been removed, the Notes are assigneda restricted CUSIP or the Notes are not otherwise freely tradable by Holders other than the Company’s Affiliates or Holders that were the Company’sAffiliates at any time during the three months immediately preceding (without restrictions pursuant to U.S. securities laws or the terms of thisIndenture or the Notes) as of the 365th day after the last date of original issuance of the Notes, the Company shall pay Additional Interest on theNotes at a rate equal to 0.50% per annum of the principal amount of Notes outstanding until the restrictive legend on the Notes has been removed inaccordance with Section 2.05(c), the Notes have been assigned an unrestricted CUSIP and the Notes are freely tradable by Holders other than theCompany’s Affiliates (or Holders that were the Company’s Affiliates at any time during the three months immediately preceding), withoutrestrictions pursuant to U.S. securities laws or the terms of this Indenture or the Notes. (f) Additional Interest will be payable in arrears on each Interest Payment Date following accrual in the same manner as regularinterest on the Notes. (g) The Additional Interest that is payable in accordance with Section 4.06(d) or Section 4.06(e) shall be in addition to, and not in lieuof, any Additional Interest that may be payable as a result of the Company’s election pursuant to Section 6.03. In no event shall Additional Interestaccrue on any day under the terms of this Indenture (taking any Additional Interest payable pursuant to Section 4.06(d) and Section 4.06(e) togetherwith any Additional Interest payable pursuant to Section 6.03) at annual rate in excess of 0.50%, in the aggregate, for any violation or Defaultcaused by the Company’s failure to be current in respect of its Exchange Act reporting obligations. (h) If Additional Interest is payable by the Company pursuant to Section 4.06(d) or Section 4.06(e), the Company shall deliver to theTrustee an Officers’ Certificate to that effect stating (i) the amount of such Additional Interest that is payable and (ii) the date on which suchAdditional Interest is payable. Unless and until a Responsible Officer of the Trustee receives at the Corporate Trust Office such a certificate, theTrustee may assume without inquiry that no such Additional Interest is payable. Section 4.07 Additional Amounts. (a) All payments and deliveries made by, or on behalf of, the Company or any successor to the Companyunder or with respect to this Indenture and the Notes, including, but not limited to, payments of principal (including, if applicable, the Repurchase Price, theTax Redemption Price and the Fundamental Change Repurchase Price), premium, if any, payments of interest, including any additional interest andpayments of cash and/or deliveries of ADSs or any other consideration due on a conversion of a Note (together with payment of cash in lieu of any fractionalADS or other consideration) upon conversion of the Notes, shall be made without withholding, deduction or reduction for any other collection at source for,or on account of, any present or 25 future taxes, duties, assessments or governmental charges of whatever nature imposed or levied (including any penalties and interest related thereto) (the“Applicable Taxes”), unless such withholding, deduction or reduction is required by law or by other regulation or governmental policy having the force oflaw (including an official interpretation or application of such laws or regulations by any legislative body, court, governmental agency, taxing authority orregulatory authority) (“Applicable Tax Law”). In the event that any such withholding or deduction is required by or within (x) the Cayman Islands or thePeople’s Republic of China (or, in each case, any political subdivision or taxing authority thereof or therein), (y) any jurisdiction in which the Company orany successor are, for tax purposes, incorporated, organized or resident or doing business (or any political subdivision or taxing authority thereof or therein)or (z) any jurisdiction from or through which payment is made or deemed made (or any political subdivision or taxing authority thereof or therein) (each of(x), (y) and (z), as applicable, a “Relevant Taxing Jurisdiction”), the Company shall pay or deliver to the Holder of each Note such additional amounts ofcash, ADSs or other consideration, as applicable (the “Additional Amounts”) as may be necessary to ensure that the net amount received by the beneficialowner after such withholding or deduction (and after deducting any Applicable Taxes on the additional amounts) will equal the amounts that would havebeen received by such beneficial owner had no such withholding or deduction been required; provided that no additional amounts will be payable: (i) for or on account of: (A) any Applicable Taxes that would not have been imposed but for: (1) the existence of any present or former connection between the relevant Holder or beneficial owner ofsuch Note and the Relevant Taxing Jurisdiction, other than merely acquiring or holding such Note, receiving ADSs orother consideration upon conversion of a Note or the receipt of payments or the exercise or enforcement of rightsthereunder, including, without limitation, such Holder or beneficial owner being or having been a national, domiciliary orresident of such Relevant Taxing Jurisdiction or treated as a resident thereof or being or having been physically present orengaged in a trade or business therein or having or having had a permanent establishment therein; (2) the presentation of such Note (in cases in which presentation is required) more than 30 days after thelater of the date on which the payment of the principal of (including the Repurchase Price, Tax Redemption Price andFundamental Change Repurchase Price, if applicable), premium, if any, and interest, including any additional interest on,such Note or the delivery of ADSs (together with payment of cash in lieu of any fractional ADS) upon conversion of suchNote became due and payable pursuant to the terms thereof or was made or duly provided for (except to the extent that theHolder or beneficial owner of such Note would have been entitled to Additional Amounts had such Note been presentedfor payment on the last day of such 30-day period); or (3) the failure of the Holder or beneficial owner to comply with a timely written request from the Companyor any successor of the Company, addressed to the Holder or beneficial owner, as the case may be, in each case, to theextent such Holder or beneficial owner is legally entitled to, to provide certification, information, documents or otherevidence concerning such Holder’s or beneficial owner’s nationality, residence, identity or connection with the RelevantTaxing Jurisdiction, or to make any declaration or satisfy any other reporting requirement relating to such matters, if andto the extent that due and timely compliance with such request is required by statute, regulation or administrative practiceof the Relevant Taxing Jurisdiction in order to reduce or eliminate any withholding or deduction as to which AdditionalAmounts would have otherwise been payable to such Holder or beneficial owner; provided that, in the case of ApplicableTaxes that are value-added taxes or other local levies imposed by the People’s Republic of China, the provision of anycertification, 26 information, documents or other evidence described in this clause (i)(A)(3) would not be materially more onerous, in form,in procedure, or in the substance of information disclosed, to a holder or beneficial owner than comparable information orother reporting requirements imposed under U.S. tax law, regulations and administrative practice (such as U.S. InternalRevenue Service Forms W-8BEN, W-8BEN-E and W-9, or any successor forms), and reasonable procedure for thecollection of such documentation has been implemented and is in effect at the time that such written request is received; (B) any estate, inheritance, gift, sale, personal property or similar Applicable Taxes; (C) any Applicable Taxes that are payable otherwise than by withholding, deduction from payments under or withrespect to the Notes; (D) any Applicable Taxes required to be withheld or deducted under Sections 1471 to 1474 of the U.S. InternalRevenue Code of 1986, as amended (the “Code”) (or any amended or successor versions of such Sections that is substantivelycomparable and not materially more onerous to comply with) (“FATCA”), any regulations or other official guidance thereunder,any intergovernmental agreement or agreement pursuant to Section 1471(b)(1) of the Code entered into in connection withFATCA, or any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA or anintergovernmental agreement; or (E) any combination of Applicable Taxes referred to in the preceding clauses (A), (B), (C) or (D); or (ii) with respect to any payment of the principal of (including the Repurchase Price, Tax Redemption Price and FundamentalChange Repurchase Price, if applicable), premium, if any, and interest on, such Note to a Holder, if the Holder is a fiduciary, partnership orPerson other than the sole beneficial owner of that payment to the extent that such payment would be required to be included in the incomeunder the laws of the Relevant Taxing Jurisdiction, for tax purposes, of a beneficiary or settlor with respect to the fiduciary, a member ofthat partnership or a beneficial owner who would not have been entitled to such Additional Amounts had that beneficiary, settlor, partner orbeneficial owner been the Holder thereof. In addition to the foregoing, the Company will also pay and indemnify the Holder of the Notes and the beneficial owner for anypresent or future stamp, issue, registration, value added, court or documentary taxes, or any other excise or property taxes, charges or similar levies or taxes(including penalties, interest and any other reasonable expenses related thereto) which are levied by any Relevant Taxing Jurisdiction (and in the case ofenforcement, any jurisdiction) on the execution, delivery, registration or enforcement of any of the Notes, this Indenture or any other document or instrumentreferred to therein, or the receipt of payments with respect thereto (including the receipt of ADSs or other consideration due upon conversion). Any suchpayments and indemnities shall be treated as Additional Amounts payable pursuant to Applicable Tax Law for purposes of Article 16 hereof. If the Company becomes obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes, theCompany will deliver to the Trustee and the Paying Agent if other than the Trustee on a date that is at least 30 days prior to the date of that payment (unlessthe obligation to pay Additional Amounts arises after the 30th day prior to that payment date, in which case the Company will notify the Trustee and thePaying Agent promptly thereafter) an Officers’ Certificate stating the fact that Additional Amounts will be payable and the amount estimated to be sopayable. The Officers’ Certificate must also set forth any other information reasonably necessary to enable the Paying Agent or the Conversion Agent, as thecase may be, to pay Additional Amounts to Holders on the relevant payment date. The Trustee and the Paying Agent shall be entitled to rely solely on suchOfficers’ Certificate as conclusive proof that such payments are necessary. The Company will 27 provide the Trustee and the Paying Agent with documentation reasonably satisfactory to the Trustee evidencing the payment of Additional Amounts. The Company will make all withholdings and deductions required by law and will remit the full amount deducted or withheld tothe relevant taxing authority in accordance with applicable law. Upon request, the Company will provide to the Trustee an official receipt or, if officialreceipts are not reasonably obtainable, such other documentation that provides reasonable evidence of the payment of any Applicable Taxes so deducted orwithheld. Upon written request, copies of those receipts or other documentation, as the case may be, will be made available by the Trustee to the Holders. (b) Any reference in this Indenture or the Notes in any context to the payment of cash and/or the delivery of ADSs (together withpayments of cash for any fractional ADS) upon conversion of the Notes or the payment of principal of (including the Repurchase Price, TaxRedemption Price and Fundamental Change Repurchase Price, if applicable), any premium or interest including any additional interest on, any Noteor any other amount payable with respect to such Note, shall be deemed to include any payment of Additional Amounts provided for in thisIndenture to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. (c) The foregoing obligations shall survive termination, defeasance or discharge of this Indenture or any transfer by a Holder or abeneficial owner of its Notes and will apply mutatis mutandis to any jurisdiction in which any Successor Company is then, for tax purposes,incorporated, organized or resident or doing business (or any political subdivision or taxing authority thereof or therein) or any jurisdiction from orthrough which payment under or with respect to the Notes is made or deemed made by or on behalf of such Successor Company (or any politicalsubdivision or taxing authority thereof or therein). (d) Notwithstanding anything to the contrary herein, the Company, the Trustee and the Paying Agent shall be entitled to make anywithholding or deduction pursuant to FATCA. Section 4.08 Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any timeinsist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law that would prohibit orforgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any timehereafter in force, or that may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) herebyexpressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution ofany power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.09 Compliance Certificate; Statements as to Defaults. The Company shall deliver to the Trustee within 120 days after the end of eachfiscal year of the Company (beginning with the fiscal year ending on December 31, 2018) an Officers’ Certificate stating that a review has been conducted ofthe Company’s activities under this Indenture and whether the Company has fulfilled its obligations hereunder, and whether the signers thereof haveknowledge of any Default by the Company that occurred during the previous year and, if so, specifying each such Default and the nature thereof. In addition, the Company shall deliver to the Trustee, as soon as possible, and in any event within 30 days after the Company becomes aware of theoccurrence of any Default if such Default is then continuing, an Officers’ Certificate setting forth the details of such Default, its status and the action that theCompany is taking or proposing to take in respect thereof. The Trustee shall have no responsibility to take any steps to ascertain whether any Event ofDefault or Default has occurred, and until (i) a Responsible Officer of the Trustee has received an Officers’ Certificate regarding such an occurrence, or (ii) theTrustee has received written notice at the Corporate Trust Office from the Holders of at least 25% in aggregate principal amount of the Notes then outstandingregarding such an occurrence, the Trustee is entitled to assume, without liability, that no Event of Default or Default has occurred. 28 Section 4.10 Further Instruments and Acts. Upon request of the Trustee, the Company will execute and deliver such further instruments and dosuch further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture. ARTICLE 5LISTS OF HOLDERS AND REPORTS BY THE COMPANY AND THE TRUSTEE Section 5.01 Lists of Holders. The Company covenants and agrees that it will furnish or cause to be furnished to the Trustee, semi annually, notmore than 15 days after each May 15 and November 15 but in any event at least three Business Days before June 1 and December 1 in each year beginningwith June 1, 2018, and at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request (or suchlesser time as the Trustee may reasonably request in order to enable it to timely provide any notice to be provided by it hereunder), a list in such form as theTrustee may reasonably require of the names and addresses of the Holders as of a date not more than 15 days (or such other date as the Trustee may reasonablyrequest in order to so provide any such notices) prior to the time such information is furnished, except that no such list need be furnished so long as theTrustee is acting as Note Registrar. Section 5.02 Preservation and Disclosure of Lists. The Trustee shall preserve, in as current a form as is reasonably practicable, all information asto the names and addresses of the Holders contained in the most recent list furnished to it as provided in Section 5.01 or maintained by the Trustee in itscapacity as Note Registrar, if so acting. The Trustee may destroy any list furnished to it as provided in Section 5.01 upon receipt of a new list so furnished. ARTICLE 6DEFAULTS AND REMEDIES Section 6.01 Events of Default. The following events shall be “Events of Default” with respect to the Notes: (a) failure by the Company to pay any installment of interest or Additional Amounts, if any, on any of the Notes, when due andpayable, which failure continues for 30 days after the date when due; (b) failure by the Company to pay when due the principal, the Tax Redemption Price, the Repurchase Price or any FundamentalChange Repurchase Price of any Note, in each case, when the same becomes due and payable; (c) failure by the Company to deliver when due the consideration deliverable upon conversion of any Notes and such failurecontinues for a period of four Business Days; (d) failure by the Company to issue a Tax Redemption Notice in accordance with Section 16.02, the Company Notice pursuant toSection 15.01(a), a Fundamental Change Company Notice in accordance with Section 15.02(b) or notice of a Make-Whole Fundamental Change ora Tax Redemption in accordance with Section 14.03(a), in each case, when due, and such failure continues for a period of five Business Days; (e) failure by the Company to comply with its obligations under Article 11; (f) failure by the Company for 60 days after written notice to the Company by the Trustee or to the Company and the Trustee byHolders of at least 25% in the aggregate principal amount of the Notes then outstanding to perform or observe (or obtain a waiver with respect to)any of its terms, covenants or agreements contained in the Notes or this Indenture not otherwise provided for in this Section 6.01; (g) default by the Company or any Significant Subsidiary of the Company with respect to any mortgage, agreement or otherinstrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excessof US$25 million (or the foreign 29 currency equivalent thereof) in the aggregate of the Company and/or any such Significant Subsidiary, whether such indebtedness now exists or shallhereafter be created (i) resulting in such indebtedness becoming or being declared due and payable or (ii) constituting a failure to pay the principalor interest of any such indebtedness when due and payable at its stated maturity, upon redemption, upon required repurchase, upon declaration ofacceleration or otherwise, in each case, after the expiration of any applicable grace period, if such default is not cured or waived, or such accelerationis not rescinded, within 30 days after written notice to the Company by the Trustee or to the Company and the Trustee by holders of at least 25% inthe aggregate principal amount of the Notes then outstanding, in accordance with this Indenture; (h) a final judgment for the payment of US$25 million (or the foreign currency equivalent thereof) or more (excluding any amountscovered by insurance or bond) rendered against the Company or any Significant Subsidiary of the Company by a court of competent jurisdiction,which judgment is not discharged, bonded, stayed, vacated, paid or otherwise satisfied within 60 days after (i) the date on which the right to appealthereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished; (i) the Company or any Significant Subsidiary shall commence a voluntary case or other proceeding or procedure (including, withoutlimitation, the passing of a resolution for its voluntary liquidiation) seeking liquidation, reorganization or other relief with respect to the Companyor any such Significant Subsidiary or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking theappointment of a trustee, receiver, liquidator, custodian or other similar official of the Company or any such Significant Subsidiary or anysubstantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in aninvoluntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally topay its debts as they become due; or (j) an involuntary case or other proceeding shall be commenced against the Company or any Significant Subsidiary seekingliquidation, reorganization or other relief with respect to the Company or such Significant Subsidiary or its debts under any bankruptcy, insolvencyor other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of theCompany or such Significant Subsidiary or any substantial part of its property. Section 6.02 Acceleration; Rescission and Annulment. If one or more Events of Default shall have occurred and be continuing (whatever thereason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree ororder of any court or any order, rule or regulation of any administrative or governmental body), then, and in each and every such case (other than an Event ofDefault specified in Section 6.01(i) or Section 6.01(j) with respect to the Company or any of its Significant Subsidiaries), unless the principal of all of theNotes shall have already become due and payable, the Trustee may by notice in writing to the Company, or the Holders of at least 25% in aggregate principalamount of the Notes then outstanding determined subject to Section 8.04, by notice in writing to the Company may, and the Trustee at the request of suchHolders shall (subject to being indemnified and/or secured and/or pre-funded to its satisfaction), declare 100% of the principal of, and accrued and unpaidinterest on, all the Notes to be due and payable immediately, and upon any such declaration the same shall become and shall automatically be immediatelydue and payable, anything contained in this Indenture or in the Notes to the contrary notwithstanding. If an Event of Default specified in Section 6.01(i) orSection 6.01(j) with respect to the Company or any of its Significant Subsidiaries occurs and is continuing, 100% of the principal of, and accrued and unpaidinterest on, all Notes shall become and shall automatically be immediately due and payable without any action on the part of the Trustee. If an Event ofDefault occurs and is continuing, all agents of the Company appointed under this Indenture will be required to act on the direction of the Trustee. The immediately preceding paragraph, however, is subject to the conditions that if, at any time after the principal of the Notes shall have been sodeclared due and payable, and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided,the Company shall pay or shall deposit with the Trustee a sum sufficient to pay installments of accrued and unpaid interest upon all Notes and the principalof any and all Notes that shall have become due otherwise than by acceleration (with interest on 30 overdue installments of accrued and unpaid interest to the extent that payment of such interest is enforceable under applicable law, and on such principal atthe rate per annum borne by the Notes plus 1.00%) and amounts due to the Trustee pursuant to Section 7.06, and if (1) rescission would not conflict with anyjudgment or decree of a court of competent jurisdiction, (2) all payments to the Trustee have been made, and (3) any and all existing Events of Default underthis Indenture, other than the nonpayment of the principal of and accrued and unpaid interest on Notes that shall have become due solely by suchacceleration, shall have been cured or waived pursuant to Section 6.09, then and in every such case (except as provided in the immediately succeedingsentence) the Holders of a majority in aggregate principal amount of the Notes then outstanding, by written notice to the Company and to the Trustee, maywaive all Defaults or Events of Default with respect to the Notes and rescind and annul such declaration and its consequences and such Default shall cease toexist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver or rescission andannulment shall extend to or shall affect any subsequent Default or Event of Default, or shall impair any right consequent thereon. Notwithstanding anythingto the contrary herein, no such waiver or rescission and annulment shall extend to or shall affect any Default or Event of Default resulting from (i) thenonpayment of the principal of, or accrued and unpaid interest on, any Notes, (ii) a failure to pay the Tax Redemption Price, the Repurchase Price or anyFundamental Change Repurchase Price of any Note or (iii) a failure to deliver the consideration due upon conversion of the Notes. Section 6.03 Additional Interest. Notwithstanding anything in this Indenture or in the Notes to the contrary, to the extent the Company elects,the sole remedy for an Event of Default relating to the Company’s failure to comply with its obligations as set forth in Section 4.06(b) shall after theoccurrence of such an Event of Default (which, with respect to an Event of Default described in Section 6.01(f), shall be the 60th day after written notice isprovided to the Company in accordance with Section 6.01(f)) consist exclusively of the right to receive Additional Interest on the Notes at a rate equal to: (a) 0.25% per annum of the principal amount of the Notes outstanding for each day during the period beginning on, and including,the date on which such an Event of Default first occurs and ending on the earlier of (i) the date on which such Event of Default is cured or validlywaived or (ii) the 180th day immediately following, and including, the date on which such Event of Default first occurred; and (b) if such Event of Default has not been cured or validly waived prior to the 181st day immediately following, and including, thedate on which such Event of Default first occurred, 0.50% per annum of the principal amount of the Notes outstanding for each day during theperiod beginning on, and including, the 180th day immediately following, and including, the date on which such an Event of Default first occurredand ending on the earlier of (i) the date on which such Event of Default is cured or validly waived or (ii) the 271st day immediately following, andincluding, the date on which such Event of Default first occurred. Interest payable pursuant to this Section 6.03 shall be in addition to, not in lieu of, any Additional Interest payable pursuant to Section 4.06(d) orSection 4.06(e). In no event shall Additional Interest accrue on the Notes on any day under this Indenture (taking any Additional Interest payable pursuant tothis Section 6.03 together with any Additional Interest payable pursuant to Section 4.06(d) and Section 4.06(e)) at an annual rate accruing in excess of0.50%, in the aggregate, for any violation or Default caused by the Company’s failure to be current in respect of its Exchange Act reporting obligations. If theCompany so elects, such Additional Interest shall be payable in the same manner and on the same dates as regular interest on the Notes. On the 271st dayafter such Event of Default (if the Event of Default with respect to the Company’s obligations under Section 4.06(b) is not cured or waived prior to such 271stday), the Notes will be subject to acceleration as provided in Section 6.02. In the event the Company does not elect to pay Additional Interest following anEvent of Default in accordance with this Section 6.03 or the Company elected to make such payment but does not pay the Additional Interest when due, theNotes shall be subject to acceleration as provided in Section 6.02. In order to elect to pay Additional Interest as the sole remedy during the first 180 days after the occurrence of any Event of Default described in theimmediately preceding paragraph, the Company must notify in writing all Holders of the Notes, the Trustee and the Paying Agent of such election prior to thebeginning of such 180-day period. Upon the failure to timely give such notice, the Notes shall be immediately subject to acceleration as provided inSection 6.02. 31 Section 6.04 Payments of Notes on Default; Suit Therefor. If an Event of Default described in clause (a) or (b) of Section 6.01 shall haveoccurred, the Company shall, upon demand of the Trustee or at the request of Holders of at least 25% in aggregate principal amount of the Notes thenoutstanding determined subject to Section 8.04 and subject to indemnity and/or security and/or pre-funding satisfactory to the Trustee, pay to the Trustee, forthe benefit of the Holders of the Notes, the whole amount then due and payable on the Notes for principal and interest, if any, with interest on any overdueprincipal and interest, if any, at the rate per annum borne by the Notes at such time plus 1.00%, and, in addition thereto, such further amount as shall besufficient to cover any amounts due to the Trustee under Section 7.06. If the Company shall fail to pay such amounts forthwith upon such demand, theTrustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecutesuch proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneysadjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. In the event there shall be pending proceedings for the bankruptcy or for the reorganization of the Company or any other obligor on the Notes undertitle 11 of the United States Code, or any other applicable law, or in case a receiver, assignee or trustee in bankruptcy or reorganization, liquidator,sequestrator or similar official shall have been appointed for or taken possession of the Company or such other obligor, the property of the Company or suchother obligor, or in the event of any other judicial proceedings relative to the Company or such other obligor upon the Notes, or to the creditors or property ofthe Company or such other obligor, the Trustee, irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or bydeclaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section 6.04, shall be entitledand empowered, by intervention in such proceedings or otherwise, to file and prove a claim or claims for the whole amount of principal and accrued andunpaid interest, if any, in respect of the Notes, and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents and to takesuch other actions as it may deem necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation,expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceedings relative to theCompany or any other obligor on the Notes, its or their creditors, or its or their property, and to collect and receive any monies or other property payable ordeliverable on any such claims, and to distribute the same after the deduction of any amounts due to the Trustee under Section 7.06; and any receiver,assignee or trustee in bankruptcy or reorganization, liquidator, custodian or similar official is hereby authorized by each of the Holders to make suchpayments to the Trustee, as administrative expenses, and, in the event that the Trustee shall consent to the making of such payments directly to the Holders,to pay to the Trustee any amount due to it for reasonable compensation, expenses, advances and disbursements, including agents and counsel fees, andincluding any other amounts due to the Trustee under Section 7.06, incurred by it up to the date of such distribution. To the extent that such payment ofreasonable compensation, expenses, advances and disbursements out of the estate in any such proceedings shall be denied for any reason, payment of thesame shall be secured by a lien on, and shall be paid out of, any and all distributions, dividends, monies, securities and other property that the Holders of theNotes may be entitled to receive in such proceedings, whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan ofreorganization, arrangement, adjustment or composition affecting such Holder or the rights of any Holder thereof, or to authorize the Trustee to vote inrespect of the claim of any Holder in any such proceeding. All rights of action and of asserting claims under this Indenture, or under any of the Notes, may be enforced by the Trustee without the possession ofany of the Notes, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall bebrought in its own name or as as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonablecompensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes. In any proceedings brought by the Trustee (and in any proceedings involving the interpretation of any provision of this Indenture to which theTrustee shall be a party) the Trustee shall be held to represent all the Holders of the Notes, and it shall not be necessary to make any Holders of the Notesparties to any such proceedings. 