Azalea Asset Management will be listing the Astrea 8 private equity (PE) bonds in July. This is the fifth listed retail bond that gives retail investors in Singapore access to the PE asset class. Astrea 4 was the first such bond available to Singapore retail investors and was launched in June 2018.
Who is Azalea
Azalea Asset Management is indirectly wholly owned by Temasek Holdings. Azalea invests in private equity with a focus on the development and innovation of new investment platforms and products to make PE accessible to a broader group of investors.
The total offering size of the Astrea 8 bonds is approximately US$585 million. The figure comprises S$520 million worth of Class A-1 bonds at a fixed interest of 4.35% per annum and US$200 million worth of Class A-2 bonds at a fixed interest rate of 6.35% per annum. Both classes are ranked equally in terms of priority of payment.
The public offer for Class A-1 bonds is S$250 million, while the public offer for Class A-2 bonds is US$50 million.
How to apply for Astrea 8 Bonds?
If you are interested in Astrea 8, you can apply via ATM, Internet banking, or mobile banking of DBS (including POSB), OCBC and UOB. The minimum amount in their respective currencies is $2,000, and applications must be in multiples of $1,000.
Key application details to note:
- Application start date: Thursday 11 July 2024, 9am
- Application close date: Wednesday 17 July 2024, 12pm
- Bond issue date: Friday 19 July 2024
- Bond trading date: Monday 22 July 2024 on SGX-ST
For more information, you can take a look at the prospectus here. There is also a hotline to call for queries at the following banks:
- DBS Bank: 1800 111 1111
- POSB: 1800 339 6666
- OCBC: 1800 363 3333
- UOB: 1800 222 2121
There is a non-refundable administrative fee of S$2 paid by the applicant for each application.
Please also ensure that you submit only one valid application for a class of Bonds under its public offer. This means that you can apply once each for Class A-1 Bonds and Class A-2 Bonds.
How much can I be allocated?
Depending on demand, Astrea 8 plans to allocate valid applications as follows:
a) all applications of less than S$50,000 for Class A-1 Bonds or less than US$50,000 for Class A-2 Bonds will be allocated in full or in part; and
b) applications of S$50,000 or more for Class A-1 Bonds or US$50,000 or more for Class A-2 Bonds will be balloted, with successful applicants allocated in full or in part.
This means that if you want to be guaranteed an allocation, your application needs to be less than $50,000 in the respective currencies.
What is my bond yield?
- Class A-1 SGD Bonds – interest rate of 4.35%, Mandatory call at the end of 5 years (19 July 2029), and a credit rating of “A+sf” by Fitch ratings.
- Class A-2 USD Bonds – interest rate of 6.35%, Mandatory call at the end of 6 years (19 July 2030), and a credit rating of “Asf” by Fitch ratings.
Subscribers to the Class A-2 Public Offer, which is US-dollar denominated, will pay in Singapore Dollars at the fixed US-dollar exchange rate of US$1.00 to S$1.35.
| Bond | Minimum Amt | Interest Rate | Interest Amt / Year | Total Amt at call date* |
| Class A-1 SGD Bonds | SGD 2,000 | 4.35% | SGD $87 / year (Paid out half annually) | SGD $2000 principal + SGD $435 interest collected |
| Class A-2 USD Bonds | USD 2,000 (or SGD 2,700) | 6.35% | USD $127 / year (Paid out half annually) | USD $2000 principal + USD $762 interest collected |
The interest rate for Class A-2 bonds are much higher than Class A-1 bonds as interest rates in the US are higher than in Singapore, subscribers have to take on currency risk as well as the additional risk from the later redemption of the bonds.
Salient details of Astrea 8 PE bonds
Astrea 8 PE bonds are backed by cash flows from a portfolio of 38 PE funds managed by 27 reputable general partners.
As of Dec 31, 2023, these funds invest in 1,028 companies across various regions, vintages and sectors. The total portfolio net asset value (NAV) for these funds is US$1.47 billion, with a fund strategy of 76% buy out and 24% growth equity. The funds are mostly based in the US (63%), followed by Europe (20%) and Asia (17%). The vintage years range from 2015 to 2020.
The 1,028 companies are across multiple sectors, with IT accounting for 30% as shown in the snapshot below.
What is Private equity?
Private Equity generally refers to the asset class where equity positions are acquired in private companies or in publicly traded companies that may be acquired and privatised as a result of a PE transaction.
PE Funds are typically close-ended and managed by professional PE Fund managers. In general, PE Funds generate their returns by proactively making improvements in an investee and utilising various strategies, such as helping the investee improve its operations and its capital structure.
Some PE Funds acquire majority ownership positions in an Investee Company in order to exercise meaningful control of the investee’s board, governance, and operations.
PE Funds tend to hold their investments for several years, as a longer time is required to realise the benefits of improvements in the Investee Companies. The holding period for each investment made by PE Funds is typically between 3 to 7 years.
Why does Azalea issue bonds?
Azalea issue bonds to diversify its funding source as well as to achieve an optimal capital structure. Companies can issue bonds for a duration that is aligned to their investment timeframe. In this case, Azalea is issuing bonds for at least 5 years, with a maximum length of 15 years.
Bond financing is also often less expensive than equity and does not entail giving up any control of the company.
Is the bond capital protected?
The bond is not capital protected, therefore there is risk to this investment.
The risk arises from the underlying performance of the fund which is subjected to investment, market and leverage risk. Additionally, Class A-2 bond is in US$, therefore investors who converts their S$ to invest will also be subject to exchange rate fluctuations.
There are 3 structural safeguards in place, as listed below. Additionally, the initial loan to value is slated to be below 40%.
1) Reserve accounts: Cash build-up to repay principal amounts
2) Maximum Loan to Value Ratio: Crossing the debt level limit of 40% triggers the lowering of total net debt.
3) Credit facility: In place to fund certain expenses and capital calls for fund investments if cash flow shortfall occurs.
The above chart shows a simplified illustration of the priority of payment for bondholders.
Although both Class A-1 and ClassA-2 Bonds rank equally to each other, cash being built up will be first reserved to repay the principal of Class A-1 Bonds.
Capital gain opportunity
Yes the bond is not capital protected, however, this means there is an opportunity for capital gains.
The Astrea PE bonds have enjoyed multiple credit rating upgrades since issuance, as illustrated in the diagram below. The rating upgrades reflect the improved credit quality of the Astrea PE bonds that is underpinned by the Astrea portfolios’ quality, resilient performance, healthy loan-to-value ratios and the regular accumulation of cash reserves, which has helped to de-risk each Astrea transaction progressively over time.
The upgrades also reflect the rating agencies’ view that the Astrea PE bonds