32 In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandonedbecause of any waiver pursuant to Section 6.09 or any rescission and annulment pursuant to Section 6.02 or for any other reason or shall have beendetermined adversely to the Trustee, then and in every such case the Company, the Holders, and the Trustee shall, subject to any determination in suchproceeding, be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Company, the Holders, and theTrustee shall continue as though no such proceeding had been instituted. Section 6.05 Application of Monies or Property Collected by Trustee. Any monies or property collected by the Trustee pursuant to thisArticle 6 or otherwise after an Event of Default has occurred and is continuing with respect to the Notes shall be applied in the following order, at the date ordates fixed by the Trustee for the distribution of such monies or property, upon presentation of the several Notes, and stamping thereon the payment, if onlypartially paid, and upon surrender thereof, if fully paid: First, to the payment of all amounts due to the Trustee, including its agents and counsel, under Section 7.06 and any payments due to thePaying Agent, the Conversion Agent and the Note Registrar; Second, in case the principal of the outstanding Notes shall not have become due and be unpaid, to the payment of interest on, and anycash due upon conversion of, the Notes in default in the order of the date due of the payments of such interest and cash due upon conversion, as thecase may be, with interest (to the extent that such interest has been collected by the Trustee) upon such overdue payments at the rate per annumborne by the Notes at such time plus 1.00%, such payments to be made ratably to the Persons entitled thereto; Third, in case the principal of the outstanding Notes shall have become due, by declaration or otherwise, and be unpaid to the payment ofthe whole amount (including, if applicable, the payment of the Repurchase Price, Tax Redemption Price or Fundamental Change Repurchase Priceand any cash due upon conversion) then owing and unpaid upon the Notes for principal and interest, if any, with interest on the overdue principaland, to the extent that such interest has been collected by the Trustee, upon overdue installments of interest at the rate per annum borne by the Notesat such time plus 1.00%, and in case such monies shall be insufficient to pay in full the whole amounts so due and unpaid upon the Notes, then tothe payment of such principal (including, if applicable, the Repurchase Price, Tax Redemption Price or Fundamental Change Repurchase Price) andinterest without preference or priority of principal over interest, or of interest over principal or of any installment of interest over any otherinstallment of interest, or of any Note over any other Note, ratably to the aggregate of such principal (including, if applicable, the Repurchase Priceor Fundamental Change Repurchase Price and any cash due upon conversion) and accrued and unpaid interest; and Fourth, to the payment of the remainder, if any, to the Company or as a court of competent jurisdiction shall direct. Section 6.06 Proceedings by Holders. Except to enforce the right to receive payment of principal (including, if applicable, the RepurchasePrice, Tax Redemption Price or Fundamental Change Repurchase Price) or interest when due, or the right to receive payment or delivery of the considerationdue upon conversion, no Holder of any Note shall have any right by virtue of or by availing of any provision of this Indenture to institute any suit, action orproceeding in equity or at law upon or under or with respect to this Indenture, or for the appointment of a receiver, trustee, liquidator, custodian or othersimilar official, or for any other remedy hereunder, unless: (a) such Holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof, asherein provided; (b) Holders of at least 25% in aggregate principal amount of the Notes then outstanding shall have made written request upon theTrustee to institute such action, suit or proceeding in its own name as Trustee hereunder; 33 (c) such Holders shall have offered to the Trustee such security and/or indemnity and/or pre-funding satisfactory to it against any loss,liability or expense to be incurred therein or thereby; (d) the Trustee for 60 days after its receipt of such notice, request and offer of security and/or indemnity and/or pre-funding, shall haveneglected or refused to institute any such action, suit or proceeding; and (e) no direction that, in the opinion of the Trustee, is inconsistent with such written request shall have been given to the Trustee bythe Holders of a majority of the aggregate principal amount of the Notes then outstanding within such 60-day period pursuant to Section 6.09, it being understood and intended, and being expressly covenanted by the taker and Holder of every Note with every other taker and Holder and the Trusteethat no one or more Holders shall have any right in any manner whatever by virtue of or by availing of any provision of this Indenture to affect, disturb orprejudice the rights of any other Holder, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under thisIndenture, except in the manner herein provided and for the equal, ratable and common benefit of all Holders (except as otherwise provided herein). For theprotection and enforcement of this Section 6.06, each and every Holder and the Trustee shall be entitled to such relief as can be given either at law or inequity. Notwithstanding any other provision of this Indenture and any provision of any Note, the right of any Holder to receive payment or delivery, as thecase may be, of (x) the principal (including the Repurchase Price, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable) of,(y) accrued and unpaid interest on, and (z) the consideration due upon conversion of, such Note, on or after the respective due dates expressed or provided forin such Note or in this Indenture, or to institute suit for the enforcement of any such payment or delivery, as the case may be, on or after such respective datesagainst the Company shall not be impaired or affected without the consent of such Holder. Section 6.07 Proceedings by Trustee. In case of an Event of Default, the Trustee may proceed to protect and enforce the rights vested in it bythis Indenture by such appropriate judicial proceedings as are necessary to protect and enforce any of such rights, either by suit in equity or by action at lawor by proceeding in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of theexercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 6.08 Remedies Cumulative and Continuing. Except as provided in the last paragraph of Section 6.06, all powers and remedies given bythis Article 6 to the Trustee or to the Holders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any thereof or of any otherpowers and remedies available to the Trustee or the Holders of the Notes, by judicial proceedings or otherwise, to enforce the performance or observance ofthe covenants and agreements contained in this Indenture, and no delay or omission of the Trustee or of any Holder of any of the Notes to exercise any rightor power accruing upon any Default or Event of Default shall impair any such right or power, or shall be construed to be a waiver of any such Default or Eventof Default or any acquiescence therein; and, subject to the provisions of Section 6.06, every power and remedy given by this Article 6 or by law to the Trusteeor to the Holders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Holders. Section 6.09 Direction of Proceedings and Waiver of Defaults by Majority of Holders. The Holders of a majority of the aggregate principalamount of the Notes at the time outstanding determined subject to Section 8.04 shall have the right to direct the time, method and place of conducting anyproceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to Notes; provided, however, that(a) such direction shall not be in conflict with any rule of law or with this Indenture, and (b) the Trustee may take any other action deemed proper by theTrustee that is not inconsistent with such direction. The Trustee may refuse to follow any direction that it determines is unduly prejudicial to the rights of anyother Holder or that would involve the Trustee in personal liability, or if it is not provided with security and/or indemnity and/or pre-funding to itssatisfaction. Prior to taking any action under this Indenture, the Trustee will be entitled to security and/or indemnification and/or pre-funding satisfactory toit in its sole discretion against all losses, liabilities and expenses caused by taking or not taking such action. In addition, the Trustee will not be required toexpend its own funds 34 under any circumstances. The Holders of a majority in aggregate principal amount of the Notes at the time outstanding determined subject to Section 8.04may on behalf of the Holders of all of the Notes waive any past Default or Event of Default hereunder and its consequences except (i) a default in the paymentof accrued and unpaid interest on, or the principal (including, if applicable, the Repurchase Price, Tax Redemption Price or Fundamental Change RepurchasePrice) of, the Notes when due that has not been cured pursuant to the provisions of Section 6.02, (ii) a failure by the Company to pay or deliver, or cause to bedelivered, as the case may be, the consideration due upon conversion of the Notes or (iii) a default in respect of a covenant or provision hereof which underArticle 10 cannot be modified or amended without the consent of each Holder of an outstanding Note affected. Upon any such waiver the Company, theTrustee and the Holders of the Notes shall be restored to their former positions and rights hereunder; but no such waiver shall extend to any subsequent orother Default or Event of Default or impair any right consequent thereon. Whenever any Default or Event of Default hereunder shall have been waived aspermitted by this Section 6.09, said Default or Event of Default shall for all purposes of the Notes and this Indenture be deemed to have been cured and to benot continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. Section 6.10 Notice of Defaults and Events of Default. If a Default or Event of Default occurs and is continuing and a Responsible Officer of theTrustee is notified in writing, the Trustee shall, within 90 days after a Responsible Officer of the Trustee has obtained such knowledge of the occurrence andcontinuance of such Default or Event of Default, send to all Holders (at the Company’s expense) as the names and addresses of such Holders appear upon theNote Register, notice of all such Defaults known to a Responsible Officer, unless such Defaults shall have been cured or waived before the giving of suchnotice; provided that the Trustee shall not be deemed to have knowledge of any occurrence of a Default or Event of Default unless a Responsible Officer hasreceived written notice at the Corporate Trust Office from the Company or a Holder. Except in the case of a Default in the payment of the principal of(including the Repurchase Price, Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable), or accrued and unpaid interest on, anyof the Notes or a Default in the payment or delivery of the consideration due upon conversion, the Trustee shall be protected in withholding such notice ifand so long as a Responsible Officer of the Trustee (in its sole discretion) in good faith determines that the withholding of such notice is in the interests of theHolders. Section 6.11 Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Note by its acceptance thereof shall bedeemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suitagainst the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suitand that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit,having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided that the provisions of this Section 6.11 (to theextent permitted by law) shall not apply to any suit instituted by or against the Trustee, to any suit instituted by any Holder, or group of Holders, holding inthe aggregate more than 10% in principal amount of the Notes at the time outstanding determined subject to Section 8.04, or to any suit instituted by anyHolder for the enforcement of the payment of the principal of or accrued and unpaid interest on any Note (including, but not limited to, the Repurchase Price,Tax Redemption Price and the Fundamental Change Repurchase Price) on or after the due date expressed or provided for in such Note or to any suit for theenforcement of the right to convert any Note in accordance with the provisions of Article 14. ARTICLE 7CONCERNING THE TRUSTEE Section 7.01 Duties and Responsibilities of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing or waiver ofall Events of Default that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture. In case anEvent of Default has occurred that has not been cured or waived, of which a Responsible Officer of the Trustee has received actual written notice pursuant toSection 7.02(j) the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise,as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs; provided that if an Event of Default occurs andis continuing, the Trustee will be under no obligation to exercise any of the rights or powers under this Indenture at the request or direction of any of theHolders unless such Holders have offered to the Trustee indemnity and/or security 35 and/or pre-funding satisfactory to it against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligentfailure to act or its own willful misconduct as proven in a final decision in a court of competent jurisdiction, except that: (a) prior to the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred: (i) the duties and obligations of the Trustee shall be determined solely by the express provisions of this Indenture, and theTrustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and noimplied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of gross negligence and willful misconduct on the part of the Trustee as proven in a final decision in acourt of competent jurisdiction, the Trustee may conclusively and without liability rely, as to the truth of the statements and the correctnessof the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of thisIndenture; but, in the case of any such certificates or opinions that by any provisions hereof are specifically required to be furnished to theTrustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of thisIndenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein); (b) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Officers of the Trustee,unless it shall be proved in a final decision in a court of competent jurisdiction that the Trustee was grossly negligent in ascertaining the pertinentfacts; (c) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with thedirection of the Holders of not less than a majority of the aggregate principal amount of the Notes at the time outstanding determined as provided inSection 8.04 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust orpower conferred upon the Trustee, under this Indenture; (d) whether or not therein provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affordingprotection to, the Trustee shall be subject to the provisions of this Section and Section 7.02; (e) the Trustee shall not be liable in respect of any payment (as to the correctness of amount, entitlement to receive or any othermatters relating to payment) or notice effected by the Company or any Paying Agent or any records maintained by any co-Note Registrar withrespect to the Notes; (f) if any party fails to deliver a notice relating to an event the fact of which, pursuant to this Indenture, requires notice to be sent tothe Trustee, the Trustee may conclusively and without liability rely on its failure to receive such notice as reason to act as if no such event occurred; (g) in the event that the Trustee is also acting as Note Registrar, Paying Agent or Conversion Agent, the rights, privileges, immunitiesand protections, including without limitation, its right to be indemnified, afforded to the Trustee pursuant to this Article 7 shall also be afforded tosuch Note Registrar, Paying Agent or Conversion Agent; (h) the Trustee shall have no duty to inquire, no duty to determine and no duty to monitor as to the performance of the Company’scovenants in this Indenture or the financial performance of the 36 Company; the Trustee shall be entitled to assume, until it has received written notice in accordance with this Indenture, that the Company isproperly performing its duties hereunder; (i) the Trustee shall be under no obligation to enforce any of the provisions of this Indenture unless it is instructed by Holders of atleast 25% of the aggregate principal amount of outstanding Notes determined as provided in Section 8.04 and is provided with security and/orindemnity and/or pre-funding satisfactory to it; and (j) the Trustee will be under no obligation to exercise any of the rights or powers under this Indenture at the request or direction ofany of the Holders unless such Holders have offered to the Trustee indemnity and/or security and/or pre-funding satisfactory to it against any costs,expenses and liabilities that might be incurred by it in compliance with such request or direction. None of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financialliability in the performance of any of its duties or in the exercise of any of its rights or powers. Section 7.02 Reliance on Documents, Opinions, Etc. Except as otherwise provided in Section 7.01: (a) the Trustee may conclusively and without liability rely and shall be fully protected in acting upon any resolution, certificate,statement, instrument, opinion, report, notice, request, consent, order, bond, Note, coupon or other paper or document (whether in its original orfacsimile form) believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties; (b) any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers’Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any Board Resolution may be evidenced to the Trusteeby a copy thereof certified by the Secretary of the Company; (c) the Trustee may consult with counsel and require an Opinion of Counsel and any advice of such counsel or Opinion of Counselshall be full and complete authorization and protection in respect of any action taken or omitted by it hereunder in good faith and in reliance uponsuch advice or Opinion of Counsel; (d) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement,instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion,may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such furtherinquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at theexpense of the Company and shall incur no liability of any kind by reason of such inquiry or investigation; (e) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or throughagents, delegates, custodians, nominees or attorneys and the Trustee shall not be responsible for the supervision, or for any misconduct ornegligence on the part of any agent, delegate, representative, custodian, nominee or attorney appointed by it with due care hereunder; (f) the permissive rights of the Trustee enumerated herein shall not be construed as duties; (g) under no circumstances and notwithstanding any contrary provision included herein, neither the Trustee, the Paying Agent, theConversion Agent nor the Note Registrar shall be responsible or liable for special, indirect, punitive, or consequential damages or loss of any kindwhatsoever (including, but not limited to, loss of profit) irrespective of whether any of them have been advised of the likelihood of such loss ordamage and regardless of the form of action; this provision shall remain in full force and effect 37 notwithstanding the discharge of the Notes, the termination of this Indenture or the resignation, replacement or removal of the Trustee, the PayingAgent, the Conversion Agent and the Note Registrar; (h) the Trustee, the Paying Agent, the Conversion Agent and the Note Registrar may refrain from taking any action in any jurisdictionif the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law ofthat jurisdiction or, to the extent applicable, of New York; furthermore, the Trustee may also refrain from taking such action if it would otherwiserender it liable to any Person in that jurisdiction or New York or if, in its opinion based on such legal advice, it would not have the power to do therelevant thing in that jurisdiction by virtue of any applicable law in that jurisdiction or in New York or if it is determined by any court or othercompetent authority in that jurisdiction that it does not have such power; (i) the Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder; (j) the Trustee shall not be deemed to have knowledge of an Event of Default except (i) any Event of Default described inSection 6.01(a), Section 6.01(b) or Section 6.01(c) or (ii) any Event of Default of which a Responsible Officer of the Trustee shall have received atthe Corporate Trust Office written notification thereof from the Company or a Holder, and such notice references the Notes of this Indenture; (k) the Trustee may request that the Company deliver Officers’ Certificates setting forth the names of individuals and their titles andspecimen signatures of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificates may besigned by any Person authorized to sign an Officers’ Certificate, as the case may be, including any Person specified as so authorized in any suchcertificate previously delivered and not superseded; (l) the Trustee shall not be responsible or liable for any action it takes or omits to take in good faith which it reasonably believes tobe authorized or within its rights or powers; (m) the Trustee shall not be responsible or liable for any action taken or omitted by it in good faith at the direction, in accordance withSection 6.09, of the Holders of not less than a majority in aggregate principal amount of the Notes at the time outstanding determined in accordancewith Section 8.04 as to the time, method and place of conducting any proceeding for any remedy available to the Trustee or the exercising of anypower conferred by this Indenture; (n) the Trustee shall not be responsible for any inaccuracy in the information obtained from the Company or for any inaccuracy oromission in the records which may result from such information or any failure by the Trustee to perform its duties as set forth herein as a result of anyinaccuracy or incompleteness; and (o) neither the Trustee nor any agent thereof shall have any responsibility or liability for any actions taken or not taken by theDepositary. Section 7.03 No Responsibility for Recitals, Etc. The recitals, statements, warranties and representations contained herein and in the Notes(except in the Trustee’s certificate of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for thecorrectness of the same. The Trustee makes no representations as to the accuracy or correctness of the same or for any failure by the Company or any otherparty to disclose events that may have occurred and may affect the significance or accuracy of such information, or the execution, legality, effectiveness,adequacy, genuineness, validity, enforceability or admissibility in evidence of this Indenture or of the Notes. The Trustee shall not be accountable for the useor application by the Company of any Notes or the proceeds of any Notes authenticated and delivered by the Trustee in conformity with the provisions ofthis Indenture. Notwithstanding the generality of the foregoing, each Holder shall be solely responsible for making its own independent appraisal of, andinvestigation into, the financial condition, 38 creditworthiness, condition, affairs, status and nature of the Company, and the Trustee shall not at any time have any responsibility for the same and eachHolder shall not rely on the Trustee in respect thereof. Section 7.04 Trustee, Paying Agents, Conversion Agents or Note Registrar May Own Notes. The Trustee, any Paying Agent, any ConversionAgent or Note Registrar, in its individual or any other capacity, may engage in business and contractual relationships with the Company or its Affiliates andmay become the owner or pledgee of Notes with the same rights it would have if it were not the Trustee, Paying Agent, Conversion Agent or Note Registrar,and nothing herein shall obligate any of them to account for any profits earned from any business or transactional relationship. Section 7.05 Monies to Be Held in Trust. All monies received by the Trustee shall, until used or applied as herein provided, be held in trust forthe purposes for which they were received. Money held by the Trustee in trust or by the Paying Agent hereunder need not be segregated from other fundsexcept to the extent required by law. Neither the Trustee nor the Paying Agent shall be under any liability for interest on any money received by it hereunder. Section 7.06 Compensation and Expenses of Trustee. The Company covenants and agrees to pay to the Trustee from time to time, and theTrustee shall be entitled to, compensation for all services rendered by it hereunder in any capacity (which shall not be limited by any provision of law inregard to the compensation of a trustee of an express trust) as mutually agreed to in writing between the Trustee and the Company (which sum shall be paidfree and clear of deduction and withholding on account of taxation, set off and counterclaim), and the Company will pay or reimburse the Trustee upon itsrequest for all expenses, disbursements and advances properly incurred or made by the Trustee in accordance with any of the provisions of this Indenture inany capacity thereunder (including the properly incurred compensation and the expenses and disbursements of its agents and counsel and of all Persons notregularly in its employ) except any such expense, disbursement or advance as shall have been caused by its gross negligence or willful misconduct as provenin a final decision in a court of competent jurisdiction. The Company also covenants to indemnify the Trustee (which for the purposes of this Section 7.06shall be deemed to include its officers, directors, agents and employees) in any capacity under this Indenture (including without limitation as Note Registrar,Conversion Agent and Paying Agent) and any other document or transaction entered into in connection herewith, and to hold it harmless against, any loss,claim, damage, liability or expense (whether arising from third party claims or claims by or against the Company) incurred without gross negligence or willfulmisconduct on the part of the Trustee, its officers, directors, agents or employees, as the case may be as proven in a final decision in a court of competentjurisdiction, and arising out of or in connection with the acceptance or administration of this Indenture or in any other capacity hereunder, including thecosts and expenses of defending themselves against any claim of liability in the premises or enforcing this indemnity. The obligations of the Company underthis Section 7.06 to compensate or indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall be secured by asenior claim to which the Notes are hereby made subordinate on all money or property held or collected by the Trustee, except, subject to the effect ofSection 6.05, funds held in trust herewith for the benefit of the Holders of particular Notes. The Trustee’s right to receive payment of any amounts due underthis Section 7.06 shall not be subordinate to any other liability or indebtedness of the Company. The indemnity under this Section 7.06 is payable upondemand by the Trustee. The obligation of the Company under this Section 7.06 shall survive the satisfaction and discharge of the Notes, the termination ofthis Indenture and the resignation or removal or the Trustee. The indemnification provided in this Section 7.06 shall extend to the officers, directors, agentsand employees of the Trustee. Subject to Section 7.02(e), any negligence or misconduct of any agent, delegate, attorney or representative, in each case, of theTrustee, shall not affect indemnification of the Trustee. Without prejudice to any other rights available to the Trustee under applicable law, when the Trustee and its agents incur expenses or render servicesafter an Event of Default specified in Section 6.01(i) or Section 6.01(j) occurs, the expenses and the compensation for the services are intended to constituteexpenses of administration under any bankruptcy, insolvency or similar laws. Section 7.07 Officers’ Certificate as Evidence. Except as otherwise provided in Section 7.01, whenever in the administration of the provisionsof this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or omitting any action hereunder, suchmatter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and 39 established by an Officers’ Certificate delivered to the Trustee, and such Officers’ Certificate shall be full warrant to the Trustee for any action taken oromitted by it under the provisions of this Indenture upon the faith thereof. Section 7.08 Eligibility of Trustee. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the TrustIndenture Act to act as such and has a combined capital and surplus of at least US$50,000,000. If such Person publishes reports of condition at least annually,pursuant to law or to the requirements of any supervising or examining authority, then for the purposes of this Section, the combined capital and surplus ofsuch Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trusteeshall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specifiedin this Article. Section 7.09 Resignation or Removal of Trustee. (a) The Trustee may at any time resign by giving 60 days written notice of such resignation tothe Company and by sending notice thereof to the Holders at their addresses as they shall appear on the Note Register. Upon receiving such notice ofresignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, onecopy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been soappointed and have accepted appointment within 60 days after the sending of such notice of resignation to the Holders, the resigning Trustee may appoint asuccessor trustee on behalf of and at the expense of the Company or it may, upon ten Business Days’ notice to the Company and the Holders, at the expenseof the Company petition any court of competent jurisdiction for the appointment of a successor trustee, or any Holder who has been a bona fide holder of aNote or Notes for at least six months may, subject to the provisions of Section 6.11, on behalf of himself or herself and all others similarly situated, petitionany such court for the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, appoint asuccessor trustee. (b) In case at any time any of the following shall occur: (i) the Trustee shall cease to be eligible in accordance with the provisions of Section 7.08 and shall fail to resign after writtenrequest therefor by the Company or by any such Holder, or (ii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee orof its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purposeof rehabilitation, conservation or liquidation, then, in either case, the Company may by a Board Resolution remove the Trustee and appoint a successor trustee by written instrument, in duplicate,executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee,or, subject to the provisions of Section 6.11, any Holder who has been a bona fide holder of a Note or Notes for at least six months may, on behalf of himselfor herself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successortrustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The Holders of a majority in aggregate principal amount of the Notes at the time outstanding, as determined in accordance withSection 8.04, may at any time remove the Trustee and nominate a successor trustee that shall be deemed appointed as successor trustee unless withinten days after notice to the Company of such nomination the Company objects thereto, in which case the Trustee so removed or any Holder, uponthe terms and conditions and otherwise as in Section 7.09(a) provided, may petition any court of competent jurisdiction for an appointment of asuccessor trustee. (d) Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of thisSection 7.09 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 7.10. 40 Section 7.10 Acceptance by Successor Trustee. Any successor trustee appointed as provided in Section 7.09 shall execute, acknowledge anddeliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of thepredecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights,powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Trustee herein; but, nevertheless, on the written requestof the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due to it pursuant to the provisions ofSection 7.06, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon request ofany such successor trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to suchsuccessor trustee all such rights and powers. Any trustee ceasing to act shall, nevertheless, retain a senior claim to which the Notes are hereby madesubordinate on all money or property held or collected by such trustee as such, except for funds held in trust for the benefit of Holders of particular Notes, tosecure any amounts then due to it pursuant to the provisions of Section 7.06. No successor trustee shall accept appointment as provided in this Section 7.10 unless at the time of such acceptance such successor trustee shall beeligible under the provisions of Section 7.08. Upon acceptance of appointment by a successor trustee as provided in this Section 7.10, each of the Company and the successor trustee, at thewritten direction and at the expense of the Company shall send or cause to be sent notice of the succession of such trustee hereunder to the Holders at theiraddresses as they shall appear on the Note Register. If the Company fails to send such notice within ten days after acceptance of appointment by the successortrustee, the successor trustee shall cause such notice to be sent at the expense of the Company. Section 7.11 Succession by Merger, Etc. Any corporation or other entity into which the Trustee may be merged or converted or with which itmay be consolidated, or any corporation or other entity resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or anycorporation or other entity succeeding to all or substantially all of the corporate trust business of the Trustee (including the administration of this Indenture),shall be the successor to the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto; providedthat in the case of any corporation or other entity succeeding to all or substantially all of the corporate trust business of the Trustee such corporation or otherentity shall be eligible under the provisions of Section 7.08. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture, any of the Notes shall have been authenticatedbut not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes soauthenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either inthe name of any predecessor trustee hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which itis anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate ofauthentication of any predecessor trustee or to authenticate Notes in the name of any predecessor trustee shall apply only to its successor or successors bymerger, conversion or consolidation. Section 7.12 Trustee’s Application for Instructions from the Company. Any application by the Trustee for written instructions from theCompany (other than with regard to any action proposed to be taken or omitted to be taken by the Trustee that affects the rights of the Holders of the Notesunder this Indenture) may, at the option of the Trustee, set forth in writing any action proposed to be taken or omitted by the Trustee under this Indenture andthe date on and/or after which such action shall be taken or such omission shall be effective. The Trustee shall not be liable for any action taken by, oromission of, the Trustee in accordance with a proposal included in such application on or after the date specified in such application (which date shall not beless than three Business Days after the date any Officer that the Company has indicated to the Trustee should receive such application actually receives suchapplication, unless any such Officer shall have consented in writing to any earlier date), unless, prior to taking any such action (or the effective date in thecase of any omission), the Trustee shall have received written instructions in accordance with this Indenture in response to such application specifying theaction to be taken or omitted. 41 ARTICLE 8CONCERNING THE HOLDERS Section 8.01 Action by Holders. Whenever in this Indenture it is provided that the Holders of a specified percentage of the aggregate principalamount of the Notes may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of anyother action), the fact that at the time of taking any such action, the Holders of such specified percentage have joined therein may be evidenced (a) by anyinstrument or any number of instruments of similar tenor executed by Holders in person or by agent or proxy appointed in writing, or (b) by the record of theHolders voting in favor thereof at any meeting of Holders duly called and held in accordance with the provisions of Article 9, or (c) by a combination of suchinstrument or instruments and any such record of such a meeting of Holders. Whenever the Company or the Trustee solicits the taking of any action by theHolders of the Notes, the Company or the Trustee may fix, but shall not be required to, in advance of such solicitation, a date as the record date fordetermining Holders entitled to take such action. The record date if one is selected shall be not more than fifteen days prior to the date of commencement ofsolicitation of such action. Section 8.02 Proof of Execution by Holders. Subject to the provisions of Section 7.01, Section 7.02 and Section 9.05, proof of the execution ofany instrument by a Holder or its agent or proxy shall be sufficient if made in accordance with such reasonable rules and regulations as may be prescribed bythe Trustee or in such manner as shall be satisfactory to the Trustee. The holding of Notes shall be proved by the Note Register or by a certificate of the NoteRegistrar. The record of any Holders’ meeting shall be proved in the manner provided in Section 9.06. Section 8.03 Who Are Deemed Absolute Owners. The Company, the Trustee, any Paying Agent, any Conversion Agent and any Note Registrarmay deem the Person in whose name a Note shall be registered upon the Note Register to be, and may treat it as, the absolute owner of such Note (whether ornot such Note shall be overdue and notwithstanding any notation of ownership or other writing thereon made by any Person other than the Company or anyNote Registrar) for the purpose of receiving payment of or on account of the principal of and (subject to Section 2.03) accrued and unpaid interest on suchNote, for the purpose of conversion of such Note and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor anyConversion Agent nor any Note Registrar shall be affected by any notice to the contrary. All such payments or deliveries so made to any Holder for the timebeing, or upon its order, shall be valid, and, to the extent of the sums or ADSs so paid or delivered, effectual to satisfy and discharge the liability for moniespayable or ADSs deliverable upon any such Note. Notwithstanding anything to the contrary in this Indenture or the Notes following an Event of Default, anyHolder of a beneficial interest in a Global Note may directly enforce against the Company, without the consent, solicitation, proxy, authorization or any otheraction of the Depositary or any other Person, such Holder’s right to exchange such beneficial interest for a Note in certificated form in accordance with theprovisions of this Indenture. Section 8.04 Company-Owned Notes Disregarded. In determining whether the Holders of the requisite aggregate principal amount of Noteshave concurred in any direction, consent, waiver or other action under this Indenture, Notes that are owned by the Company, by any Subsidiary or by anyAffiliate of the Company or any Subsidiary shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided thatfor the purposes of determining whether the Trustee shall be protected in relying on any such direction, consent, waiver or other action only Notes in respectof which a Responsible Officer is notified in writing shall be so disregarded. Notwithstanding the foregoing, Notes so owned that have been pledged in goodfaith may be regarded as outstanding for the purposes of this Section 8.04 if the pledgee shall establish its right to so act with respect to such Notes and thatthe pledgee is not the Company, a Subsidiary or an Affiliate of the Company or a Subsidiary. Within five days of acquisition of the Notes by any of the abovedescribed Persons or at the request of the Trustee, the Company shall furnish to the Trustee promptly an Officers’ Certificate listing and identifying all Notes,if any, known by the Company to be owned or held by or for the account of any of the above described Persons; and, subject to Section 7.01, the Trustee shallbe entitled to accept such Officers’ Certificate as conclusive evidence of the facts therein set forth and of the fact that all Notes not listed therein areoutstanding for the purpose of any such determination. Section 8.05 Revocation of Consents; Future Holders Bound. At any time prior to (but not after) the evidencing to the Trustee, as provided inSection 8.01, of the taking of any action by the Holders of the percentage 42 of the aggregate principal amount of the Notes specified in this Indenture in connection with such action, any Holder of a Note that is shown by the evidenceto be included in the Notes the Holders of which have consented to such action may, by filing written notice with the Trustee at its Corporate Trust Office andupon proof of holding as provided in Section 8.02, revoke such action so far as concerns such Note. Except as aforesaid, any such action taken by the Holderof any Note shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Note and of any Notes issued in exchange orsubstitution therefor or upon registration of transfer thereof, irrespective of whether any notation in regard thereto is made upon such Note or any Note issuedin exchange or substitution therefor or upon registration of transfer thereof. ARTICLE 9HOLDERS’ MEETINGS Section 9.01 Purpose of Meetings. A meeting of Holders may be called at any time and from time to time pursuant to the provisions of thisArticle 9 for any of the following purposes: (a) to give any notice to the Company or to the Trustee or to give any directions to the Trustee permitted under this Indenture, or toconsent to the waiving of any Default or Event of Default hereunder (in each case, as permitted under this Indenture) and its consequences, or to takeany other action authorized to be taken by Holders pursuant to any of the provisions of Article 6; (b) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article 7; (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 10.02; or (d) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of theNotes under any other provision of this Indenture or under applicable law. Section 9.02 Call of Meetings by Trustee. The Trustee may (in its sole discretion and without obligation) at any time call a meeting of Holdersto take any action specified in Section 9.01, to be held at such time and at such place as the Trustee shall determine. Notice of every meeting of the Holders,setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting and the establishment of any recorddate pursuant to Section 8.01, shall be sent to Holders of such Notes at their addresses as they shall appear on the Note Register. Such notice shall also be sentto the Company. Such notices shall be sent not less than 20 nor more than 90 days prior to the date fixed for the meeting. Any meeting of Holders shall be valid without notice if the Holders of all Notes then outstanding are present in person or by proxy or if notice iswaived before or after the meeting by the Holders of all Notes then outstanding, and if the Company and the Trustee are either present by duly authorizedrepresentatives or have, before or after the meeting, waived notice. Section 9.03 Call of Meetings by Company or Holders. In case at any time the Company, pursuant to a Board Resolution, or the Holders of atleast 10% of the aggregate principal amount of the Notes then outstanding, shall have requested the Trustee to call a meeting of Holders, by written requestsetting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have sent the notice of such meeting within 20 daysafter receipt of such request, then the Company or such Holders may determine the time and the place for such meeting and may call such meeting to take anyaction authorized in Section 9.01, by sending notice thereof as provided in Section 9.02. Section 9.04 Qualifications for Voting. To be entitled to vote at any meeting of Holders a Person shall (a) be a Holder of one or more Notes onthe record date pertaining to such meeting or (b) be a Person appointed by an instrument in writing as proxy by a Holder of one or more Notes on the recorddate pertaining to such meeting. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons 43 entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and itscounsel. Section 9.05 Regulations. Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it maydeem advisable for any meeting of Holders, in regard to proof of the holding of Notes and of the appointment of proxies, and in regard to the appointmentand duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other mattersconcerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by theCompany or by Holders as provided in Section 9.03, in which case the Company or the Holders calling the meeting, as the case may be, shall in like mannerappoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Holders of a majority inprincipal amount of the Notes represented at the meeting and entitled to vote at the meeting. Subject to the provisions of Section 8.04, at any meeting of Holders each Holder or proxy-holder shall be entitled to one vote for each US$1,000principal amount of Notes held or represented by him or her; provided, however, that no vote shall be cast or counted at any meeting in respect of any Notechallenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote otherthan by virtue of Notes held by it or instruments in writing as aforesaid duly designating it as the proxy to vote on behalf of other Holders. Any meeting ofHolders duly called pursuant to the provisions of Section 9.02 or Section 9.03 may be adjourned from time to time by the Holders of a majority of theaggregate principal amount of Notes represented at the meeting, whether or not constituting a quorum, and the meeting may be held as so adjourned withoutfurther notice. Minutes shall be made of all resolutions and proceedings at every meeting and, if purporting to be signed by the chairman of that meeting or of thenext succeeding meeting of Holders of the Notes, shall be conclusive evidence of the matters in them. Until the contrary is proved every meeting for whichminutes have been so made and signed shall be deemed to have been duly convened and held and all resolutions passed or proceedings transacted at it tohave been duly passed and transacted. Section 9.06 Voting. The vote upon any resolution submitted to any meeting of Holders shall be by written ballot on which shall be subscribedthe signatures of the Holders or of their representatives by proxy and the outstanding aggregate principal amount of the Notes held or represented by them.The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution andwho shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of theproceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of theinspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the noticeof the meeting and showing that said notice was sent as provided in Section 9.02. The record shall show the aggregate principal amount of the Notes votingin favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and oneof the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballotsvoted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 9.07 No Delay of Rights by Meeting. Nothing contained in this Article 9 shall be deemed or construed to authorize or permit, by reasonof any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of anyright or rights conferred upon or reserved to the Trustee or to the Holders under any of the provisions of this Indenture or of the Notes. 44 ARTICLE 10SUPPLEMENTAL INDENTURES Section 10.01 Supplemental Indentures Without Consent of Holders. The Company, when authorized by the resolutions of the Board ofDirectors, and the Trustee, at the Company’s expense and direction, may from time to time and at any time enter into an indenture or indentures supplementalhereto for one or more of the following purposes: (a) to cure any ambiguity, omission, inconsistency or correct or supplement any defective provision contained in this Indenture or theNotes in a manner that does not adversely affect the rights of any Holder; (b) to provide for the assumption by a Successor Company of the obligations of the Company under this Indenture and the Notespursuant to Article 11; (c) to add guarantees with respect to the Notes; (d) to otherwise secure the Notes; (e) to add to the covenants or Events of Defaults of the Company for the benefit of the Holders or surrender any right or powerconferred upon the Company; (f) upon the occurrence of any transaction or event described in Section 14.07(a), to (i) provide that the Notes are convertible into Reference Property, subject to Section 14.07, and (ii) effect the related changes to the terms of the Notes described under Section 14.07(a), in each case, in accordance withSection 14.07; (g) to evidence and provide for the assumption by a successor trustee of the obligations of the Trustee under this Indenture pursuant toArticle 7; (h) to make any other changes to this Indenture that do not adversely affect the interests of any Holder; or (i) to conform the provisions of this Indenture or the Notes to the “Description of the Notes” section of the Offering Memorandum. Upon the written request of the Company, the Trustee is hereby authorized to join with the Company in the execution of any such supplementalindenture, to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to, but may in itsdiscretion, enter into any supplemental indenture that affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 10.01 may be executed by the Company and the Trustee without theconsent of the Holders of any of the Notes at the time outstanding, notwithstanding any of the provisions of Section 10.02. Section 10.02 Supplemental Indentures with Consent of Holders. With the consent (evidenced as provided in Article 8) of the Holders of at leasta majority of the aggregate principal amount of the Notes then outstanding (determined in accordance with Article 8 and including, without limitation,consents obtained in connection with a repurchase of, or tender or exchange offer for, Notes), the Company, when authorized by the resolutions of the Boardof Directors, and the Trustee, at the Company’s expense, may from time to time and at any time enter into an indenture or indentures supplemental hereto forthe purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or any supplemental indenture or of 45 modifying in any manner the rights of the Holders; provided, however, that, without the consent of each Holder of an outstanding Note affected, no suchsupplemental indenture shall: (a) change the percentage in aggregate principal amount of then outstanding Notes whose Holders must consent to a modification oramendment or to waive any past Default or Event of Default; (b) alter the manner of calculation or rate of accrual of interest on any Note or change the time of payment of any installment ofinterest on any Note; (c) reduce the principal amount with respect to any of the Notes or change the Maturity Date of any Note; (d) make any change that adversely affects the conversion rights of any Notes, including by modifying any of the notice provisions; (e) reduce the Tax Redemption Price, the Repurchase Price or the Fundamental Change Repurchase Price of any Note or amend ormodify in any manner adverse to the Holders the Company’s obligation to make such payments, whether through an amendment or waiver ofprovisions in the covenants, definitions or otherwise; (f) make any Note payable in a currency or securities other than that stated in the Notes; (g) change the ranking of the Notes; (h) impair the right of any Holder to receive payment of principal and interest on such Holder’s Notes on or after the due dates therefor(including the Tax Redemption Price, the Repurchase Price and the Fundamental Change Repurchase Price, if applicable) or to institute suit for theenforcement of any payment on or with respect to such Holder’s Note or with respect to the conversion of any Note; or (i) change the Company’s obligation to pay Additional Amounts on any Note; (j) make any change in this Article 10 that requires each Holder’s consent or in the waiver provisions in Section 6.02 or Section 6.09or change the percentage in aggregate principal amount of outstanding Notes necessary to amend this Indenture under this Article 10 or in thewaiver provisions in Section 6.02 or Section 6.09. Upon the written request of the Company, and upon the filing with the Trustee of evidence of the consent of Holders as aforesaid and subject toSection 10.05, the Trustee shall join with the Company in the execution of such supplemental indenture unless (i) the Trustee has not received an Officers’Certificate and Opinion of Counsel as contemplated by Section 10.05 or (ii) such supplemental indenture affects the Trustee’s own rights, duties orimmunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplementalindenture. Holders do not need under this Section 10.02 to approve the particular form of any proposed supplemental indenture. It shall be sufficient if suchHolders approve the substance thereof. After any supplemental indenture becomes effective under Section 10.01 or Section 10.02, the Company shall send orcause to be sent to the Holders a notice briefly describing such supplemental indenture. However, the failure to give such notice to all the Holders, or anydefect in the notice, will not impair or affect the validity of the supplemental indenture. Section 10.03 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture pursuant to the provisions of thisArticle 10, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights,obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders shall thereafter be determined, exercised and enforcedhereunder subject in all respects to such modifications and amendments and all the terms and conditions of any such 46 supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 10.04 Notation on Notes. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to theprovisions of this Article 10 may, at the Company’s expense, bear a notation as to any matter provided for in such supplemental indenture. If the Companyshall so determine, new Notes so modified as to conform, in the opinion of the Board of Directors, to any modification of this Indenture contained in any suchsupplemental indenture may, at the Company’s expense, be prepared and executed by the Company, authenticated by the Trustee upon receipt of a CompanyOrder and delivered in exchange for the Notes then outstanding, upon surrender of such Notes then outstanding. Section 10.05 Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. In addition to the documents required bySection 17.06, the Trustee shall receive an Officers’ Certificate and an Opinion of Counsel each stating and as conclusive evidence that any supplementalindenture executed pursuant hereto complies with the requirements of this Article 10 and is permitted or authorized by this Indenture and is not contrary tolaw and, with respect to such Opinion of Counsel, that such supplemental indenture is the legal, valid and binding obligation of the Company, enforceableagainst it in accordance with its terms, subject to customary exceptions. ARTICLE 11CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE Section 11.01 Company May Consolidate, Etc. on Certain Terms. Subject to the provisions of Section 11.02, the Company shall not consolidatewith, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to another Person other thanto one or more of the wholly-owned Subsidiaries of the Company, unless: (a) the resulting, surviving or transferee Person or the Person which acquires by conveyance, transfer, lease or other disposition all orsubstantially all of the Company’s properties and assets (the “Successor Company”), if not the Company, shall be a corporation, company, limitedliability company, partnership, trust or other business entity organized and existing under the laws of the United States of America, any State thereof,the District of Columbia, the Cayman Islands, the British Virgin Islands, Bermuda or Hong Kong, the Successor Company (if not the Company) shallexpressly assume, by a supplemental indenture all of the obligations of the Company under the Notes and this Indenture (including, for theavoidance of doubt, the obligation to pay Additional Amounts pursuant to Section 4.07); (b) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing underthis Indenture; (c) the Company shall have undertaken commercially reasonable efforts to restructure the Notes so that, after any such transaction isgiven effect, any conversion of the Notes will be exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) thereof;and (d) if, upon the occurrence of any such transaction, (x) the Notes would become convertible pursuant to this Indenture into securitiesissued by an issuer other than the Successor Company, and (y) the Successor Company is a wholly owned subsidiary of the issuer of such securitiesinto which the notes have become convertible, such other issuer shall fully and unconditionally guarantee on a senior basis the SuccessorCompany’s obligations under this Indenture and the Notes. For purposes of this Section 11.01, the sale, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of one ormore Subsidiaries of the Company to another Person, which properties and assets, if held by the Company instead of such Subsidiaries, would constitute allor substantially all of the properties and assets of the Company on a consolidated basis, shall be deemed to be the sale, conveyance, transfer or lease of all orsubstantially all of the properties and assets of the Company to another Person. 47 Section 11.02 Successor Corporation to Be Substituted. In case of any such consolidation, merger, sale, conveyance, transfer, lease ordisposition and upon the assumption by the Successor Company, by supplemental indenture, executed and delivered to the Trustee and satisfactory in formto the Trustee, of the due and punctual payment of the principal of and accrued and unpaid interest on all of the Notes (including, for the avoidance of doubt,any Additional Amounts), the due and punctual delivery or payment, as the case may be, of any consideration due upon conversion of the Notes (including,for the avoidance of doubt, any Additional Amounts) and the due and punctual performance of all of the covenants and conditions of this Indenture to beperformed by the Company, such Successor Company (if not the Company) shall succeed to and, except in the case of a lease of all or substantially all of theCompany’s properties and assets, shall be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. SuchSuccessor Company thereupon may cause to be signed, and may issue either in its own name or in the name of the Company any or all of the Notes issuablehereunder which theretofore shall not have been signed by the Company and delivered to the Trustee; and, upon the order of such Successor Companyinstead of the Company and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver,or cause to be authenticated and delivered, any Notes that previously shall have been signed and delivered by the Officers of the Company to the Trustee forauthentication, and any Notes that such Successor Company thereafter shall cause to be signed and delivered to the Trustee for that purpose. All the Notes soissued shall in all respects have the same legal rank and benefit under this Indenture as the Notes theretofore or thereafter issued in accordance with the termsof this Indenture as though all of such Notes had been issued at the date of the execution hereof. In the event of any such consolidation, merger, sale,conveyance, transfer or disposition (but not in the case of a lease), upon compliance with this Article 11 the Person named as the “Company” in the firstparagraph of this Indenture (or any successor that shall thereafter have become such in the manner prescribed in this Article 11) may be dissolved, wound upand liquidated at any time thereafter and, except in the case of a lease, such Person shall be released from its liabilities as obligor and maker of the Notes andfrom its obligations under this Indenture and the Notes. In case of any such consolidation, merger, sale, conveyance, transfer, lease or disposition, such changes in phraseology and form (but not insubstance) may be made in the Notes thereafter to be issued as may be appropriate. Section 11.03 Opinion of Counsel to Be Given to Trustee. If the Company is not the Successor Company, no consolidation, merger, sale,conveyance, transfer, lease or other disposition shall be effective unless the Company shall deliver to the Trustee an Officers’ Certificate and an Opinion ofCounsel each stating and as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer, lease or disposition and any suchassumption and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with the provisions ofthis Article 11, that all conditions precedent thereto have been satisfied and that the Notes and such supplemental indenture are the legal, valid and bindingobligation of the Successor Company, enforceable against it in accordance with its terms, subject to customary exceptions. ARTICLE 12IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS Section 12.01 Indenture and Notes Solely Corporate Obligations. No recourse for the payment of the principal of or accrued and unpaid intereston any Note, nor for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of theCompany in this Indenture or in any supplemental indenture or in any Note, nor because of the creation of any indebtedness represented thereby, shall be hadagainst any incorporator, shareholder, stockholder, employee, agent, Officer or director or Subsidiary, as such, past, present or future, of the Company or ofany successor corporation, either directly or through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law,or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and releasedas a condition of, and as a consideration for, the execution of this Indenture and the issue of the Notes. 48 ARTICLE 13[RESERVED] ARTICLE 14CONVERSION OF NOTES Section 14.01 Conversion Privilege. Subject to and upon compliance with the provisions of this Article 14, each Holder of a Note shall have theright, at such Holder’s option, to convert all or any portion (if the portion to be converted is US$1,000 principal amount or an integral multiple thereof) ofsuch Note at any time prior to the close of business on the third Scheduled Trading Day immediately preceding the Maturity Date at an initial conversion rateof 19.3865 ADSs (subject to adjustment as provided in this Article 14, the “Conversion Rate”) per US$1,000 principal amount of Notes (subject to, and inaccordance with, the settlement provisions of Section 14.02, the “Conversion Obligation”). Section 14.02 Conversion Procedure; Settlement Upon Conversion. (a) Upon conversion of any Note and subject to Section 14.02(k), the Company shall cause to be delivered to the converting Holder,in respect of each US$1,000 principal amount of Notes being converted, a number of ADSs equal to the Conversion Rate, together with a cashpayment, if applicable, in lieu of any fractional ADS in accordance with subsection (j) of this Section 14.02, on the third Business Day immediatelyfollowing the relevant conversion date. (b) Subject to Section 14.02(e), before any Holder of a Note shall be entitled to convert a Note as set forth above, such Holder shall(i) in the case of a Global Note, comply with the procedures of the Depositary and ADS Depositary in effect at that time to convert such Note (for theavoidance of doubt, including, in the case of a Restricted Security, delivering the notice included as Attachment 7 to the Form of Note attachedhereto as Exhibit A) and, if required, pay funds equal to interest payable on the next Interest Payment Date to which such Holder is not entitled as setforth in Section 14.02(h) and pay the applicable fees and expenses of the depositary for the issuance of the ADSs, as described in the depositagreement (which fees and expenses shall not exceed US$0.05 per ADS deliverable upon conversion), and (ii) in the case of a Physical Note(1) complete, manually sign and deliver a duly completed irrevocable notice to the Conversion Agent as set forth in the Form of Notice ofConversion (or a facsimile thereof) (a “Notice of Conversion”) at the office of the Conversion Agent and state in writing therein the principalamount of Notes to be converted and the name or names (with addresses) in which such Holder wishes any ADSs to be registered upon settlement ofthe Conversion Obligation, (2) surrender such Physical Notes, duly endorsed to the Company or in blank (and accompanied by appropriateendorsement and transfer documents), at the office of the Conversion Agent, (3) if required, furnish appropriate endorsements and transferdocuments, (4) if required, pay funds equal to interest payable on the next Interest Payment Date to which such Holder is not entitled as set forth inSection 14.02(h), (5) if required, pay all transfer and similar taxes or duties, (6) comply with the procedures of the ADS Depositary in effect at thattime to convert such Note (for the avoidance of doubt, including, in the case of a Restricted Security, delivering the notice included as Attachment 7to the Form of Note attached hereto as Exhibit A) and (7) pay the applicable fees and expenses of the depositary for the issuance of the ADSs, asdescribed in the Deposit Agreement (which fees and expenses shall not exceed US$0.05 per ADS deliverable upon conversion). The Trustee (and ifdifferent, the Conversion Agent) shall notify the Company of any conversion pursuant to this Article 14 on the Conversion Date for suchconversion. Delivery of a Notice of Conversion to the Conversion Agent by a Holder shall be deemed to be an acknowledgment by such Holder thatsuch Notice of Conversion may be relied upon by the ADS Depositary with respect to the issuance of ADSs, as described in the Deposit Agreement.The Conversion Agent will immediately forward any Notice of Conversion to the ADS Depositary. No Notice of Conversion with respect to anyNotes may be delivered and no Notes may be surrendered by a Holder for conversion thereof if such Holder has also delivered a Repurchase Noticeor Fundamental Change Repurchase Notice to the Company in respect of such Notes and not validly withdrawn such Repurchase Notice orFundamental Change Repurchase Notice in accordance with Section 15.03. Any Notice of Conversion shall be deposited in duplicate at the office ofany Conversion Agent on any Business Day from 9:00 a.m. to 3:00 p.m. at the location of the Conversion Agent to which such Notice of Conversionis delivered. Any Notice of Conversion and any Physical Note (if issued) deposited outside 49 the hours specified or on a day that is not a Business Day at the location of the Conversion Agent shall for all purposes be deemed to have beendeposited with that Conversion Agent between 9:00 a.m. and 3:00 p.m. on the next Business Day. If more than one Note shall be surrendered forconversion at one time by the same Holder, the Conversion Obligation with respect to such Notes shall be computed on the basis of the aggregateprincipal amount of the Notes (or specified portions thereof to the extent permitted thereby) so surrendered. None of the agents of the Trustee shallhave any responsibility whatsoever with respect to the issuance and delivery of the ADSs to the converting Holder. (c) A Note shall be deemed to have been converted immediately prior to the close of business on the date (the “Conversion Date”)that the Holder has complied with the requirements set forth in subsection (b) above. The Company shall issue or cause to be issued, and deliver tosuch Holder, or such Holder’s nominee or nominees, a book-entry transfer through the Depositary for the full number of whole ADSs to which suchHolder shall be entitled in satisfaction of the Company’s Conversion Obligation. (d) In case any Physical Note shall be surrendered for partial conversion, the Company shall execute and instruct the Trustee who shallauthenticate and deliver to or upon the written order of the Holder of the Note so surrendered a new Note or Notes in authorized denominations in anaggregate principal amount equal to the unconverted portion of the surrendered Note, without payment of any service charge by the convertingHolder but, if required by the Company or Trustee, with payment of a sum sufficient to cover any documentary, stamp or similar issue or transfer taxor similar governmental charge required by law or that may be imposed in connection therewith as a result of the name of the Holder of the newNotes issued upon such conversion being different from the name of the Holder of the old Notes surrendered for such conversion. (e) If a Holder submits a Note for conversion, the Company shall pay any documentary, stamp or similar issue or transfer tax due onthe delivery of the ADSs upon conversion of the Notes, unless the tax is due because the Holder requests such ADSs to be issued in a name otherthan the Holder’s name, in which case the Holder shall pay that tax. The Company may refuse to deliver the certificates representing the ADSs beingissued in a name other than the Holder’s name until the Company receives a sum sufficient to pay any tax that is due by such Holder in accordancewith the immediately preceding sentence. The Company shall also pay and/or indemnify each Holder and beneficial owners of the Notes and/orADSs issuable upon conversion of the Notes for applicable fees and expenses payable to, or withheld by, the Depositary (including, for theavoidance of doubt, by means of a reduction in any amounts or property payable or deliverable in respect of any ADSs or in the value of depositedamounts or property represented by any ADSs) for the issuance of all ADSs deliverable upon conversion to the extent such fees and/or expensesexceed US$0.05 per ADS. (f) Except as provided in Section 14.04, no adjustment shall be made for dividends on any ADSs delivered upon the conversion ofany Note as provided in this Article 14. (g) Upon the conversion of an interest in a Global Note, the Trustee shall make a notation on such Global Note as to the reduction inthe principal amount represented thereby. The Company shall notify the Trustee in writing of any conversion of Notes effected through anyConversion Agent other than the Trustee. (h) Upon conversion, a Holder shall not receive any separate cash payment for accrued and unpaid interest, if any, except as set forthbelow. The Company’s settlement of the Conversion Obligation shall be deemed to satisfy in full its obligation to pay the principal amount of theNote and accrued and unpaid interest, if any, to, but not including, the relevant Conversion Date. As a result, accrued and unpaid interest, if any, to,but not including, the relevant Conversion Date shall be deemed to be paid in full rather than cancelled, extinguished or forfeited. Notwithstandingthe foregoing, if Notes are converted after the close of business on a Regular Record Date but before the open of business on the Interest PaymentDate corresponding to such Regular Record Date, Holders of such Notes as of the close of business on such Regular Record Date will receive the fullamount of interest payable on such Notes on the corresponding Interest Payment Date notwithstanding the conversion. However, notes surrenderedfor conversion during the period after the close of business on any Regular Record Date to the open of business on the 50 immediately following Interest Payment Date must be accompanied by funds equal to the amount of interest payable on the Notes so converted;provided that no such payment shall be required (1) for conversions following the Regular Record Date immediately preceding the Maturity Date;(2) if the Company has delivered a Tax Redemption Notice pursuant to Article 16 and has specified therein a Tax Redemption Date that is after aRegular Record Date and on or prior to the second Business Day immediately following the corresponding Interest Payment Date; (3) if theCompany has specified a Fundamental Change Repurchase Date that is after a Regular Record Date and on or prior to the third Business Dayimmediately following the corresponding Interest Payment Date; or (4) to the extent of any Defaulted Amounts, if any Defaulted Amounts exist atthe time of conversion with respect to such Note. For the avoidance of doubt, all Holders on the Regular Record Date immediately preceding theMaturity Date will receive the full amount of interest payable on such Notes on the Maturity Date, regardless of whether such Notes have beenconverted following such Regular Record Date. (i) The Person in whose name the certificate for any ADSs delivered upon conversion is registered shall be treated as a holder ofrecord of such ADSs as of the close of business on the relevant Conversion Date. Upon a conversion of Notes, such Person shall no longer be aHolder of such Notes surrendered for conversion. (j) The Company shall not issue any fractional ADS upon conversion of the Notes and shall instead pay cash in lieu of any fractionalADS deliverable upon conversion based on the Last Reported Sale Price of the ADSs (x) on the relevant Conversion Date, or (y) if such ConversionDate is not a Trading Day, on the Trading Day immediately preceding such Conversion Date. (k) If a Conversion Date occurs (i) following the Regular Record Date immediately preceding the Maturity Date, subject to clause(ii) below, the Company will make such delivery (and payment, if applicable) on the Maturity Date or (ii) after ordinary shares of the Company havebeen replaced by reference property consisting solely of cash in accordance with Section 14.07, the Company will pay the consideration due inrespect of conversion on the tenth Business Day immediately following the related Conversion Date. Section 14.03 Increased Conversion Rate Applicable to Certain Notes Surrendered in Connection with Make-Whole Fundamental Change andTax Redemption. (a) If (i) a Make-Whole Fundamental Change occurs prior to, and including, the third Scheduled Trading Day prior to the Maturity Date or(ii) the Company delivers a Tax Redemption Notice and, in each case, a Holder elects to convert its Notes in connection with such Make-Whole FundamentalChange or such Tax Redemption, as the case may be, the Company shall, under the circumstances described below, increase the Conversion Rate for theNotes so surrendered for conversion by a number of additional ADSs (the “Additional ADSs”), as set forth below. A conversion of Notes shall be deemed forthese purposes to be “in connection with” such Make-Whole Fundamental Change if the relevant Notice of Conversion is received by the Conversion Agentfrom, and including, the Effective Date of the Make-Whole Fundamental Change up to, and including, the close of business on the Business Dayimmediately prior to the related Fundamental Change Repurchase Date (or, in the case of a Make-Whole Fundamental Change that would have been aFundamental Change but for the proviso in clause (b) of the definition thereof, the 35th Business Day immediately following the Effective Date of suchMake-Whole Fundamental Change). A conversion of Notes shall be deemed for these purposes to be “in connection with” a Tax Redemption if the relevantNotice of Conversion is received by the Conversion Agent from, and including, the date the Company delivers a Tax Redemption Notice to, and including,the second Business Day immediately prior to the related Tax Redemption Date. The Company shall provide written notification to Holders, the Trustee andthe Conversion Agent of the Effective Date of any Make-Whole Fundamental Change and issue a press release announcing such Effective Date no later thanfive Business Days after such Effective Date. (b) Upon surrender of Notes for conversion in connection with a Make-Whole Fundamental Change or Tax Redemption, the Companyshall cause to be delivered ADSs, including the Additional ADSs, in accordance with Section 14.02; provided, however, that if, at the effective timeof a Make-Whole Fundamental Change described in clause (b) of the definition of Fundamental Change, the Reference Property following suchMake-Whole Fundamental Change is composed entirely of cash, for any 51 conversion of Notes following the Effective Date of such Make-Whole Fundamental Change, the Conversion Obligation shall be calculated basedsolely on the ADS Price for the transaction and shall be deemed to be an amount of cash per US$1,000 principal amount of converted Notes equal tothe Conversion Rate (including any adjustment for Additional ADSs), multiplied by such ADS Price. (c) The number of Additional ADSs, if any, by which the Conversion Rate shall be increased shall be determined by reference to thetable below, based on (i) the date on which the Make-Whole Fundamental Change occurs or becomes effective or, in the case of a Tax Redemption,the date on which the Company delivers a Tax Redemption Notice (in each case, the “Effective Date”) and (ii) the price paid (or deemed to be paid)per ADS in the Make-Whole Fundamental Change or, in the case of a Tax Redemption, the average of the Last Reported Sale Prices of the ADSs overthe ten Trading Day period ending on, and including, the Trading Day immediately preceding the date the Company delivers such Tax RedemptionNotice (in each case, the “ADS Price”). If the holders of the ADSs receive in exchange for their ADSs only cash in a Make-Whole FundamentalChange described in clause (b) of the definition of Fundamental Change, the ADS Price shall be the cash amount paid per ADS. Otherwise, the ADSPrice shall be the average of the Last Reported Sale Prices of the ADSs over the ten Trading Day period ending on, and including, the Trading Dayimmediately preceding the Effective Date of the Make-Whole Fundamental Change. (d) The ADS Prices set forth in the column headings of the table below shall be adjusted as of any date on which the Conversion Rateof the Notes is otherwise adjusted. The adjusted ADS Prices shall equal the ADS Prices applicable immediately prior to such adjustment, multipliedby a fraction, the numerator of which is the Conversion Rate immediately prior to such adjustment giving rise to the ADS Price adjustment and thedenominator of which is the Conversion Rate as so adjusted. The number of Additional ADSs set forth in the table below shall be adjusted in thesame manner and at the same time as the Conversion Rate as set forth in Section 14.04. (e) The following table sets forth the number of Additional ADSs to be received per US$1,000 principal amount of Notes pursuant tothis Section 14.03 for each ADS Price and Effective Date set forth below: ADS Price (US$)Effective Date$ 38.93$ 45.00$ 51.58$ 60.00$ 70.00$ 80.00$ 100.00$ 125.00$ 150.00$ 200.00June 5, 20186.30064.80533.68812.72001.96771.46750.86850.48140.27220.0709June 1, 20196.30064.80533.67472.66571.89531.39290.80530.43700.24350.0629June 1, 20206.30064.80533.63632.57981.79271.29200.72490.38340.20970.0526June 1, 20216.30064.80533.52252.42151.62941.14380.61690.31590.16900.0407June 1, 20226.30064.70403.25772.13881.37790.93440.47960.23620.12300.0279June 1, 20236.30064.05202.72701.70921.03840.66800.31820.14960.07610.0159June 1, 20246.30063.64292.14191.12620.57600.32940.14180.06620.03410.0067June 1, 20256.30062.83580.00000.00000.00000.00000.00000.00000.00000.0000 The exact ADS Prices and Effective Dates may not be set forth in the table above, in which case: (i) if the ADS Price is between two ADS Prices in the table above or the Effective Date is between two Effective Dates in thetable, the number of Additional ADSs shall be determined by a straight-line interpolation between the number of Additional ADSs set forthfor the higher and lower ADS Prices and the earlier and later Effective Dates, as applicable, based on a 365-day year; 52 (ii) if the ADS Price is greater than US$200.00 per ADS (subject to adjustment in the same manner as the ADS Prices set forthin the column headings of the table above pursuant to Section 14.03(d)), no Additional ADSs shall be added to the Conversion Rate; and (iii) if the ADS Price is less than US$38.93 per ADS (subject to adjustment in the same manner as the ADS Prices set forth inthe column headings of the table above pursuant to Section 14.03(d)), no Additional ADSs shall be added to the Conversion Rate. Notwithstanding the foregoing, in no event shall the Conversion Rate per US$1,000 principal amount of Notes exceed 25.6871 ADSs, subject toadjustment in the same manner as the Conversion Rate pursuant to Section 14.04. (f) Nothing in this Section 14.03 shall prevent an adjustment to the Conversion Rate pursuant to Section 14.04. Section 14.04 Adjustment of Conversion Rate. If the number of ordinary shares represented by the ADSs is changed, after the date of thisIndenture, for any reason other than one or more of the events described in this Section 14.04, the Company shall make an appropriate adjustment to theConversion Rate such that the number of ordinary shares represented by the ADSs upon which conversion of the Notes is based remains the same. Notwithstanding the adjustment provisions set out in this Section 14.04, if the Company distributes to holders of the ordinary shares any cash,rights, options, warrants, shares of Capital Stock or similar equity interest, evidences of indebtedness or other assets or property of the Company (butexcluding any Expiring Rights) and a corresponding distribution is not made to holders of the ADSs, but, instead, the ADSs shall represent, in addition toordinary shares, such cash, rights, options, warrants, shares of Capital Stock or similar equity interest, evidences of indebtedness or other assets or property ofthe Company, then an adjustment to the Conversion Rate set out in this Section 14.04 shall not be made until and unless a corresponding distribution (if any)is made to holders of the ADSs, and such adjustment to the Conversion Rate shall be based on the distribution made to the holders of the ADSs and not on thedistribution made to the holders of the ordinary shares. However, in the event that the Company issues or distributes to all holders of the ordinary shares anyExpiring Rights, notwithstanding the immediately preceding sentence, the Company shall adjust the Conversion Rate pursuant to Section 14.04(b) (in thecase of Expiring Rights entitling holders of the ordinary shares for a period of not more than 60 calendar days after the announcement date of such issuanceto subscribe for or purchase ordinary shares ) or Section 14.04(c) (in the case of all other Expiring Rights). For the avoidance of doubt, if any event set out in this Section 14.04 results in a change to the number of ordinary shares represented by the ADSs,then such change shall be deemed to satisfy the Company’s obligation to effect the relevant adjustment to the Conversion Rate on account of such event tothe extent such change produces the same economic result as the adjustment to the Conversion Rate that would otherwise have been made on account ofsuch event. Subject to the foregoing, the Conversion Rate shall be adjusted from time to time by the Company if any of the following events set out in Sections14.04(a) — 14.04(e) (other than a share split or a share combination) occurs, except that the Company shall not make any adjustments to the Conversion Rateif all Holders of the Notes participate, at the same time and upon the same terms as holders of the ADSs and solely as a result of holding the Notes, in any ofthe transactions set out in this Section 14.04, without having to convert their Notes, as if they held a number of ADSs equal to the Conversion Rate then ineffect, multiplied by the principal amount (expressed in thousands) of Notes held by such Holder. Neither the Trustee nor the Conversion Agent shall haveany responsibility to monitor the accuracy of the calculation of any adjustment to the Conversion Rate. Notice of any adjustment to the Conversion Rateshall be given by the Company promptly to the Holders, the Trustee, the Paying Agent and the Conversion Agent and shall be conclusive and binding on theHolders, absent manifest error. (a) If the Company exclusively issues ordinary shares as a dividend or distribution on all or substantially all the ordinary shares, or ifthe Company effects a share split or share combination, the Conversion Rate shall be adjusted based on the following formula: 53 CR=CR xOS OS where, CR = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution, or immediatelyprior to the open of business on the effective date of such share split or share combination, as applicable; CR = the Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution, or immediately afterthe open of business on the effective date of such share split or share combination, as applicable; OS = the number of ordinary shares of the Company outstanding immediately prior to the close of business on the Record Date for such dividend ordistribution, or immediately prior to the open of business on the effective date of such share split or share combination, as applicable; and OS = the number of the ordinary shares of the Company outstanding immediately after giving effect to such dividend or distribution, or immediatelyafter the effective date of such subdivision or combination of ordinary shares, as applicable. Any adjustment made under this Section 14.04(a) shall become effective immediately after the close of business on the Record Date for such dividend ordistribution, or immediately after the open of business on the effective date for such share split or share combination, as applicable. If any dividend or distribution set forth in this Section 14.04(a) is declared but not so paid or made, the Conversion Rate shall be immediately readjusted,effective as of the date the Board of Directors determines not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if suchdividend or distribution had not been declared or announced. (b) If the Company issues to all or substantially all holders of the ordinary shares of the Company (directly or in the form of ADSs) anyrights, options or warrants entitling them, for a period of not more than 60 calendar days after the date of such issuance, to subscribe for or purchaseordinary shares of the Company at a price per ordinary share that is less than the average of the Last Reported Sale Prices of the ADSs(divided by thenumber of ordinary shares then represented by one ADS on each relevant Trading Day) or to subscribe for or purchase ADSs of the Company, at aprice per ADS less than the average of the Last Reported Sale Prices, in each case, over the 10 consecutive Trading Day period ending on, andincluding, the Trading Day immediately preceding the date of announcement of such issuance, the Conversion Rate shall be increased based on thefollowing formula: CR = CR xOSo+X OSo+Y Where, CR = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such issuance; CR = the Conversion Rate in effect immediately after the close of business on such Record Date; OS = the number of the ordinary shares of the Company outstanding immediately prior to the close of business on such Record Date; X = the total number of the ordinary shares of the Company (directly or in the form of ADSs) issuable pursuant to such rights, options or warrants;and 541010010110010 Y = the number of the ordinary shares of the Company equal to (i) the aggregate price payable to exercise such rights, options or warrants, dividedby (ii) the quotient of (a) the average of the Last Reported Sale Prices of the ADSs over the 10 consecutive Trading Day period ending on, andincluding, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants divided by(b) the number of ordinary shares represented by one ADS on each such Trading Day. Any increase made under this Section 14.04(b) shall be made successively whenever any such rights, options or warrants are issued and shall becomeeffective immediately after the close of business on the Record Date for such issuance. To the extent that ordinary shares of the Company (directly or in theform of ADSs) are not delivered after the expiration of such rights, options or warrants, the Conversion Rate shall be readjusted to the Conversion Rate thatwould then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the numberof the ordinary shares of the Company actually delivered (directly or in the form of ADSs). If such rights, options or warrants are not so issued, the ConversionRate shall be readjusted to the Conversion Rate that would then be in effect if such the Record Date for such issuance had not occurred. For purposes of this Section 14.04(b), in determining whether any rights, options or warrants entitle the holders to subscribe for or purchase ordinaryshares of the Company at a price per ordinary share that is less than such average of the Last Reported Sale Prices of the ADSs (divided by the number ofordinary shares represented by one ADS on each relevant Trading Day) or to subscribe for or purchase the ADSs at a price per ADS less than such average ofthe Last Reported Sale Prices of the ADSs, in each case, over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediatelypreceding the date of announcement for such issuance, and in determining the aggregate offering price of such ordinary shares or ADSs, as the case may be,there shall be taken into account any consideration received by the Company for such rights, options or warrants and any amount payable on exercise orconversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors. (c) If the Company distributes shares of its Capital Stock, evidences of its indebtedness, other assets or property of the Company orrights, options or warrants to acquire its Capital Stock or other securities, to all or substantially all holders of the ordinary shares (directly or in theform of ADSs), excluding (i) dividends, distributions, rights, options or warrants as to which an adjustment was effected pursuant toSection 14.04(a) or Section 14.04(b), (ii) dividends or distributions paid exclusively in cash as to which an adjustment was effected pursuant toSection 14.04(d), and (iii) Spin-Offs as to which the provisions set forth below in this Section 14.04(c) shall apply (any of such shares of CapitalStock, evidences of indebtedness, other assets or property or rights, options or warrants to acquire Capital Stock or other securities of the Company,the “Distributed Property”), then the Conversion Rate shall be increased based on the following formula: CR = CR xSP SP - FMV where, CR = the Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution; CR = the Conversion Rate in effect immediately after the close of business on such Record Date; SP = the average of the Last Reported Sale Prices of the ADSs (divided by the number of ordinary shares represented by one ADS on each relevantTrading Day) over the 10 consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-DividendDate for such distribution; and 551000010 FMV = the fair market value (as determined by the Board of Directors) of the Distributed Property with respect to each outstanding ordinary share(directly or in the form of ADSs) on the Ex-Dividend Date for such distribution. Any increase made under the above portion of this Section 14.04(c) shall become effective immediately after the close of business on the Record Date forsuch distribution. If such distribution is not so paid or made, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect ifsuch distribution had not been declared. Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP” (as defined above), in lieu of the foregoing increase, eachHolder of a Note shall receive, in respect of each US$1,000 principal amount thereof, at the same time and upon the same terms as holders of the ADSs receivethe Distributed Property, the amount and kind of Distributed Property such Holder would have received if such Holder owned a number of ADSs based on theConversion Rate in effect on the Ex-Dividend Date for the distribution. With respect to an adjustment pursuant to this Section 14.04(c) where there has been a payment of a dividend or other distribution on the ordinary shares(directly or in the form of ADSs) of shares of Capital Stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unitof the Company, that are, or, when such dividend or other distribution is complete, will be, listed or admitted for trading on a U.S. national securitiesexchange or a reasonably comparable non-U.S. equivalent (a “Spin-Off”), the Conversion Rate shall be increased based on the following formula: where, CR = CR xFMV + MPMP where, CR= the Conversion Rate in effect immediately prior to the close of business on the Record Date for the Spin-Off; CR= the Conversion Rate in effect immediately after the close of business on the Record Date for the Spin-Off; FMV= the average of the Last Reported Sale Prices of the Capital Stock or similar equity interest distributed to holders of the ordinary shares (directlyor in the form of ADSs) applicable to one ordinary share (determined by reference to the definition of Last Reported Sale Price as set forth inSection 1.01 as if references therein to the ADSs were to such Capital Stock or similar equity interest) over the first 10 consecutive Trading Dayperiod after, and including, the Ex-Dividend Date for the Spin-Off (the “Valuation Period”); and MP= the average of the Last Reported Sale Prices of the ADSs (divided by the number of ordinary shares then represented by one ADS on eachrelevant Trading Day) over the Valuation Period. The adjustment to the Conversion Rate under the preceding paragraph shall be determined on the last Trading Day of the Valuation Period but willbe given effect immediately after the close of business on the Record Date for the Spin-Off; provided that in respect of any conversion during the ValuationPeriod, references in the portion of this Section 14.04(c) related to Spin-Offs to 10 Trading Days shall be deemed to be replaced with such lesser number ofTrading Days as have elapsed from, and including, the Ex-Dividend Date for such Spin-Off to, and excluding, the Conversion Date in determining theConversion Rate. For purposes of this Section 14.04(c) (and subject in all respect to Section 14.11), rights, options or warrants distributed by the Company to allholders of the ordinary shares (directly or in the form of ADSs) entitling them to subscribe for or purchase shares of the Company’s Capital Stock, includingordinary shares (either initially or under certain circumstances), which rights, options or warrants, until the occurrence of a specified event or events(“Trigger Event”): (i) are deemed to be transferred with such ordinary shares (directly or in the form of ADSs); (ii) 560100000 1 0 0 are not exercisable; and (iii) are also issued in respect of future issuances of the ordinary shares (directly or in the form of ADSs), shall be deemed not to havebeen distributed for purposes of this Section 14.04(c) (and no adjustment to the Conversion Rate under this Section 14.04(c) will be required) until theoccurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall be deemed to have been distributed and an appropriate adjustment(if any is required) to the Conversion Rate shall be made under this Section 14.04(c). If any such right, option or warrant, including any such existing rights,options or warrants distributed prior to the date of this Indenture, are subject to events, upon the occurrence of which such rights, options or warrants becomeexercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall bedeemed to be the date of distribution and Record Date with respect to new rights, options or warrants with such rights (in which case the existing rights,options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof). In addition, in the event of anydistribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described in the immediately precedingsentence) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Conversion Rate under thisSection 14.04(c) was made, (1) in the case of any such rights, options or warrants that shall all have been redeemed or purchased without exercise by anyholders thereof, upon such final redemption or purchase (x) the Conversion Rate shall be readjusted as if such rights, options or warrants had not been issuedand (y) the Conversion Rate shall then again be readjusted to give effect to such distribution, deemed distribution or Trigger Event, as the case may be, asthough it were a cash distribution, equal to the per ordinary share redemption or purchase price received by a holder or holders of ordinary shares (directly orin the form of ADSs) with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holdersof ordinary shares (directly or in the form of ADSs) as of the date of such redemption or purchase, and (2) in the case of such rights, options or warrants thatshall have expired or been terminated without exercise by any holders thereof, the Conversion Rate shall be readjusted as if such rights, options and warrantshad not been issued. For purposes of Section 14.04(a), Section 14.04(b) and this Section 14.04(c), any dividend or distribution to which this Section 14.04(c) isapplicable that also includes one or both of: (A) a dividend or distribution of ordinary shares (directly or in the form of ADSs) to which Section 14.04(a) isapplicable (the “Clause A Distribution”); or (B) a dividend or distribution of rights, options or warrants to which Section 14.04(b) is applicable (the “Clause BDistribution”), then (1) such dividend or distribution, other than the Clause A Distribution and the Clause B Distribution, shall be deemed to be a dividend or distribution towhich this Section 14.04(c) is applicable (the “Clause C Distribution”) and any Conversion Rate adjustment required by this Section 14.04(c) with respect tosuch Clause C Distribution shall then be made, and (2) the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow theClause C Distribution and any Conversion Rate adjustment required by Section 14.04(a) and Section 14.04 (b)with respect thereto shall then be made, exceptthat, if determined by the Company (I) the “Record Date” of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Record Dateof the Clause C Distribution and (II) any ordinary shares (directly or in the form of ADSs) included in the Clause A Distribution or Clause B Distribution shallbe deemed not to be “outstanding immediately prior to the close of business on such Record Date or immediately after the open of business on such effectivedate, as applicable” within the meaning of Section 14.04(a) or “outstanding immediately prior to the close of business on such Record Date” within themeaning of Section 14.04(b). (d) If any cash dividend or distribution is made to all or substantially all holders of the ordinary shares (directly or in the form ofADSs), the Conversion Rate shall be adjusted based on the following formula: CR = CR xSPSP - C where, 571000 CR= the Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution; CR= the Conversion Rate in effect immediately after the close of business on such Record Date; SP= the Last Reported Sale Price of the ADSs (divided by the number of ordinary shares then represented by one ADS on such Trading Day) on theTrading Day immediately preceding the Ex-Dividend Date for such dividend or distribution; and C = the amount in cash per ordinary share the Company distributes to all or substantially all holders of the ordinary shares (directly or in the form ofADSs). Any increase pursuant to this Section 14.04(d) shall become effective immediately after the close of business on the Record Date for such dividend ordistribution. If such dividend or distribution is not so paid, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors determinesnot to make or pay such dividend or distribution, to be the Conversion Rate that would then be in effect if such dividend or distribution had not beendeclared. Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each Holder ofa Note shall receive, for each US$1,000 principal amount of the Notes, at the same time and upon the same terms as holders of the ADSs, the amount of cashthat such Holder would have received if such Holder owned a number of ADSs based on the Conversion Rate on the Ex-Dividend Date for such cash dividendor distribution. (e) If the Company or any of its Subsidiaries or consolidated affiliated entities make a payment in respect of a tender or exchange offerfor the ordinary shares of the Company (directly or in the form of ADSs), to the extent that the cash and value of any other consideration included inthe payment per ordinary share or ADS exceeds the Last Reported Sale Price of the ADSs (divided by, in relation to ordinary shares, the number ofordinary shares then represented by one ADS on such Trading Day) on the Trading Day next succeeding the last date on which tenders or exchangesmay be made pursuant to such tender or exchange offer (such last date, the “Expiration Date”), the Conversion Rate shall be increased based on thefollowing formula: CR = CR xAC + (SP x OS)OS x SP where, CR0 = the Conversion Rate in effect immediately prior to the close of business on the date such tender or exchange offer expires; CR1 = the Conversion Rate in effect immediately after the close of business on the date such tender or exchange offer expires; AC = the aggregate value of all cash and any other consideration (as determined by the Board of Directors) paid or payable for the ordinary shares ofthe Company (directly or in the form of ADSs, as the case may be) purchased in such tender or exchange offer; OS0 = the number of the ordinary shares outstanding immediately prior to the close of business on the Expiration Date (prior to giving effect to thepurchase of all ordinary shares or ADSs, as the case may be, accepted for purchase or exchange in such tender or exchange offer); OS1 = the number of the ordinary shares of the Company outstanding immediately after the close of business on the date such tender or exchange offerexpires (after giving effect to the purchase of all 580 1 0 101101 ordinary shares or ADSs, as the case may be, accepted for purchase or exchange in such tender or exchange offer); and SP1 = the average of the Last Reported Sale Prices of the ADSs (divided by the number of ordinary shares then represented by one ADS on each suchTrading Day) over the 10 consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the ExpirationDate. The adjustment to the Conversion Rate under this Section 14.04(e) shall occur with effect as of the close of business on the 10 consecutive Trading Dayimmediately following, and including, the Trading Day immediately following the date such tender or exchange offer expires, but will be given effect as ofthe close of business on the date such tender or exchange offer expires; provided that if the Conversion Date occurs within the 10 consecutive Trading Daysimmediately following, and including, the Trading Day immediately following the date such tender or exchange offer expires, each reference in thisSection 14.04(e) with respect to 10 consecutive Trading Days shall be deemed replaced with a reference to such lesser number of Trading Days as haveelapsed from, and including, the Trading Day immediately following the date such tender or exchange offer expires to, and including, the Conversion Date indetermining the applicable Conversion Rate. No adjustment to the Conversion Rate under this Section 14.04(e) shall be made if such adjustment wouldresult in a decrease in the Conversion Rate. (f) [Reserved.] (g) Except as stated herein, the Company shall not adjust the Conversion Rate for the issuance of ordinary shares, Class B shares orADSs or any securities convertible into or exchangeable for ordinary shares, Class B shares or ADSs or the right to purchase ordinary shares, Class Bshares or ADSs or such convertible or exchangeable securities. (h) In addition to those adjustments required by clauses (a), (b), (c), (d) and (e) of this Section 14.04, and to the extent permitted byapplicable law and subject to the applicable rules of The NASDAQ Global Market, the Company from time to time may increase the ConversionRate by any amount for a period of at least 20 Business Days if the Board of Directors determines that such increase would be in the Company’s bestinterest, and the Company may (but is not required to) increase the Conversion Rate to avoid or diminish any income tax to holders of the ordinaryshares or the ADSs or rights to purchase ordinary shares or ADSs in connection with a dividend or distribution of ordinary shares or ADSs (or rightsto acquire ordinary shares or ADSs) or similar event. (i) Notwithstanding anything to the contrary in this Article 14, the Conversion Rate shall not be adjusted: (i) upon the issuance of any ordinary shares, Class B shares or ADSs pursuant to any present or future plan providing for thereinvestment of dividends or interest payable on the Company’s securities and the investment of additional optional amounts in ordinaryshares, Class B shares or ADSs under any plan; (ii) upon the issuance of any ordinary shares, Class B shares or ADSs or options or rights to purchase those ordinary shares,Class B shares or ADSs pursuant to any present or future employee, director or consultant benefit plan or program of or assumed by theCompany or any of the Company’s Subsidiaries or consolidated affiliated entities; (iii) upon the issuance of any ordinary shares, Class B shares or ADSs pursuant to any option, warrant, right or exercisable,exchangeable or convertible security not described in clause (ii) of this subsection and outstanding as of the date the Notes were firstissued; (iv) solely for a change in the par value of the ordinary shares or Class B shares; or (v) for accrued and unpaid interest, if any. 59th (j) All calculations and other determinations under this Article 14 shall be made by the Company and shall be made to the nearestone-ten thousandth (1/10,000) of an ADS. (k) Whenever the Conversion Rate is adjusted as herein provided, the Company shall promptly file with the Trustee (and theConversion Agent if not the Trustee) an Officers’ Certificate setting forth the Conversion Rate after such adjustment and setting forth a briefstatement of the facts requiring such adjustment. Unless and until a Responsible Officer of the Trustee shall have received such Officers’ Certificate,the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Rate and may assume without inquiry that the lastConversion Rate of which it has knowledge is still in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of suchadjustment of the Conversion Rate setting forth the adjusted Conversion Rate and the date on which each adjustment becomes effective and shallsend such notice of such adjustment of the Conversion Rate to each Holder at its last address appearing on the Note Register (or in the case of GlobalNotes, electronically in accordance with the applicable procedures of the Depositary) with a copy to the Trustee and Conversion Agent (if other thanthe Trustee). Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (l) For purposes of this Section 14.04, the number of ordinary shares at any time outstanding shall not include ordinary shares held inthe treasury of the Company (directly or in the form of ADSs) so long as the Company does not pay any dividend or make any distribution onordinary shares held in the treasury of the Company (directly or in the form of ADSs), but shall include ordinary shares issuable in respect of scripcertificates issued in lieu of fractions of ordinary shares. (m) For purposes of this Section 14.04, the “effective date” means the first date on which the ADSs trade on the applicable exchange orin the applicable market, regular way, reflecting the relevant share split or share combination, as applicable. Section 14.05 Adjustments of Prices. Whenever any provision of this Indenture requires the Company to calculate the Last Reported Sale Pricesor the ADS Price for purposes of a Make-Whole Fundamental Change or a Tax Redemption over a span of multiple days, the Board of Directors shall makeappropriate adjustments to each to account for any adjustment to the Conversion Rate that becomes effective pursuant to Section 14.04, or any eventrequiring an adjustment to the Conversion Rate pursuant to Section 14.04 where the Record Date, effective date or expiration date, as the case may be, of theevent occurs, at any time during the period when such Last Reported Sale Prices or ADS Prices are to be calculated. Section 14.06 Ordinary Shares to Be Fully Paid. The Company shall provide, free from preemptive rights, out of its authorized but unissuedordinary shares or ordinary shares held in treasury, a sufficient number of authorized, validly-issued and fully paid ordinary shares that corresponds to thenumber of ADSs due upon conversion of the Notes from time to time as such Notes are presented for conversion (assuming that at the time of computation ofsuch number of ordinary shares, all such Notes would be converted by a single Holder). Section 14.07 Effect of Recapitalizations, Reclassifications and Changes of the Ordinary Shares. (a) In the case of: (i) any recapitalization, reclassification or change of the ordinary shares of the Company (other than changes resulting froma subdivision or combination or change in par value), (ii) any consolidation, merger, combination or similar transaction involving the Company, (iii) any sale, lease or other transfer to a third party of the consolidated assets of the Company and the Company’sSubsidiaries substantially as an entirety or (iv) any statutory share exchange, 60 in each case, as a result of which the ordinary shares of the Company (directly or in the form of ADSs) would be converted into, or exchanged for, CapitalStock, other securities, other property or assets (including cash or any combination thereof) (any such event, a “Merger Event”), then, prior to or at theeffective time of such Merger Event, the Company or the successor or purchasing Person, as the case may be, shall execute with the Trustee a supplementalindenture permitted under Section 10.01(g) providing that, at and after the effective time of such Merger Event, the right to convert each US$1,000 principalamount of the Notes shall be changed into a right to convert such principal amount of the Notes into the kind and amount of shares of Capital Stock, othersecurities or other property or assets (including cash or any combination thereof) that a holder of a number of ADSs equal to the Conversion Rateimmediately prior to such Merger Event would have owned or been entitled to receive (the “Reference Property,” with each “unit of Reference Property”meaning the kind and amount of Reference Property that a holder of one ADS is entitled to receive) upon such Merger Event; provided, however, that (x) atand after the effective time of the Merger Event the number of ADSs otherwise deliverable upon conversion of the Notes in accordance with Section 14.02shall instead be deliverable in the amount and type of Reference Property that a holder of that number of ADSs would have been entitled to receive in suchMerger Event; (y) any amount payable in cash upon conversion of the Notes as set forth in this Indenture will continue to be payable in cash, and (z) the LastReported Sale Price shall be calculated based on the value of a unit of Reference Property. If the Merger Event causes the ADSs to be converted into, or exchanged for, the right to receive more than a single type of consideration (determinedbased in part upon any form of holder election), then (i) the Reference Property into which the Notes will be convertible shall be deemed to be (A) theweighted average of the types and amounts of consideration received by the holders of ADSs that affirmatively make such an election or (B) if no holders ofADSs affirmatively make such an election, the types and amounts of consideration actually received by the holders of the ADSs and (ii) the unit of ReferenceProperty for purposes of the immediately preceding paragraph shall refer to the consideration referred to in clause (i) or clause (ii), as the case may beattributable to one ADS. The Company shall provide written notice to Holders, the Trustee and the Conversion Agent (if other than the Trustee) of suchweighted average as soon as practicable after such determination is made. Such supplemental indenture described in the second immediately preceding paragraph shall provide for anti-dilution and other adjustments thatshall be as nearly equivalent as is practicable to the adjustments provided for in this Article 14 (it being understood that no such adjustments shall berequired with respect to any portion of the Reference Property that does not consist of shares of Common Equity (however evidenced) or depositary receiptsin respect thereof). If, in the case of any Merger Event, the Reference Property includes shares of Capital Stock, securities or other property or assets(including cash or any combination thereof) of a Person other than the Company or the successor or purchasing Person, as the case may be, in such MergerEvent, then such other Person shall also execute such supplemental indenture, and such supplemental indenture shall contain such provisions to protect theinterests of the Holders of the Notes, including the repurchase rights of Holders pursuant to Article 15 and the redemption right of Holders pursuant toArticle 16, as the Board of Directors shall reasonably consider necessary by reason of the foregoing. (b) In the event a supplemental indenture is executed pursuant to subsection (a) of this Section 14.07, the Company shall promptlyfile with the Trustee an Officers’ Certificate briefly stating the reasons therefor, the kind or amount of cash, securities or property or asset that willcomprise a unit of Reference Property after any such Merger Event, any adjustment to be made with respect thereto and that all conditions precedenthave been complied with. The Company shall cause notice of the execution of such supplemental indenture to be sent to each Holder, at its addressappearing on the Note Register provided for in this Indenture, within 20 days after execution thereof. Failure to deliver such notice shall not affectthe legality or validity of such supplemental indenture. (c) The Company shall not become a party to any Merger Event unless its terms are consistent with this Section 14.07. None of theforegoing provisions shall affect the right of a Holder of Notes to convert its Notes into ADSs as set forth in Section 14.01 and Section 14.02 prior tothe effective date of such Merger Event. (d) The above provisions of this Section shall similarly apply to successive Merger Events. 61 Section 14.08 Certain Covenants. (a) The Company covenants that all ADSs delivered upon conversion of Notes, and all ordinary sharesrepresented by such ADSs, will be fully paid and non-assessable by the Company and free from all taxes, liens and charges with respect to the issue thereof. (b) [Reserved.] (c) The Company further covenants that if at any time the ADSs shall be listed on any national securities exchange or automatedquotation system the Company will list and keep listed, so long as the ADSs shall be so listed on such exchange or automated quotation system, anyADSs deliverable upon conversion of the Notes. (d) The Company further covenants to take all actions and obtain all approvals and registrations required with respect to theconversion of the Notes into ADSs and the issuance, and deposit into the ADS facility, of the ordinary shares represented by such ADSs. Subject toSection 14.12, the Company also undertakes to maintain, as long as any Notes are outstanding, the effectiveness of a registration statement onForm F-6, or any successor form or such other schedule under the Securities Act that the Company deems appropriate to register such distribution,relating to the ADSs and an adequate number of ADSs available for issuance thereunder such that all ADSs can be delivered in accordance with theterms of this Indenture, the Notes and the Deposit Agreement upon conversion of the Notes (with such maximum number of ADSs determined forsuch purpose assuming the maximum number of ADSs have been added to the Conversion Rate. (e) Subject to Section 14.12, the Company further covenants to provide Holders with a reasonably detailed written description of themechanics for the delivery of ADSs upon conversion of Notes as set forth in the Deposit Agreement upon request by the ADS Depositary or the ADSCustodian. Section 14.09 Responsibility of Trustee. The Trustee and any other Conversion Agent shall not at any time be under any duty or responsibility toany Holder to determine the Conversion Rate (or any adjustment thereto) or whether any facts exist that may require any adjustment (including any increase)of the Conversion Rate, or with respect to the nature or extent or calculation of any such adjustment when made, or with respect to the method employed, orherein or in any supplemental indenture provided to be employed, in making the same. The Trustee and any other Conversion Agent shall not be accountablewith respect to the validity or value (or the kind or amount) of any ADSs, or of any securities, property or cash that may at any time be issued or deliveredupon the conversion of any Note; and the Trustee and any other Conversion Agent make no representations with respect thereto. Neither the Trustee nor anyConversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any ADSs or stock certificates or other securities or propertyor cash upon the surrender of any Note for the purpose of conversion, the accuracy or inaccuracy of any mathematical calculation or formulae under thisIndenture, whether by the Company or any Person so authorized by the Company for such purpose under this Indenture or the failure by the Company tocomply with any of the duties, responsibilities or covenants of the Company contained in this Article. Without limiting the generality of the foregoing,neither the Trustee nor any Conversion Agent shall be under any responsibility to determine the correctness of any provisions contained in any supplementalindenture entered into pursuant to Section 14.07 relating either to the kind or amount of ADSs or securities or property (including cash) receivable byHolders upon the conversion of their Notes after any event referred to in such Section 14.07 or to any adjustment to be made with respect thereto, but, subjectto the provisions of Section 7.01, may accept (without any independent investigation) as conclusive evidence of the correctness of any such provisions, andshall be protected in relying upon, the Officers’ Certificate (which the Company shall be obligated to file with the Trustee prior to the execution of any suchsupplemental indenture) with respect thereto. Section 14.10 Notice to Holders Prior to Certain Actions. In case of any: (a) action by the Company or one of its Subsidiaries that would require an adjustment in the Conversion Rate pursuant toSection 14.04 or Section 14.11; (b) Merger Event; or 62 (c) voluntary or involuntary dissolution, liquidation or winding-up of the Company or any of its Subsidiaries; then, in each case (unless notice of such event is otherwise required pursuant to another provision of this Indenture), the Company shall cause to be filed withthe Trustee and the Conversion Agent (if other than the Trustee) and to be sent to each Holder at its address appearing on the Note Register, as promptly aspossible but in any event at least 20 days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for thepurpose of such action by the Company or one of its Subsidiaries or, if a record is not to be taken, the date as of which the holders of ordinary shares or ADSs,as the case may be, of record are to be determined for the purposes of such action by the Company or one of its Subsidiaries, or (ii) the date on which suchMerger Event, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of ordinaryshares or ADSs, as the case may be, of record shall be entitled to exchange their ordinary shares or ADSs, as the case may be, for securities or other propertydeliverable upon such Merger Event, dissolution, liquidation or winding-up. Failure to give such notice, or any defect therein, shall not affect the legality orvalidity of such action by the Company or one of its Subsidiaries, Merger Event, dissolution, liquidation or winding-up. Section 14.11 Shareholder Rights Plans. To the extent that the Company has a shareholder rights plan in effect upon conversion of the Notes,each ADS delivered upon such conversion shall be entitled to receive (either directly or in respect of the ordinary shares underlying such ADSs) theappropriate number of rights under the shareholder rights plan, if any, and the global securities representing the ADSs delivered upon such conversion shallbear such legends, if any, in each case as may be provided by the terms of any such shareholder rights plan, as the same may be amended from time to time.Notwithstanding the foregoing, if, prior to any conversion, the rights have separated from the ordinary shares underlying the ADSs in accordance with theprovisions of the applicable shareholder rights plan, the Conversion Rate shall be adjusted at the time of separation as if the Company distributed to all orsubstantially all holders of the ordinary shares of the Company (directly or in the form of ADSs) Distributed Property as provided in Section 14.04(c), subjectto readjustment in the event of the expiration, termination or redemption of such rights. Section 14.12 Termination of Depositary Receipt Program. If the ordinary shares of the Company cease to be represented by AmericanDepositary Shares issued under a depositary receipt program sponsored by the Company, all references in this Indenture to the ADSs shall be deemed to havebeen replaced by a reference to the number of ordinary shares (and other property, if any) represented by the ADSs on the last day on which the ADSsrepresented the ordinary shares of the Company and as if the ordinary shares (and the other property, if any) had been distributed to holders of the ADSs onthat day. In addition, all references to the Last Reported Sale Price of the ADSs will be deemed to refer to the Last Reported Sale Price of the ordinary shares,and other appropriate adjustments, including adjustments to the Conversion Rate, will be made to reflect such change. In making such adjustments, wherecurrency translations between U.S. dollars and any other currency are required, the exchange rate in effect on the date of determination will apply. TheCompany shall cause to be filed with the Trustee and the Conversion Agent (if other than the Trustee) and to be sent to each Holder at its address appearingon the Note Register, as promptly as possible but in any event at least 20 days prior to the applicable date of the event stated herein, a notice stating theapplicable date of the event and any adjustment to the Conversion Rate. ARTICLE 15REPURCHASE OF NOTES AT OPTION OF HOLDERS Section 15.01 Repurchase at Option of Holders. (a) Each Holder shall have the right, at such Holder’s option, to require the Company to repurchase for cash on June 1, 2023 (the“Repurchase Date”), all of such Holder’s Notes, or any portion thereof that is an integral multiple of US$1,000 principal amount, at a repurchaseprice (the “Repurchase Price”) that is equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, butexcluding, the Repurchase Date. For the avoidance of doubt, accrued and unpaid interest payable on the Interest Payment Date falling on June 1,2023 will not be paid to the Holders who have submitted their Notes for repurchase on the Repurchase Date, but to the Holders of record at the closeof business on the Regular Record Date immediately preceding the Repurchase Date. Not later than 20 Business Days prior to the Repurchase Date,the Company shall send a written notice (the “Company 63 Notice”) to the Trustee, to the Paying Agent, the Conversion Agent (if other than the Trustee) and to each Holder at its address shown in the NoteRegister of the Note Registrar. The Company Notice shall state: (i) the last date on which a Holder may exercise its repurchase right pursuant to this Section 15.01 (the “RepurchaseExpiration Time”); (ii) the Repurchase Price; (iii) the Repurchase Date; (iv) the name and address of the Conversion Agent and the Paying Agent; (v) that the Notes with respect to which a Repurchase Notice has been delivered by a Holder may be converted only if theHolder withdraws the Repurchase Notice in accordance with the terms of this Indenture; (vi) that the Holder shall have the right to withdraw any Notes surrendered prior to the Repurchase Expiration Time; and (vii) the procedures a Holder must follow to exercise its repurchase rights under this Section 15.01 and a brief description ofthose rights. At the Company’s written request, the Trustee shall give such notice in the Company’s name and at the Company’s expense; provided, however, that, in allcases, the text of such Company Notice shall be prepared by the Company. Simultaneously with providing the Company Notice, the Company shall publish a notice containing the information included in the CompanyNotice in a newspaper of general circulation in The City of New York or publish such information on the Company’s website or through such other publicmedium as the Company may use at that time. No failure of the Company to give the foregoing notices and no defect therein shall limit the Holders’ repurchase rights or affect the validity of theproceedings for the repurchase of the Notes pursuant to this Section 15.01. Repurchases of Notes under this Section 15.01 shall be made, at the option of the Holder thereof, upon: (i) delivery to the Trustee (or another agent designated for this purpose) by the Holder of a duly completed notice (the“Repurchase Notice”) in the form set forth in Attachment 3 to the Form of Note attached hereto as Exhibit A, if the Notes are PhysicalNotes, or in compliance with the Depositary’s procedures for surrendering interests in global notes, if the Notes are Global Notes; and (ii) delivery of the Notes, if the Notes are Physical Notes, to the Paying Agent at any time after delivery of the RepurchaseNotice (together with all necessary endorsements), or book-entry transfer of the Notes, if the Notes are Global Notes, in compliance with theprocedures of the Depositary, in each case such delivery being a condition to receipt by the Holder of the Repurchase Price therefor, in each case (i) and (ii), during the period beginning at any time from the open of business on the date that is 20 Business Days prior to theRepurchase Date until the close of business on the second Business Day immediately preceding the Repurchase Date. If a Repurchase Notice isgiven and withdrawn during such period, the Company will be under no obligation to repurchase the Notes, in relation to which the RepurchaseNotice was given. Each Repurchase Notice shall state: 64 (A) in the case of Physical Notes, the certificate numbers of the Notes to be delivered for repurchase; (B) the portion of the principal amount of the Notes to be repurchased, which must be US$1,000 or an integral multiple thereof; and (C) that the Notes are to be repurchased by the Company pursuant to the applicable provisions of the Notes and this Indenture; provided, however, that if the Notes are Global Notes, the Repurchase Notice must comply with appropriate Depositary procedures. Notwithstanding anything herein to the contrary, any Holder delivering to the Trustee the Repurchase Notice contemplated by this Section 15.01shall have the right to withdraw, in whole or in part, such Repurchase Notice at any time prior to the close of business on the second Business Dayimmediately preceding the Repurchase Date by delivery of a duly completed written notice of withdrawal to the Trustee in accordance with Section 15.03. The Trustee shall promptly notify the Company of the receipt by it of any Repurchase Notice or written notice of withdrawal thereof. No Repurchase Notice with respect to any Notes may be delivered and no Note may be surrendered for repurchase pursuant to this Section 15.01 bya Holder thereof to the extent such Holder has also delivered a Fundamental Change Repurchase Notice with respect to such Note in accordance withSection 15.02 and not validly withdrawn such Fundamental Change Repurchase Notice in accordance with Section 15.03. (b) Notwithstanding the foregoing, no Notes may be repurchased by the Company at the option of the Holders on the Repurchase Dateif the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to such Repurchase Date (exceptin the case of an acceleration resulting from a default by the Company in the payment of the Repurchase Price with respect to such Notes). TheTrustee will promptly return to the respective Holders thereof any Physical Notes held by it during the acceleration of the Notes (except in the caseof an acceleration resulting from a default by the Company in the payment of the Repurchase Price with respect to such Notes), or any instructionsfor book-entry transfer of the Notes in compliance with the procedures of the Depositary shall be deemed to have been cancelled, and, upon suchreturn or cancellation, as the case may be, the Repurchase Notice with respect thereto shall be deemed to have been withdrawn. Section 15.02 Repurchase at Option of Holders Upon a Fundamental Change. If a Fundamental Change occurs at any time, each Holder shallhave the right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s Notes, or any portion thereof that is equal toUS$1,000 or an integral multiple of US$1,000, on the date (the “Fundamental Change Repurchase Date”) notified in writing by the Company as set forth inSection 15.02(b) that is not less than 20 Business Days or more than 35 Business Days following the date of the Fundamental Change Company Notice at arepurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon to, but excluding, the Fundamental ChangeRepurchase Date (the “Fundamental Change Repurchase Price”), unless the Fundamental Change Repurchase Date falls after a Regular Record Date but onor prior to the Interest Payment Date to which such Regular Record Date relates, in which case the Company shall instead pay on such Interest Payment Datethe full amount of accrued and unpaid interest to Holders of record as of such Regular Record Date, and the Fundamental Change Repurchase Price shall beequal to 100% of the principal amount of Notes to be repurchased pursuant to this Article 15. The Trustee and any other Conversion Agent, Paying Agent orany other agent appointed for such purposes shall have no responsibility to determine the Fundamental Change Repurchase Price. (a) Repurchases of Notes under this Section 15.02 shall be made, at the option of the Holder thereof, upon: 65 (i) delivery to the Paying Agent (or any other agent appointed for this purpose) by a Holder of a duly completed notice (the“Fundamental Change Repurchase Notice”) in the form set forth in Attachment 2 to the Form of Note attached hereto as Exhibit A, if theNotes are Physical Notes, or in compliance with the Depositary’s procedures for surrendering interests in global notes, if the Notes areGlobal Notes; and (ii) delivery of the Notes, if the Notes are Physical Notes, to the Paying Agent (or another agent appointed for such purposes)together with, or at any time after, delivery of the Fundamental Change Repurchase Notice (together with all necessary endorsements fortransfer), or book-entry transfer of the Notes, if the Notes are Global Notes, in compliance with the procedures of the Depositary, in eachcase such delivery being a condition to receipt by the Holder of the Fundamental Change Repurchase Price therefor. in each case (i) and (ii), on or before the close of business on the second Business Day immediately preceding the Fundamental Change RepurchaseDate The Fundamental Change Repurchase Notice in respect of any Notes to be repurchased shall state: (A) in the case of Physical Notes, the certificate numbers of the Notes to be delivered for repurchase; (B) the portion of the principal amount of Notes to be repurchased, which must be US$1,000 or an integral multiple thereof; and (C) that the Notes are to be repurchased by the Company pursuant to the applicable provisions of the Notes and this Indenture; provided, however, that if the Notes are Global Notes, the Fundamental Change Repurchase Notice must comply with appropriate Depositary procedures. Notwithstanding anything herein to the contrary, any Holder delivering the Fundamental Change Repurchase Notice contemplated by thisSection 15.02 shall have the right to withdraw, in whole or in part, such Fundamental Change Repurchase Notice at any time prior to the close of business onthe second Business Day immediately preceding the Fundamental Change Repurchase Date by delivery of a duly completed written notice of withdrawal tothe Paying Agent (or any other agent appointed for this purpose) in accordance with Section 15.03. The Paying Agent (or any other agent appointed for this purpose) shall promptly notify the Company of the receipt by it of any FundamentalChange Repurchase Notice or written notice of withdrawal thereof. No Fundamental Change Repurchase Notice with respect to any Notes may be delivered and no Note may be surrendered by a Holder for repurchasethereof if such Holder has also surrendered a Repurchase Notice in accordance with Section 15.01 and not validly withdrawn such Repurchase Notice inaccordance with Section 15.03. (b) On or before the 10th calendar day after the occurrence of a Fundamental Change, the Company shall provide to all Holders andthe Trustee, the Paying Agent and the Conversion Agent or any other agent appointed for such purpose a written notice (the “Fundamental ChangeCompany Notice”) of the occurrence of the Fundamental Change and of the repurchase right at the option of the Holders arising as a result thereof.In the case of Physical Notes, such notice shall be by first class mail or, in the case of Global Notes, such notice may be delivered electronically inaccordance with the applicable procedures of the Depositary. Simultaneously with providing such notice, the Company shall publish a noticecontaining the information set forth in the Fundamental Change Company Notice in a newspaper of general circulation in The City of New York orpublish such information on the Company’s website or through such other public medium as the Company may use at that time. Each FundamentalChange Company Notice shall specify: 66 (i) the events causing the Fundamental Change and whether such events also constitute a Make-Whole FundamentalChange; (ii) the date of the Fundamental Change; (iii) the last date on which a Holder may exercise the repurchase right pursuant to this Article 15; (iv) the Fundamental Change Repurchase Price; (v) the Fundamental Change Repurchase Date; (vi) the name and address of the Trustee, the Paying Agent, the Conversion Agent or any other agent appointed for therepurchase, if any; (vii) if applicable, the Conversion Rate and any adjustments to the Conversion Rate; (viii) that the Notes with respect to which a Fundamental Change Repurchase Notice or Repurchase Option has been deliveredby a Holder may be converted only if the Holder withdraws the Fundamental Change Repurchase Notice or Repurchase Notice, as the casemay be, in accordance with the terms of this Indenture; and (ix) the procedures that Holders must follow to require the Company to repurchase their Notes. No failure of the Company to give the foregoing notices and no defect therein shall limit the Holders’ repurchase rights or affect the validity of theproceedings for the repurchase of the Notes pursuant to this Section 15.02. At the Company’s written request, the Paying Agent (or any other agent appointed for such purpose) shall give such notice in the Company’s nameand at the Company’s expense; provided, however, that, in all cases, the text of such Fundamental Change Company Notice shall be prepared by theCompany. (a) Notwithstanding the foregoing, no Notes may be repurchased by the Company on any date at the option of the Holders upon aFundamental Change if the principal amount of the Notes has been accelerated, and such acceleration has not been rescinded, on or prior to suchdate (except in the case of an acceleration resulting from a default by the Company in the payment of the Fundamental Change Repurchase Pricewith respect to such Notes). The Paying Agent (or any other agent appointed for such purpose)will promptly return to the respective Holders thereofany Physical Notes held by it during the acceleration of the Notes (except in the case of an acceleration resulting from a default by the Company inthe payment of the Fundamental Change Repurchase Price with respect to such Notes), or any instructions for book-entry transfer of the Notes incompliance with the procedures of the Depositary shall be deemed to have been cancelled, and, upon such return or cancellation, as the case may be,the Fundamental Change Repurchase Notice with respect thereto shall be deemed to have been withdrawn. Section 15.03 Withdrawal of Repurchase Notice or Fundamental Change Repurchase Notice. (a) A Repurchase Notice or Fundamental ChangeRepurchase Notice may be withdrawn (in whole or in part) by means of a duly completed written notice of withdrawal delivered to the Trustee, Paying Agentor any other agent appointed for such purpose in accordance with this Section 15.03 at any time prior to the close of business on the second Business Dayimmediately preceding the Repurchase Date or prior to the close of business on the second Business Day immediately preceding the Fundamental ChangeRepurchase Date, as the case may be, specifying: (A) the principal amount of the Notes with respect to which such notice of withdrawal is being submitted, 67 (B) if Physical Notes have been issued, the certificate number of the Note in respect of which such notice of withdrawal is beingsubmitted, and (C) the principal amount, if any, of such Note that remains subject to the original Repurchase Notice or Fundamental ChangeRepurchase Notice, as the case may be, which portion must be in principal amounts of US$1,000 or an integral multiple of US$1,000; provided, however, that if the Notes are Global Notes, the notice must comply with appropriate procedures of the Depositary. Section 15.04 Deposit of Repurchase Price or Fundamental Change Repurchase Price. (a) The Company will deposit with the Paying Agent (orany other paying agent appointed by the Company, or if the Company is acting as its own Paying Agent, set aside, segregate and hold in trust as provided inSection 4.04) at or prior to 10:00 a.m., New York City time, one Business Day prior to the Repurchase Date or Fundamental Change Repurchase Date, as thecase may be, an amount of money sufficient to repurchase all of the Notes to be repurchased at the appropriate Repurchase Price or Fundamental ChangeRepurchase Price. Subject to receipt of funds and/or Notes by the Paying Agent (or any other paying agent appointed by the Company), payment for Notessurrendered for repurchase (and not withdrawn in accordance with Section 15.03) will be made on the later of (i) the Repurchase Date or Fundamental ChangeRepurchase Date, as the case may be (provided the Holder has satisfied the conditions in Section 15.01 or Section 15.02, as the case may be) and (ii) the timeof book-entry transfer or the delivery of such Note to the Paying Agent (or any other paying agent appointed by the Company) by the Holder thereof in themanner required by Section 15.01 or Section 15.02, as applicable, by mailing checks for the amount payable to the Holders of such Notes entitled thereto asthey shall appear in the Note Register; provided, however, that payments to the Depositary shall be made by wire transfer of immediately available funds tothe account of the Depositary or its nominee. The Paying Agent (or any other paying agent appointed by the Company) shall, promptly after such paymentand upon written demand by the Company, return to the Company any funds in excess of the Repurchase Price or Fundamental Change Repurchase Price, asthe case may be. (b) If by 10:00 a.m., New York City time, on the Repurchase Date or Fundamental Change Repurchase Date, as the case may be, thePaying Agent (or any other paying agent appointed by the Company) holds money sufficient to make payment on all the Notes or portions thereofthat are to be repurchased on such Repurchase Date or Fundamental Change Repurchase Date, as the case may be, then, with respect to the Notes thathave been properly surrendered for repurchase and not validly withdrawn, on such Repurchase Date or Fundamental Change Repurchase Date, as thecase may be, (i) such Notes will cease to be outstanding, (ii) interest will cease to accrue on such Notes (whether or not book-entry transfer of theNotes has been made or the Notes have been delivered to the Trustee or Paying Agent) and (iii) all other rights of the Holders of such Notes willterminate (other than the right to receive the Repurchase Price or Fundamental Change Repurchase Price, as the case may be). (c) Upon surrender of a Physical Note that is to be repurchased in part pursuant to Section 15.01 or Section 15.02, the Company shallexecute and the Trustee, upon receipt of a Company Order, shall authenticate and deliver to the Holder a new Physical Note in an authorizeddenomination equal in principal amount to the unrepurchased portion of the Note surrendered. Section 15.05 Covenant to Comply with Applicable Laws Upon Repurchase of Notes. In connection with any repurchase offer, the Companywill, if required: (a) comply with the provisions of Rule 13e-4, Rule 14e-1 and any other tender offer rules under the Exchange Act that may beapplicable; (b) file a Schedule TO or other required schedule under the Exchange Act, if required by applicable law; and (c) otherwise comply with all federal and state securities laws in connection with any offer by the Company to repurchase the Notes; 68 in each case, so as to permit the rights and obligations under this Article 15 to be exercised in the time and in the manner specified in this Article 15. ARTICLE 16REDEMPTION ONLY FOR TAXATION REASONS Section 16.01 No Redemption Except for Taxation Reasons. (a) The Notes shall not be redeemable by the Company prior to the Maturity Date,except as set out in this Article 16, and no sinking fund shall be provided for the Notes. The Notes may be redeemed at the Company’s option, as a whole butnot in part (a “Tax Redemption”), at the Tax Redemption Price, if the Company is or would be required to pay Additional Amounts (which are more than ade minimis amount) as a result of (i) any change in the Applicable Tax Law of a Relevant Taxing Jurisdiction, which change is not publicly announcedbefore, and becomes effective after, the date when the Notes are initially issued (or, if the applicable taxing jurisdiction became a Relevant TaxingJurisdiction on a date after the Notes are initially issued, such later date), or (ii) any change on or after the date when the Notes are initially issued or, in thecase of a Successor, after the date such Successor assumes all of the Company’s obligations under the Notes and the indenture, in an interpretation,administration or application of such Applicable Tax Law by any legislative body, court, governmental agency, taxing authority or regulatory oradministrative authority of such relevant taxing jurisdiction (including the enactment of any legislation and the announcement or publication of any judicialdecision or regulatory or administrative interpretation or determination) (each such change, a “Change in Tax Law”); provided that the Company cannotavoid these obligations by taking reasonable measures available to it (provided that changing the Company’s jurisdiction of organization or domicile shallnot be considered a reasonable measure) and further provided that, prior to or simultaneously with the Tax Redemption Notice, the Company delivers to theTrustee an Officers’ Certificate and an Opinion of Counsel specializing in taxation attesting that the Company has or will become, on or before the TaxRedemption Date, obligated to pay such Additional Amounts as a result of a Change in Tax Law. The Trustee shall and is entitled to accept and rely uponsuch Opinion of Counsel and Officers’ Certificate (without further investigation or enquiry) and it shall be conclusive and binding on the Holder. (b) If the Tax Redemption Date falls after a Regular Record Date and on or prior to the immediately following Interest Payment Date,the Company shall, on or, at its election, before such Interest Payment Date, pay the full amount of accrued and unpaid interest, and any AdditionalAmounts with respect to such interest, due on such interest payment date to the Holder of the Notes on the Regular Record Date corresponding tosuch Interest Payment Date. (c) The Company shall notify the Trustee in writing of its election and the date on which such interest and any Additional Amounts withrespect to such interest will be paid at the time it provides such Tax Redemption Notice. Section 16.02 Notice of Tax Redemption. (a) In the event that the Company exercises its Tax Redemption right pursuant to Section 16.01, it shallfix a date for redemption (the “Tax Redemption Date”) and it or, at its written request received by the Trustee not less than 35 days prior to the TaxRedemption Date (or such shorter period of time as may be acceptable to the Trustee), the Trustee, in the name of and at the expense of the Company shallsend, or cause to be sent, a written notice of such Tax Redemption prepared by the Company (a “Tax Redemption Notice”) not less than 30 nor more than 60calendar days prior to the Tax Redemption Date to each Holder of Notes so to be redeemed at its last address as the same appears on the Note Register (or inthe case of Global Notes, electronically in accordance with the applicable procedures of the Depositary); provided, however, that, if the Company shall givesuch notice, it shall also give a written notice of the Tax Redemption Date to the Trustee. The Tax Redemption Date must be a Business Day. (b) The Company shall not give any Tax Redemption Notice earlier than 60 days prior to the earliest date on which the Companywould be obligated to pay any Additional Amounts, and the obligation to pay such Additional Amounts must be in effect at the time such TaxRedemption Notice is given. Simultaneously with providing such notice, the Company shall publish a notice containing this information in anewspaper of general circulation in The City of New York or publish the information on its website or through such other public medium as it mayuse at that time. 69 (c) The Tax Redemption Notice, if sent in the manner herein provided, shall be conclusively presumed to have been given duly,whether or not the Holder receives such notice. In any case, failure to give such Tax Redemption Notice or any defect in the Tax Redemption Noticeto the Holder of any Note designated for redemption shall not affect the validity of the proceedings for the redemption of any other Note. (d) Each Tax Redemption Notice shall specify: (i) the Tax Redemption Date; (ii) the Tax Redemption Price; (iii) the place or places where such Notes are to be surrendered for payment of the Tax Redemption Price; (iv) that on the Tax Redemption Date, the Tax Redemption Price will become due and payable upon each Note to beredeemed, and that the interest thereon, if any, shall cease to accrue on and after the Tax Redemption Date; (v) that Holders may surrender their Notes for conversion at any time prior to the close of business on the second BusinessDay immediately preceding the Tax Redemption Date; (vi) the procedures a converting Holder must follow to convert its Notes; (vii) that Holders have the right to elect not to have their Notes redeemed by delivery to the Company, with a copy to thePaying Agent, a written notice to that effect not later than the second Business Day immediately preceding the Tax Redemption Date; (viii) that Holders who wish to elect not to have their Notes redeemed must satisfy the requirements set forth herein; (ix) that, at and after the Tax Redemption Date, Holders who elect not to have their Notes redeemed (a) will not receive anyAdditional Amounts with respect to payments or delivery (including consideration due in respect of conversion, Repurchase Price orFundamental Change Repurchase Price, and whether payable in cash, ADSs or otherwise) made in respect to such Holders’ Notes solely as aresult of the Change in Tax Law that caused such Additional Amounts to be paid after the Tax Redemption Date and (b) all future payments(including consideration due in respect of conversion, Repurchase Price or Fundamental Change Repurchase Price, and whether payable incash, ADSs or otherwise) with respect to the Notes will be subject to any tax required to be withheld or deducted under the laws of aRelevant Taxing Jurisdiction, as a result of such Change in Tax Law; provided that, notwithstanding the foregoing, if a Holder electing notto be subject to a Tax Redemption converts its Notes in connection with such Tax Redemption, the Company will be obligated to payAdditional Amounts, if any, with respect to such conversion; (x) the Conversion Rate and, if applicable, the number of ADSs added to the Conversion Rate in accordance withSection 14.03; and (xi) the CUSIP, ISIN or other similar numbers, if any, assigned to such Notes. A Tax Redemption Notice shall be irrevocable and shall not be subject to conditions. In the case of a Tax Redemption, a Holder may convert its Notes at anytime until the close of business on the second Business Day preceding the Tax Redemption Date. 70 Section 16.03 Payment of Notes Called for Tax Redemption for Taxation. (a) If any Tax Redemption Notice has been given in respect of the Notes in accordance with Section 16.02, the Notes shall becomedue and payable on the Tax Redemption Date at the place or places stated in the Tax Redemption Notice and at the applicable Tax RedemptionPrice. On presentation and surrender of the Notes at the place or places stated in the Tax Redemption Notice, the Notes shall be paid and redeemedby the Company and the applicable Tax Redemption Price. (b) Prior to 10:00 a.m., New York City time on the Tax Redemption Date, the Company shall deposit with the Paying Agent or, if theCompany or a Subsidiary of the Company is acting as the Paying Agent, shall segregate and hold in trust as provided in Section 4.04 an amount ofcash in immediately available funds, sufficient to pay the Tax Redemption Price of all of the Notes to be redeemed on such Tax Redemption Date.Subject to receipt of funds by the Paying Agent, payment for the Notes to be redeemed shall be made on the Tax Redemption Date for such Notes.The Trustee (or other Paying Agent appointed by the Company) shall, promptly after such payment and upon written demand by the Company,return to Company any funds in excess of the Tax Redemption Price. Section 16.04 Holders’ Right to Avoid Redemption. Notwithstanding anything to the contrary in this Article 16, if the Company has given a TaxRedemption Notice as described in Section 16.02, each Holder of Notes will have the right to elect that such Holder’s Notes will not be subject to TaxRedemption. If a Holder elects not to be subject to a Tax Redemption, the Company will not be required to pay any Additional Amounts (includingconsideration due in respect of conversion, Repurchase Price or Fundamental Change Repurchase Price, and whether payable in cash, ADSs or otherwise)with respect to any payment of interest, payment of principal or delivery made in respect of such Holder’s Notes following the Tax Redemption Date solely asa result of the Change in Tax Law that caused such Additional Amounts to be paid after the Tax Redemption Date, and all subsequent payments in respect ofsuch Holder’s Notes will be subject to any tax required to be withheld or deducted under the laws of a Relevant Taxing Jurisdiction, as a result of the Changein Tax Law; provided that, notwithstanding the foregoing, if a Holder electing not to be subject to a Tax Redemption converts its Notes in connection withsuch Tax Redemption, the Company will be obligated to pay Additional Amounts, if any, with respect to such conversion. The obligation to pay AdditionalAmounts to any electing Holder for periods up to the Tax Redemption Date shall remain subject to the exceptions set forth under Section 4.07. Where noelection is made, the Holder will have its Notes redeemed without any further action. Holders must exercise their option to elect to avoid a Tax Redemptionby written notice to the Company (with a copy to the Paying Agent) no later than the close of business on the second Business Day immediately precedingthe Tax Redemption Date, provided that a Holder that has complied with the requirements set forth in Section 14.02 will be deemed to have delivered anotice of its election to avoid a Tax Redemption. If Notes are in global form, the rights of beneficial owners in any Global Note, including any election inconnection with a tax redemption pursuant to this Section above, shall be exercised only through the Depositary subject to customary procedures of theDepositary. Section 16.05 Restrictions on Tax Redemption. The Company may not redeem any Notes on any date if the principal amount of the Notes hasbeen accelerated in accordance with the terms of this Indenture, and such acceleration has not been rescinded, on or prior to the Tax Redemption Date (exceptin the case of an acceleration resulting from a Default by the Company in the payment of the Tax Redemption Price with respect to such Notes). Section 16.06 Withdrawal of Notice of Election to Avoid a Tax Redemption. A Holder may withdraw any notice of election to avoid a TaxRedemption (other than such a deemed notice of election) made pursuant to Section 16.04, by delivering to the Company (with a copy to the Paying Agent) awritten notice of withdrawal prior to the close of business on the second Business Day immediately preceding the Tax Redemption Date (or, if the Companyfails to pay the redemption price on the Tax Redemption Date, such later date on which the Company pays the Redemption Price). ARTICLE 17MISCELLANEOUS PROVISIONS Section 17.01 Binding on Company’s Successors. All the covenants, stipulations, promises and agreements of the Company contained in thisIndenture shall bind its successors and assigns whether so expressed or not. 71 Section 17.02 Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to bedone or performed by any board, committee or Officer of the Company shall and may be done and performed with like force and effect by the like board,committee or officer of any corporation or other entity that shall at the time be the lawful sole successor of the Company. Section 17.03 Addresses for Notices, Etc. Any notice or demand that by any provision of this Indenture is required or permitted to be given orserved by the Trustee or by the Holders on the Company shall be deemed to have been sufficiently given or made, for all purposes if given or served by beingdelivered in person, transmitted by facsimile, (except for notices given to the Trustee) sent via electronic mail (with portable document format attached) ordeposited postage prepaid by registered or certified mail in a post office letter box addressed (until another address is filed by the Company with the Trustee)to: GDS Holdings Limited2/F – Tower 2Youyou Century Place428 South Yanggao RoadPudong, Shanghai 200127Attention: Daniel Newman, Chief Financial OfficerFax: +86-21-5118-6902 Any notice, direction, request or demand hereunder to or upon the Trustee shall be given or served in person, transmitted by facsimile or deposited postageprepaid by registered or certified mail in a post office letter box addressed to the Corporate Trust Office with a copy to: The Bank of New York Mellon, as Trustee101 Barclay StreetNew York, NY 10286United States of AmericaAttention: Global Corporate Trust – GDS Holdings LimitedFax: (+1) 212 815 5915 With a copy to: The Bank of New York Mellon, Hong Kong BranchLevel 24, Three Pacific Place1 Queen’s Road EastHong Kong Attention: Global Corporate TrustFax: +852 2295 3283 All notices and other communications under this Indenture shall be in writing in English. So long as and to the extent that the Notes are represented by Global Notes and such Global Notes are held by the Depositary, notices to Holdersmay be given by delivery of the relevant notice to the Depositary by facsimile or electronic mail (with portable document format attached) for all purposeshereunder. The Company hereby acknowledges that it is fully aware of the risks associated with transmitting instructions via electronic methods (includingfacsimile), and being aware of these risks authorizes the Trustee to accept and act upon any instruction sent to it or any Paying Agent, Conversion Agent orNote Registrar in the Company’s name or in the name of one or more appropriate authorized signers of the Company via electronic methods (includingfacsimile). The Trustee shall be entitled to rely on Section 7.06 of this Indenture when accepting or acting upon any instructions, communications ordocuments transmitted by facsimile, and shall not be liable in the event any facsimile transmission is not received, or is mutilated, illegible, interrupted,duplicated, incomplete, unauthorized or delayed for any reason, including (but not limited to) electronic or telecommunications failure. Furthermore,notwithstanding the above, if any Trustee receives information or instructions delivered by electronic mail, other electronic method or other unsecuredmethod of communication believed by it to be genuine and to have been sent by the proper person or persons, the Trustee or any Paying Agent, ConversionAgent or Note Registrar 72 shall have (i) no duty or obligation to verify or confirm that the person who sent such instructions is in fact a person authorized to give instructions ordirections on behalf of the Company and (ii) no liability for any losses, liabilities, costs or expenses incurred or sustained by any holder, the Company or anyother person as a result of such reliance on or compliance with such information or instructions. The Trustee, by notice to the Company, may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Holder shall be mailed to it by first class mail, postage prepaid, at its address as it appears on the NoteRegister and shall be sufficiently given to it if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice orcommunication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice to Holders bymail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 17.04 Governing Law; Jurisdiction. THIS INDENTURE AND EACH NOTE, AND ANY CLAIM, CONTROVERSY OR DISPUTEARISING UNDER OR RELATED TO THIS INDENTURE AND EACH NOTE, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,THE LAWS OF THE STATE OF NEW YORK. The Company irrevocably consents and agrees, for the benefit of the Holders from time to time of the Notes and the Trustee, that any legal action,suit or proceeding against it with respect to obligations, liabilities or any other matter arising out of or in connection with this Indenture or the Notes may bebrought in the federal courts of the United States of America located in the City of New York or the courts of the State of New York, in each case, located inthe City of New York, New York (collectively, the “specified courts”) and hereby irrevocably consents and submits to the non-exclusive jurisdiction of eachsuch court in personam, generally and unconditionally with respect to any action, suit or proceeding for itself in respect of its properties, assets and revenues. The Company irrevocably and unconditionally waives, to the fullest extent permitted by law, any objection which it may now or hereafter have tothe laying of venue of any of the aforesaid actions, suits or proceedings arising out of or in connection with this Indenture brought in the specified courts andhereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought inany such court has been brought in an inconvenient forum. Section 17.05 Submission to Jurisdiction; Service of Process. The Company irrevocably appoints Law Debenture Corporate Services Inc. as itsauthorized agent in the City of New York upon which process may be served in any such suit or proceeding, and agrees that service of process upon suchagent, and written notice of said service to the Company by the person serving the same to: GDS Holdings Limitedc/o Law Debenture Corporate Services Inc.801 2 Avenue, Suite 403New York, NY 10017United States of America shall be deemed in every respect effective service of process upon the Company in any such suit or proceeding. The Company further agrees to take any andall action as may be necessary to maintain such designation and appointment of such agent in full force and effect for a period of five and a half years fromthe date of this Indenture. If for any reason such agent shall cease to be such agent for service of process, the Company shall forthwith appoint a new agent ofrecognized standing for service of process in the State of New York and deliver to the Trustee a copy of the new agent’s acceptance of that appointmentwithin ten Business Days of such acceptance. 73nd Nothing herein shall affect the right of the Trustee, any agent or any Holder to serve process in any other manner permitted by law or to commence legalproceedings or otherwise proceed against the Company in any other court of competent jurisdiction. To the extent that the Company has or hereafter mayacquire any sovereign or other immunity from jurisdiction of any court or from any legal process with respect to itself or its property, the Companyirrevocably waives such immunity in respect of its obligations hereunder or under any Note. Section 17.06 Evidence of Compliance with Conditions Precedent; Certificates and Opinions of Counsel to Trustee. (a) Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Trustee shall beentitled to receive: (i) an Officers’ Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in thisIndenture relating to the proposed action have been complied with; and (ii) an Opinion of Counsel stating that, in the opinion of such counsel, all conditions precedent, if any, provided for in thisIndenture relating to the proposed action have been complied with and such action is permitted by the terms of this Indenture. (b) Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (i) a statement that each person signing such certificate or opinion has read such covenant or condition and the definitionsherein relating thereto; (ii) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinioncontained in such certificate or opinion is based; (iii) a statement that, in the opinion of each such person, he has made such examination or investigation as is necessary toenable him to express an informed opinion; and (iv) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied withor such action is permitted by the terms of this Indenture, as the case may be. Notwithstanding anything to the contrary in this Section 17.06, if any provision in this Indenture specifically provides that the Trustee shall or mayreceive an Opinion of Counsel in connection with any action to be taken by the Trustee or the Company hereunder, the Trustee shall be entitled to suchOpinion of Counsel. Section 17.07 Legal Holidays. In any case where any Interest Payment Date, Fundamental Change Repurchase Date, Conversion Date,Repurchase Date, Tax Redemption Date or Maturity Date is not a Business Day (which, solely for the purposes of any payment required to be made on anysuch Interest Payment Date, Fundamental Change Repurchase Date, Conversion Date, Tax Redemption Date or Maturity Date and solely for purposes of thisSection 17.07, shall also not include days in which the office where the place of payment in the continental United States is authorized or required by law toclose), then such Interest Payment Date, Fundamental Change Repurchase Date, Conversion Date, Tax Redemption Date or Maturity Date, as applicable, willnot be postponed but any action (which shall be limited to solely any payment action in the case the immediately preceding parenthetical applies) to betaken on such date need not be taken on such date, but may be taken on the next succeeding Business Day with the same force and effect as if taken on suchdate, and no interest shall accrue or be paid in respect of the delay. Section 17.08 No Security Interest Created. Nothing in this Indenture or in the Notes, expressed or implied, shall be construed to constitute asecurity interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect, in any jurisdiction. 74 Section 17.09 Benefits of Indenture. Nothing in this Indenture or in the Notes, expressed or implied, shall give to any Person, other than theHolders, the parties hereto, any Paying Agent, any Conversion Agent, any Note Registrar and their successors hereunder, any benefit or any legal or equitableright, remedy or claim under this Indenture. Section 17.10 Table of Contents, Headings, Etc. The table of contents and the titles and headings of the articles and sections of this Indenturehave been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms orprovisions hereof. Section 17.11 Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original, butsuch counterparts shall together constitute but one and the same instrument. The exchange of copies of this Indenture and of signature pages by facsimile orPDF transmission shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenturefor all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes. Section 17.12 Judgment Currency. The Company agrees to indemnify any party against any loss incurred by such party as a result of anyjudgment or order being given or made for any amount due hereunder and such judgment or order being expressed and paid in a currency (the “JudgmentCurrency”) other than U.S. dollars and as a result of any variation as between (i) the rate of exchange at which the U.S. dollar amount is converted into theJudgment Currency for the purpose of such judgment or order, and (ii) the rate of exchange at which such indemnified person is able to purchase U.S. dollarswith the amount of the Judgment Currency actually received by the indemnified person. The foregoing indemnity shall constitute a separate and independentobligation of the Company and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term “rate of exchange”shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, the relevant currency. Section 17.13 Severability. In the event any provision of this Indenture or in the Notes shall be invalid, illegal or unenforceable, then (to theextent permitted by law) the validity, legality or enforceability of the remaining provisions shall not in any way be affected or impaired. Section 17.14 Waiver of Jury Trial. EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLESTEXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF ORRELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 17.15 Force Majeure. In no event shall the Trustee or the Agents be responsible or liable for any failure or delay in the performance of itsobligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes or labor disputes,work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss ormalfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee or the Agents, as the case maybe, shall use reasonable efforts that are consistent with accepted practices in the banking industry to resume performance as soon as practicable under thecircumstances. Section 17.16 Calculations. The Company shall be responsible for making all calculations called for under the Notes. These calculationsinclude, but are not limited to, determinations of the Last Reported Sale Prices of the ADSs, accrued interest payable on the Notes, the number of AdditionalADSs to be added to the Conversion Rate upon a Make-Whole Fundamental Change or a Tax Redemption, if any, the Redemption Price and the ConversionRate of the Notes. The Company shall make all these calculations in good faith and, absent manifest error, the Company’s calculations shall be final andbinding on Holders. The Company shall provide a schedule of its calculations to each of the Trustee, the Paying Agent and the Conversion Agent, and eachof the Trustee, the Paying Agent and the Conversion Agent is entitled to rely conclusively and without liability upon the accuracy of the Company’scalculations without independent verification. The Trustee will forward the Company’s calculations to any Holder of Notes upon the prior written requestand satisfactory proof of holding of that Holder at the sole cost and expense of the Company. 75 Section 17.17 USA PATRIOT Act. The parties hereto acknowledge that in order to help the United States government fight the funding ofterrorism and money laundering activities, pursuant to Federal regulations that became effective on October 1, 2003 (Section 326 of the USA PATRIOT Act)all financial institutions are required to obtain, verify, record and update information that identifies each person establishing a relationship or opening anaccount. The parties to this Indenture agree that they will provide to the Trustee such information as it may request, from time to time, in order for the Trusteeto satisfy the requirements of the USA PATRIOT Act, including but not limited to the name, address, tax identification number and other information thatwill allow it to identify the individual or entity who is establishing the relationship or opening the account and may also ask for formation documents such asarticles of incorporation or other identifying documents to be provided. [Remainder of the page intentionally left blank] 76 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. GDS HOLDINGS LIMITED By:/s/ William Wei HuangName:William Wei HuangTitle:Chief Executive Officer THE BANK OF NEW YORK MELLON, as Trustee By:/s/ Vivian HuiName:Vivian HuiTitle:Vice President [signature page to Indenture] EXHIBIT A FORM OF FACE OF NOTE [INCLUDE FOLLOWING LEGEND IF A GLOBAL NOTE] [THIS IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OFTHE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY, WHICH MAY BE TREATED BY THE COMPANY, THE TRUSTEE AND ANY AGENTTHEREOF AS THE OWNER AND HOLDER OF THIS NOTE FOR ALL PURPOSES. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORKCORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANYCERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZEDREPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZEDREPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON ISWRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE WILL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC, OR TO ASUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE, AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE WILL BE LIMITED TOTRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2 OF THE INDENTURE HEREINAFTER REFERRED TO.] [INCLUDE FOLLOWING LEGEND IF A RULE 144A NOTE OR A REGULATION S NOTE] [THIS SECURITY, THE AMERICAN DEPOSITARY SHARES DELIVERABLE UPON CONVERSION OF THIS SECURITY AND THE CLASS AORDINARY SHARES REPRESENTED THEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED(THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCEWITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER: (1) REPRESENTS THAT IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS (a) A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (WITHIN THEMEANING OF RULE 144A UNDER THE SECURITIES ACT) OR (b) NOT A U.S. PERSON AND LOCATED OUTSIDE THE UNITED STATES(WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETIONWITH RESPECT TO EACH SUCH ACCOUNT AND THAT IT AND ANY SUCH ACCOUNT IS NOT, AND HAS NOT BEEN FOR THEIMMEDIATELY PRECEDING THREE MONTHS, AN AFFILIATE OF GDS HOLDINGS LIMITED (THE “COMPANY”), AND (2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THISSECURITY OR ANY BENEFICIAL INTEREST HEREIN PRIOR TO THE DATE THAT IS THE LATER OF (X) ONE YEAR AFTER THE LASTORIGINAL ISSUE DATE HEREOF OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144 UNDER THE SECURITIES ACT ORANY SUCCESSOR PROVISION THERETO AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW, EXCEPT: (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, OR (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT, OR (C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, OR (D) TO A U.S. PERSON OUTSIDE THE UNITED STATES AND THEREAFTER OUTSIDE THE UNITED STATES, IN EACH CASE INACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE). PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY, THE DEPOSITARY AND THETRUSTEE RESERVE THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE ASMAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCEWITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THESECURITIES ACT. NO AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT (“RULE 144”)) OF THE COMPANY OR PERSON THAT HAS BEENAN AFFILIATE (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY DURING THE THREE IMMEDIATELYPRECEDING MONTHS MAY PURCHASE, OTHERWISE ACQUIRE OR OWN THIS NOTE OR A BENEFICIAL INTEREST HEREIN.] GDS HOLDINGS LIMITED 2.00% Convertible Senior Note due 2025 No. [ ][Initially] US$[ ] CUSIP No [ · ] [ · ] GDS Holdings Limited, an exempted company duly incorporated and validly existing under the laws of the Cayman Islands (the “Company,” whichterm includes any successor company or corporation or other entity under the Indenture referred to on the reverse hereof), for value received hereby promisesto pay to [CEDE & CO.] [ ], or registered assigns, the principal sum [as set forth in the “Schedule of Exchanges of Notes” attached hereto] [of US$[ ]],which amount, taken together with the principal amounts of all other outstanding Notes, shall not, unless permitted by the Indenture, exceedUS$300,000,000 in aggregate at any time, in accordance with the rules and procedures of the Depositary, on June 1, 2025, and interest thereon as set forthbelow. This Note shall bear interest at the rate of 2.00% per year from June [5], 2018, or from the most recent date to which interest had been paid orprovided for to, but excluding, the next scheduled Interest Payment Date until June 1, 2025. Interest is payable semi-annually in arrears on each June 1 andDecember 1, commencing on December 1, 2018, to Holders of record at the close of business on the preceding May 15 and November 15 (whether or not suchday is a Business Day), respectively. Additional Interest will be payable as set forth in Section 4.06(d), Section 4.06(e) and Section 6.03 of the within-mentioned Indenture, and any reference to interest on, or in respect of, any Note therein shall be deemed to include Additional Interest if, in such context,Additional Interest is, was or would be payable pursuant to any of such Section 4.06(d), Section 4.06(e) and Section 6.03, and any express mention of thepayment of Additional Interest in any provision therein shall not be construed as excluding Additional Interest in those provisions thereof where suchexpress mention is not made. Any Defaulted Amounts shall accrue interest per annum at the rate per annum borne by the Notes plus 1.00%, subject to the enforceability thereofunder applicable law, from, and including, the relevant payment date to, but excluding, the date on which such Defaulted Amounts shall have been paid bythe Company, at its election, in accordance with Section 2.03(c) of the Indenture. The Company shall pay the principal of and interest on this Note, so long as such Note is a Global Note, in immediately available funds to theDepositary or its nominee, as the case may be, as the registered Holder of such Note. As provided in and subject to the provisions of the Indenture, theCompany shall pay the principal of any Notes (other than Notes that are Global Notes) at the office or agency designated by the Company for that purpose.The Company has initially designated the Trustee as its Paying Agent, Conversion Agent and Note Registrar in respect of the Notes and its agency, as a placewhere Notes may be presented for payment or for registration of transfer. Reference is made to the further provisions of this Note set forth on the reverse hereof, including, without limitation, provisions giving the Holder ofthis Note the right to convert this Note into ADSs on the terms and subject to the limitations set forth in the Indenture. Such further provisions shall for allpurposes have the same effect as though fully set forth at this place. Include if a Global Note.Include for a Rule 144A Note.Include for a Regulation S Note.Include for a Regulation S Note.Include if a Physical Note.Include if a Global Note.Include if a Physical Note 12345671 2 3 4 5 6 7 This Note, and any claim, controversy or dispute arising under or related to this Note, shall be construed in accordance with and governed bythe laws of the State of New York. In the case of any conflict between this Note and the Indenture, the provisions of the Indenture shall control and govern. This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed manually orby facsimile by the Trustee under the Indenture. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the Company has caused this Note to be duly executed. GDS HOLDINGS LIMITED By:Name:Title: Dated: TRUSTEE’S CERTIFICATE OF AUTHENTICATION The Bank of New York Mellon, as Trustee, certifies that this is one of theNotes described in the within-named Indenture. By:Authorized Officer FORM OF REVERSE OF NOTE GDS HOLDINGS LIMITED2.00% Convertible Senior Note due 2025 This Note is one of a duly authorized issue of Notes of the Company, designated as its 2.00% Convertible Senior Notes due 2025 (the “Notes”),limited to the aggregate principal amount of US$300,000,000, all issued or to be issued under and pursuant to an Indenture dated as of June 5, 2018 (the“Indenture”), between the Company and The Bank of New York Mellon, as trustee (the “Trustee”), to which Indenture and all indentures supplementalthereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, theCompany and the Holders of the Notes. Additional Notes may be issued in an unlimited aggregate principal amount, subject to certain conditions specifiedin the Indenture. The Rule 144A Notes and the Regulation S Notes initially have separate CUSIP numbers and will initially not be fungible. In the case certain Events of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of, and interest on, all Notesmay be declared, by either the Trustee or Holders of at least 25% in aggregate principal amount of Notes then outstanding, and upon said declaration shallbecome, due and payable, in the manner, with the effect and subject to the conditions and certain exceptions set forth in the Indenture. In the case certainEvents of Default relating to a bankruptcy (or similar proceeding) with respect to the Company or a Significant Subsidiary of the Company shall haveoccurred, the principal of, and interest on, all Notes shall automatically become immediately due and payable, as set forth in the Indenture. Subject to the terms and conditions of the Indenture, the Company will make all payments in respect of the principal amount on the Maturity Date,the Repurchase Date, the Tax Redemption Date and the Fundamental Change Repurchase Date, as the case may be, to the Holder who surrenders a Note to theTrustee to collect such payments in respect of the Note. The Company will pay cash amounts in money of the United States that at the time of payment islegal tender for payment of public and private debts. Subject to the terms and conditions of the Indenture, Additional Amounts will be paid in connection with any payments made and deliveries causedto be made by the Company or any successor to the Company under or with respect to the Indenture and the Notes, including, but not limited to, payments ofprincipal (including the Repurchase Price, the Tax Redemption Price and the Fundamental Change Repurchase Price, if applicable), payments of interest anddeliveries of ADSs (together with payments for any fractional ADS) upon conversion of the Notes to ensure that the net amount received by the Holder afterany applicable withholding or deduction (and after deducting any taxes on the Additional Amounts) will equal the amount that would have been received bysuch Holder had no such withholding or deduction been required. The Indenture contains provisions permitting the Company and the Trustee in certain circumstances, without the consent of the Holders of theNotes, and in certain other circumstances, with the consent of the Holders of at least a majority in aggregate principal amount of the Notes at the timeoutstanding, evidenced as in the Indenture provided, to execute supplemental indentures modifying the terms of the Indenture and the Notes as describedtherein. It is also provided in the Indenture that, subject to certain exceptions, the Holders of a majority in aggregate principal amount of the Notes at the timeoutstanding may on behalf of the Holders of all of the Notes waive, subject to certain exceptions, any past Default or Event of Default under the Indentureand its consequences. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which isabsolute and unconditional, to pay or cause to be delivered, as the case may be, the principal (including the Repurchase Price, the Tax Redemption Price andthe Fundamental Change Repurchase Price, if applicable) of, accrued and unpaid interest on, and the consideration due upon conversion of, this Note at theplace, at the respective times, at the rate and in the lawful money herein prescribed. The Notes are issuable in registered form without coupons in minimum denominations of US$1,000 principal amount and integral multiples ofUS$1,000 in excess thereof. At the office or agency of the Company referred to on the face hereof, and in the manner and subject to the limitations providedin the Indenture, Notes may be exchanged for a like aggregate principal amount of Notes of other authorized denominations, without payment of any servicecharge but, if required by the Company or Trustee, with payment of a sum sufficient to cover any transfer or similar tax that may be imposed in connection therewith as a result of the name of the Holder of the new Notes issued upon such exchange of Notesbeing different from the name of the Holder of the old Notes surrendered for such exchange. The Notes are not subject to redemption through the operation of any sinking fund. Under certain circumstances relating to changes in tax lawsspecified in the Indenture, the Notes will be subject to redemption by the Company at the Tax Redemption Price. The Holder has the right, at such Holder’s option, to require the Company to repurchase for cash all of such Holder’s Notes or any portion thereof (inprincipal amounts of US$1,000 or integral multiples of US$1,000 in excess thereof) on the Repurchase Date at a price equal to the Repurchase Price. Upon the occurrence of a Fundamental Change, the Holder has the right, at such Holder’s option, to require the Company to repurchase for cash allof such Holder’s Notes or any portion thereof (in principal amounts of US$1,000 or integral multiples of US$1,000 in excess thereof) on the FundamentalChange Repurchase Date at a price equal to the Fundamental Change Repurchase Price. Subject to the provisions of the Indenture, the Holder hereof has the right, at such Holder’s option, prior to the close of business on the thirdScheduled Trading Day immediately preceding the Maturity Date, to convert any Notes or portion thereof that is US$1,000 or an integral multiple ofUS$1,000 in excess thereof, into ADSs at the Conversion Rate specified in the Indenture, as adjusted from time to time as provided in the Indenture. Terms used in this Note and defined in the Indenture are used herein as therein defined. ABBREVIATIONS The following abbreviations, when used in the inscription of the face of this Note, shall be construed as though they were written out in fullaccording to applicable laws or regulations: TEN COM = as tenants in common UNIF GIFT MIN ACT = Uniform Gifts to Minors Act CUST = Custodian TEN ENT = as tenants by the entireties JT TEN = joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. SCHEDULE A SCHEDULE OF EXCHANGES OF NOTES GDS HOLDINGS LIMITED2.00% Convertible Senior Notes due 2025 The initial principal amount of this Global Note is [ ] DOLLARS (US$[ ]). The following increases or decreases in this Global Note have beenmade: Principal amount Amount of Amount of of this Global Note Signature of decrease in increase in following such authorized principal amount principal amount decrease or signatory ofDate of exchange of this Global Note of this Global Note increase Trustee Include if a global note. 88 ATTACHMENT 1 FORM OF NOTICE OF CONVERSION To: GDS HOLDINGS LIMITED JPMorgan Chase Bank, N.A., as Depositary for the ADSs The Bank of New York Mellon, as Conversion Agent The undersigned registered owner of this Note hereby exercises the option to convert this Note, or the portion hereof (that is US$1,000 principalamount or an integral multiple thereof) below designated, into ADSs in accordance with the terms of the Indenture referred to in this Note, and directs thatany ADSs deliverable upon such conversion, together with any cash payable for any fractional ADS, and any Notes representing any unconverted principalamount hereof, be issued and delivered to the registered Holder hereof unless a different name has been indicated below. If any ADSs or any portion of thisNote not converted are to be issued in the name of a Person other than the undersigned, the undersigned will pay all documentary, stamp or similar issue ortransfer taxes, if any, in accordance with Section 14.02(e) of the Indenture. Any amount required to be paid to the undersigned on account of interestaccompanies this Note. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Indenture. In connection with the conversion of this Note, or the portion hereof below designated, the undersigned acknowledges, represents to and agrees withthe Company that the undersigned is not an “affiliate” (as defined in Rule 144 under the Securities Act) of the Company and has not been an “affiliate” (asdefined in Rule 144 under the Securities Act) during the three months immediately preceding the date hereof. [The undersigned further certifies: 1. The undersigned acknowledges (and if the undersigned is acting for the account of another person, that person has confirmed that itacknowledges) that the Restricted Securities received upon conversion of this Note (or securities represented thereby) have not been and are not expected tobe registered under the Securities Act. 2. The undersigned further certifies that either: (a) The undersigned is, and at the time ADSs are delivered in conversion of its Notes will be, the holder of the ADSs and the ordinary sharesrepresented thereby, and (i) the undersigned is not a U.S. person (as defined in Regulation S under the Securities Act) and is located outside the United States(within the meaning of Regulation S) and acquired, or have agreed to acquire and will have acquired, the Notes being converted and the ADSs beingdelivered in the conversion outside the United States and (ii) the undersigned is not in the business of buying and selling securities or, if the undersigned isin such business, the undersigned did not acquire the Notes being converted from the Company or any affiliate thereof in the initial distribution of the Notes. OR (b) The undersigned is a broker-dealer acting on behalf of its customer; its customer has confirmed to the undersigned that it is, and at the timeADSs are delivered in conversion of the Notes will be, the holder of the ADSs and the ordinary shares represented thereby, and (i) it is not a U.S. person (asdefined in Regulation S under the Securities Act) and it is located outside the United States (within the meaning of Regulation S and acquired, or have agreedto acquire and will have acquired, the Notes being converted and the ADSs being delivered in the conversion outside the United States and (ii) it is not in thebusiness of buying and selling securities or, if it is in such business, it did not acquire the Notes being converted from the Company or any affiliate thereof inthe initial distribution of the Notes. OR (c) The undersigned is a qualified institutional buyer (as defined in Rule 144A under the Securities Act) acting for its own account or for theaccount of one or more qualified institutional buyers and the undersigned is (or such account or accounts are) the sole beneficial owner(s) of the ADSs to bereceived upon conversion of the Notes. 3. The undersigned acknowledges that the undersigned (and any such other account) may not continue to hold or retain any interest inRestricted Securities received upon conversion of this Note if the undersigned (or such other account) becomes an Affiliate of the Company. 4. The undersigned agrees (and if the undersigned is acting for the account of another person, that person has confirmed that it agrees) that,unless and until the undersigned (or such other account) is notified by the Depositary that the restrictive legend on such Restricted Security has beenremoved from such security, the undersigned (and such other account) will not offer, sell, pledge or otherwise transfer the Restricted Security (or securitiesrepresented by such Restricted Security) except in accordance with the restrictions set forth in that legend and any applicable securities laws of the UnitedStates and any state thereof.] Include if a Restricted Security. 99 Dated: Signature Guarantee Signature(s) must be guaranteed by an eligible Guarantor Institution (banks,stock brokers, savings and loan associations and credit unions) with membershipin an approved signature guarantee medallion program pursuant to Securitiesand Exchange Commission Rule 17Ad-15 if ADSs are to be issued, or Notes areto be delivered, other than to and in the name of the registered holder. Fill in for registration of ADSs if to be issued, and Notes if to be delivered, otherthan to and in the name of the registered holder: (Name) (Street Address) City, State and Zip Code)Please print name and address Principal amount to be converted (if less than all):US$[ · ],000 NOTICE: The above signature(s) of the Holder(s) hereof must correspondwith the name as written upon the fact of the Note in every particularwithout alteration or enlargement or any change whatever. Social Security or Other Taxpayer Identification Number ATTACHMENT 2 FORM OF FUNDAMENTAL CHANGE REPURCHASE NOTICE To: GDS HOLDINGS LIMITED [Agent appointed for such repurchase] The undersigned registered owner of this Note hereby acknowledges receipt of a notice from GDS Holdings Limited (the “Company”) as to theoccurrence of a Fundamental Change with respect to the Company and specifying the Fundamental Change Repurchase Date and requests and instructs theCompany to pay to the registered Holder hereof in accordance with Section 15.02 of the Indenture referred to in this Note the entire principal amount of thisNote, or the portion thereof (that is US$1,000 principal amount or an integral multiple thereof) below designated, and (2) if such Fundamental ChangeRepurchase Date does not fall during the period after a Regular Record Date and on or prior to the corresponding Interest Payment Date, accrued and unpaidinterest thereon to, but excluding, such Fundamental Change Repurchase Date. Capitalized terms used herein but not defined shall have the meaningsascribed to such terms in the Indenture. Signatures(s) Social Security or Other Taxpayer Identification Number Principal amount to be converted (if less than all):US$[ · ],000 NOTICE: The above signature(s) of the Holder(s) hereof must correspond withthe name as written upon the fact of the Note in every particular withoutalteration or enlargement or any change whatever. ATTACHMENT 3 FORM OF REPURCHASE NOTICE To: GDS HOLDINGS LIMITED THE BANK OF NEW YORK MELLON, as Trustee The undersigned registered owner of this Note hereby acknowledges receipt of a notice from GDS Holdings Limited (the “Company”) regarding the right ofHolders to elect to require the Company to repurchase the entire principal amount of this Note, or the portion thereof (that is US$1,000 principal amount oran integral multiple thereof) below designated and requests and instructs the Company to repurchase the entire principal amount of this Note, or the portionthereof (that is US$1,000 principal amount or an integral multiple thereof) below designated, in accordance with the applicable provisions of the Indenturereferred to in this Note, at the Repurchase Price to the registered Holder hereof. Capitalized terms used herein but not defined shall have the meaningsascribed to such terms in the Indenture. Signatures(s) Social Security or Other Taxpayer Identification Number Principal amount to be converted (if less than all):US$[ · ],000 NOTICE: The above signature(s) of the Holder(s) hereof must correspond withthe name as written upon the fact of the Note in every particular withoutalteration or enlargement or any change whatever. ATTACHMENT 4 FORM OF ASSIGNMENT AND TRANSFER For value received [ · ] hereby sell(s), assign(s) and transfer(s) unto [ · ] (Please insert social security or Taxpayer Identification Number of assignee) thewithin Note, and hereby irrevocably constitutes and appoints [ · ] attorney to transfer the said Note on the books of the Company, with full power ofsubstitution in the premises. In connection with any transfer of the within Note occurring prior to the Resale Restriction Termination Date, as defined in the Indenture governing suchNote, the undersigned confirms that such Note is being transferred: o To GDS Holdings Limited or a subsidiary thereof; or o Pursuant to a registration statement that has become or been declared effective under the Securities Act of 1933, as amended; or o Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or o Outside the United States to a person that is not a U. S. person in accordance with Regulation S under the Securities Act of 1933, as amended; or o Pursuant to and in compliance with Rule 144 under the Securities Act of 1933, as amended (if available). Dated: Signature(s) Signature Guarantee Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and creditunions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if Notesare to be delivered, other than to and in the name of the registered holder. NOTICE: The signature on the assignment must correspond with the name as written upon the face of the Note in every particular without alteration orenlargement or any change whatever. ATTACHMENT 5 FORM OF CERTIFICATE RE: EXCHANGE FOR RULE 144A NOTE To: The Bank of New York Mellon101 Barclay StreetNew York, NY10286United States of America In connection with the requested exchange of the within Note (or a portion thereof) for a Rule 144A Note with like aggregate principal amount (oran increase in the aggregate principal amount represented by a Global Note that constitutes a Rule 144A Note) prior to the Notes Fungibility Date, as definedin the Indenture governing such Note, the undersigned confirms that: 1. such exchange occurs in connection with a transfer of such Note (or a beneficial interest therein) under Rule 144A (as defined in theIndenture); and 2. such Note (or a beneficial interest therein) is being transferred to a Person: (a) who the undersigned reasonably believes to be a QIB (as defined in the Indenture); (b) purchasing for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A; and (c) in accordance with all securities laws of the states of the United States and other jurisdictions. Dated: Signature(s) Signature Guarantee Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and creditunions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if Notesare to be delivered, other than to and in the name of the registered holder. NOTICE: The signature on the assignment must correspond with the name as written upon the face of the Note in every particular without alteration orenlargement or any change whatever. To be included for Regulation S Notes 1010 ATTACHMENT 6 FORM OF CERTIFICATE RE: EXCHANGE FOR REGULATION S NOTE To: The Bank of New York Mellon101 Barclay StreetNew York, NY10286United States of America In connection with the requested exchange of the within Note (or a portion thereof) for a Regulation S Note with like aggregate principal amount (oran increase in the aggregate principal amount represented by a Global Note that constitutes a Regulation S Note) prior to the Notes Fungibility Date, asdefined in the Indenture governing such Note, the undersigned confirms that the Note (or a beneficial interest therein) has been transferred in accordance withRule 903 or 904 of Regulation S under the U.S. Securities Act of 1933, as amended. Dated: Signature(s) Signature Guarantee Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and creditunions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if Notesare to be delivered, other than to and in the name of the registered holder. NOTICE: The signature on the assignment must correspond with the name as written upon the face of the Note in every particular without alteration orenlargement or any change whatever. To be included for Rule 144A Notes. 1111 ATTACHMENT 7 Certification and Agreement Upon the Deposit of Shares [DATE] JPMorgan Chase Bank, N.A., as DepositaryADR Department383 Madison Avenue, Floor 11New York, New York 10179 Re: GDS Holdings Limited Dear Sirs: Reference is hereby made to the Restricted Issuance Agreement, dated as of June 5, 2018 (the “Restricted Issuance Agreement”), amongGDS Holdings Limited (the “Company”), JPMorgan Chase Bank, N.A., as Depositary, and all holders from time to time of restricted American depositaryshares (“Restricted ADSs”) represented by restricted American depositary receipts, in book entry form (“Restricted ADRs”), issued thereunder. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Restricted Issuance Agreement.References to the Restricted Issuance Agreement include the certification and other procedures established from time to time by the Depositary pursuant tosuch agreement. This certification and agreement is furnished in connection with the deposit by the undersigned of Shares and issuance tothe undersigned of Restricted ADSs under the Restricted Issuance Agreement. We acknowledge, certify and agree that by depositing the Shares, we will become a party to and be bound by the provisions of theRestricted Issuance Agreement and that the Restricted ADSs and the underlying Shares represented thereby (the “Underlying Shares”) have not been and willnot be registered under the Securities Act of 1933, as amended (the “Securities Act”), or with any securities regulatory authority in any state or otherjurisdiction of the United States. The Restricted ADSs and Underlying Shares are “restricted securities” as defined in Rule 144 promulgated under theSecurities Act and are subject to restrictions on transfer under the Securities Act and the Restricted Issuance Agreement. The Restricted ADSs and UnderlyingShares may not be sold, offered for sale, pledged or otherwise distributed, transferred or disposed of except in accordance with, and subject to, the limitationsset forth in the Restricted Issuance Agreement, including the restrictive legend to which such Restricted ADSs and Underlying Shares are subject in the formset forth in Section 3 of the Restricted Issuance Agreement and on the form of Restricted ADR. Additionally, we represent, warrant, certify and agree that (i) we are, or at the time the Shares are deposited and at the time the RestrictedADSs are issued will be, the beneficial owner of the Shares and of the Restricted ADSs; (ii) the Shares were acquired by us from the Company uponconversion of the Company’s 2.00% Convertible Senior Notes due 2025 (the “Convertible Notes”) issued under the Indenture, dated as of June 5, 2018,between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee, and sold pursuant to the Purchase Agreement, dated May 30,2018 (the “Purchase Agreement”), among the Company and J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Citigroup Global Markets Inc., asrepresentatives of the several initial purchasers listed on Schedule I thereto, in a transaction complying with, and exempt from, the registration requirementsof the Securities Act pursuant to Rule 144A and Regulation S promulgated under the Securities Act; (iii) the Shares were acquired by us in a transactionreasonably believed to be complying with, and exempt from, the registration requirements of the Securities Act pursuant to Section 3(a)(9) of the SecuritiesAct and the rules and regulations of the Securities and Exchange Commission promulgated thereunder; (iv) we will not offer, sell, pledge or otherwisedistribute transfer or dispose of the Restricted ADSs or Underlying Shares except in accordance with, and subject to, the limitations set forth in the RestrictedIssuance Agreement, including the restrictive legend to which such Restricted ADSs and Underlying Shares are subject in the form set forth in Section 3 of the Restricted Issuance Agreement and on the form ofRestricted ADR; (v) we are not an affiliate of the Company and we understand that the deposit of Shares, the issuance of the Restricted ADSs and the sale ofthe Restricted ADSs and Underlying Shares are subject to limitations under the Securities Act; and (vi) we are providing this Certification and Agreement toprovide comfort to the Depositary and the Company that such deposit, issuance and any sale may occur without the need for registration under the SecuritiesAct; and (vi) each of the statements made herein are true and complete. We further represent, warrant, certify and agree that: (i) the Shares being deposited were legally obtained by us; and (ii) we reasonably believe we are duly authorized to deposit the Shares and have fulfilled all requirements of applicable law orregulation with respect to the Shares or the deposit thereof against the issuance of Restricted ADSs; and (iii) we reasonably believe the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge,mortgage or adverse claim. We agree to indemnify the Depositary, the Company and each of their respective officers, directors, agents, employees, and affiliates for anyand all liability incurred as a result of their reliance on our representations, warranties, certifications and agreements contained herein or in connection withour deposit of Shares, the issuance of the Restricted ADSs in connection therewith, any sale or transfer of the Restricted ADSs or the Underlying Shares, thesurrender and cancellation of any such Restricted ADSs, the withdrawal of the Underlying Shares, the re-deposit of any such Underlying Shares in theUnrestricted Deposit Agreement, the issuance of any ADRs under the Unrestricted Deposit Agreement in connection therewith and/or any sale, resale or othertransfer of any such ADRs or Underlying Shares thereafter. We acknowledge that our representations, warranties, certifications and agreements contained herein shall survive the deposit of Shares, theissuance of the Restricted ADSs in connection therewith, any sale or transfer of the Restricted ADSs or the Underlying Shares, the surrender and cancellationof any such Restricted ADSs, the withdrawal of the Underlying Shares, the re-deposit of any such Underlying Shares in the Unrestricted Deposit Agreement,the issuance of any ADRs under the Unrestricted Deposit Agreement in connection therewith and/or any sale, resale or other transfer of any such ADRs orUnderlying Shares thereafter. This Certificate and Agreement shall be governed by and construed in accordance with the internal laws of the State of NewYork. Very truly yours, [NAME OF CERTIFYING ENTITY] By:Name:Title EXHIBIT B FORM OF AUTHORIZATION CERTIFICATE GDS HOLDINGS LIMITED AUTHORIZATION CERTIFICATE I, William Wei Huang, as Chief Executive Officer of GDS Holdings Limited (the “Company”), hereby certify that: (1) Daniel Newman has been duly appointed as Chief Financial Officer of the Company, and William Wei Huang has been duly appointed asthe Chief Executive Officer of the Company; (2) the specimen signature of each individual appearing opposite his name below is the true and genuine signature of each such individual; (3) each such individual is duly authorized to execute and deliver on behalf of the Company (i) the Indenture, dated as of June 5, 2018,between the Company and The Bank of New York Mellon , as Trustee, (ii) the Company’s 2.00% Convertible Senior Notes due 2025 in the aggregateprincipal amount of US$300,000,000 (the “Notes”), and (iii) any other documents or certificates delivered or to be delivered in connection with the offeringof the Notes; and (4) each such individual has the authority to provide written direction / confirmation and execute documents to be delivered to, or upon therequest of, The Bank of New York Mellon , as Trustee, Securities Custodian, Registrar, Paying Agent and Conversion Agent under the Indenture between theCompany and The Bank of New York Mellon, dated as of June 5, 2018. Authorized Officers: Name TitleSignature Phone Number William Wei HuangChief Executive Officer Daniel NewmanChief Financial Officer IN WITNESS WHEREOF, I have hereunto signed my name this 5th day of June, 2018. By.Name: William Wei HuangTitle: Chief Executive Officer Exhibit 8.1 List of Subsidiaries of the Registrant (as of December 31, 2018) Subsidiaries Jurisdiction of IncorporationEDC Holding LimitedCayman IslandsFurther Success LimitedBritish Virgin IslandsEDC China Holdings LimitedHong KongEDE I (HK) LimitedHong KongEDE II (HK) LimitedHong KongEDE III (HK) LimitedHong KongEDB (HK) LimitedHong KongEDB II (HK) LimitedHong KongFEP (HK) LimitedHong KongEDCQ (HK) LimitedHong KongEDH (HK) LimitedHong KongEDS (HK) LimitedHong KongMegaport International LimitedBritish Virgin IslandsGDS (Hong Kong) LimitedHong KongEDCD (HK) LimitedHong KongEDKS (HK) LimitedHong KongEDSUZ (HK) LimitedHong KongGDS Data Services Company Ltd.MacauGDS Services LimitedCayman IslandsGDS Services (Hong Kong) LimitedHong KongRDTJ LimitedHong KongEBSD (HK) LimitedHong KongEDF (HK) LimitedHong KongEDF I (HK) LimitedHong KongEDF II (HK) LimitedHong KongEDF III (HK) LimitedHong KongEDSN (HK) LimitedHong KongRAOJIN LimitedHong KongEDP (HK) LimitedHong KongEDP I (HK) LimitedHong KongEDP II (HK) LimitedHong KongFEH (HK) LimitedHong KongEDKH (HK) LimitedHong KongRDKH (HK) LimitedHong KongGuojin (HK) LimitedHong KongLKH (HK) LimitedHong KongEDQ (HK) LimitedHong KongIECQ (HK) LimitedHong KongEDQ I (HK) LimitedHong KongEDQ II (HK) LimitedHong KongEDQ III (HK) LimitedHong KongEDJ I (HK) LimitedHong KongEDJ II (HK) LimitedHong KongEDJ III (HK) LimitedHong KongDNK (HK) LimitedHong KongPSDC LimitedHong KongEBG (HK) LimitedHong KongGDS IDC Services Pte. Ltd.SingaporeLINKDC Pte. Ltd.SingaporeEDC (Chengdu) Industry Co., Ltd.* 万国数据 (成都) 实业有限公司PRC EDC Technology (Kunshan) Co., Ltd.* 万国数据科技发展(昆山)有限公司PRCEDC Technology (Suzhou) Co., Ltd.* 万国数据科技发展(苏州)有限公司PRCGuojin Technology (Kunshan) Co., Ltd.* 国金数据科技发展(昆山)有限公司PRCShanghai Yungang EDC Technology Co., Ltd.* 上海云港万国数据科技发展有限公司PRCShenzhen Yungang EDC Technology Co., Ltd.* 深圳云港万国数据科技发展有限公司PRCBeijing Hengpu’an Data Technology Development Co., Ltd.* 北京恒普安数码科技发展有限公司PRCBeijing Wanguo Shu’an Science &Technology Development Co., Ltd.* 北京万国曙安科技发展有限公司PRCGDS (Shanghai) Investment Co., Ltd.* 万数 (上海) 投资有限公司 (formerly known as Shanghai Free Trade Zone GDSManagement Co., Ltd.* 上海自贸区万国数据管理有限公司)PRCShenzhen Pingshan New Area Global Data Science & Technology Development Co., Ltd.* 深圳市坪山新区万国数据科技发展有限公司PRCShanghai Shuchang Data Science & Technology Co., Ltd.* 上海曙长数据科技有限公司PRCShanghai Wanshu Data Technology Co., Ltd.* 上海万曙数据科技有限公司PRCGuangzhou Shi Wan Guo Yun Lan Data Technology Co., Ltd.* 广州市万国云蓝数据科技有限公司PRCGuangzhou Wanxu Technology Services Co., Ltd. *广州万旭科技服务有限公司PRCShanghai Puchang Data Science & Technology Co., Ltd.* 上海普长数据科技有限公司PRCWan Qing Teng Data (Shenzhen) Co., Ltd.* 万青腾数据（深圳）有限公司PRCShanghai Shuyao Data Technology Co., Ltd.* 上海曙耀数码科技发展有限公司PRCShanghai Lingying Data Technology Co., Ltd.* 上海伶英数码科技发展有限公司PRCBeijing Hengchang Data Science &Technology Development Co., Ltd.* 北京恒长数码科技发展有限公司PRCShanghai Shuge Data Science & Technology Co., Ltd.* 上海曙格数据科技有限公司PRCShanghai Shulan Data Science & Technology Co., Ltd.* 上海曙岚数据科技有限公司PRCShanghai Fengtu Data Science & Technology Co., Ltd.* 上海丰徒数据科技有限公司PRCShanghai Jingyao Network Technology Co., Ltd.* 上海暻耀网络技术有限公司PRCShou Xin Yun (Beijing) Science & Technology Co., Ltd.* 首信云（北京）科技有限公司PRCBeijing Wan Qing Teng Science & Technology Co., Ltd.* 北京万青腾科技有限公司PRCBeijing Wan Teng Yun Science & Technology Co., Ltd.* 北京万腾云科技有限公司PRCBeijing Hua Wei Yun Science & Technology Co., Ltd.* 北京华威云科技有限公司PRCShou Rong Yun (Beijing) Science & Technology Co., Ltd.* 首融云（北京）科技有限公司PRCJiangsu Wanguo Xingtu Data Services Co., Ltd.* 江苏万国星图数据服务有限公司PRCShenzhen Qian Hai Wan Chang Technology Services Co., Ltd.* 深圳前海万长技术服务有限公司PRCShenzhen Anda Data Science & Technology Development Co., Ltd.* 深圳谙达数据科技发展有限公司PRCHeyuan Teng Wei Yun Science & Technology Co., Ltd.* 河源腾威云科技有限公司PRC Wulanchabu Wanguo Yuntu Data Services Co., Ltd.* 乌兰察布万国云图数据服务有限公司PRCZhangjiakou Yunhong Data & Technology Co., Ltd.* 张家口云宏数据科技有限公司PRCConsolidated Variable Interest EntitiesBeijing Wanguo Chang’an Science & Technology Co., Ltd.* 北京万国长安科技有限公司PRCShanghai Shu’an Data Services Co., Ltd.* 上海曙安数据服务有限公司PRCGuangzhou Weiteng Construction Co., Ltd.* 广州市维腾建设有限公司PRCGlobal Data Solutions Co., Ltd.* 万国数据服务有限公司PRCKunshan Wanyu Data Service Co., Ltd.* 昆山万宇数据服务有限公司PRCShanghai Waigaoqiao EDC Technology Co., Ltd.* 上海外高桥万国数据科技发展有限公司PRCBeijing Wanguo Yixin Science & Technology Co., Ltd.* 北京万国亦新科技有限公司PRCZhangbei Yuntong Data Technology Co., Ltd.* 张北云通数据网络科技有限公司PRCShenzhen Yaode Data Services Co., Ltd.* 深圳耀德数据服务有限公司PRCShenzhen Jinyao Science & Technology Co., Ltd.* 深圳市晋耀科技有限公司PRCGuangzhou Weiteng Network Technology Co., Ltd.* 广州市维腾网络科技有限公司PRCShanghai Jinkai Data Technology Co., Ltd.* 上海晋凯数据科技有限公司PRCCai Tuo Cloud Computing (Shanghai) Co., Ltd.* 财拓云计算（上海）有限公司PRCBeijing Wan Chang Yun Science & Technology Co., Ltd.* 北京万长云科技有限公司PRCGuangzhou Weiteng Data Science & Technology Co., Ltd.* 广州市维腾数据科技有限公司PRC *The English name of this subsidiary or consolidated Variable Interest Entity, as applicable, has been translated from its Chinese name. Exhibit 12.1 Certification by the Chief Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, William Wei Huang, certify that: 1. I have reviewed this annual report on Form 20-F of GDS Holdings Limited (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalentfunctions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theCompany’s internal control over financial reporting. Date: March 13, 2019 By:/s/ William Wei HuangName:William Wei HuangTitle:Chief Executive Officer Exhibit 12.2 Certification by the Chief Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Daniel Newman, certify that: 1. I have reviewed this annual report on Form 20-F of GDS Holdings Limited (the “Company”); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periodcovered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the Company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this reportbased on such evaluation; and (d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during theperiod covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting; and 5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalentfunctions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financialinformation; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theCompany’s internal control over financial reporting. Date: March 13, 2019 By:/s/ Daniel NewmanName:Daniel NewmanTitle:Chief Financial Officer Exhibit 13.1 Certification by the Chief Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the annual report of GDS Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2018 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, William Wei Huang, Chief Executive Officer of the Company, certify, pursuantto 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 13, 2019 By:/s/ William Wei HuangName:William Wei HuangTitle:Chief Executive Officer Exhibit 13.2 Certification by the Chief Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the annual report of GDS Holdings Limited (the “Company”) on Form 20-F for the year ended December 31, 2018 as filed withthe Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Newman, Chief Financial Officer of the Company, certify, pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 13, 2019 By:/s/ Daniel NewmanName:Daniel NewmanTitle:Chief Financial Officer Exhibit 15.1 Consent of Independent Registered Public Accounting Firm The Board of DirectorsGDS Holdings Limited: We consent to the incorporation by reference in the registration statement (No. 333-214800) on Form S-8 and the registration statement (No. 333-222659) onForm F-3 of GDS Holdings Limited of our report dated March 13, 2019, with respect to the consolidated balance sheets of GDS Holdings Limited as ofDecember 31, 2017 and 2018, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity (deficit) and cash flowsfor each of the years in the three-year period ended December 31, 2018 and the effectiveness of internal control over financial reporting as of December 31,2018, which report appears in the December 31, 2018 annual report on Form 20-F of GDS Holdings Limited. Our report refers to a change in the Company’s method of accounting for revenue recognition in 2018 due to the adoption of ASU No. 2014-09, Revenuefrom Contracts with Customers (Topic 606), as amended. /s/ KPMG Huazhen LLP Shanghai, ChinaMarch 13, 2019 Exhibit 15.2 March 13, 2019 To:GDS Holdings Limited2/F, Tower 2, Youyou Century Place,428 South Yanggao RoadPudong, Shanghai 200127People’s Republic of China Re: Annual Report on Form 20-F of GDS Holdings Limited Dear Sirs, We are qualified lawyers of the People’s Republic of China (the “PRC”, for the purpose of this consent, excluding the Hong Kong Special AdministrativeRegion, Macao Special Administrative Region and the region of Taiwan) and as such are qualified to advise on PRC laws, regulations or rules effective onthe date hereof. We are acting as the PRC counsel to GDS Holdings Limited (the “Company”), a company incorporated under the laws of the Cayman Islands, in connectionwith the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 (the “2018 Annual Report”). We consent to the reference to our firm under the headings “Risk Factors” and “Organizational Structure” in the Company’s 2018 Annual Report, which willbe filed with the Securities and Exchange Commission (the “SEC”). We also consent to the filing with the SEC of this consent letter as an exhibit to the 2018Annual Report. Yours faithfully,/s/ King & Wood MallesonsKing & Wood Mallesons 1

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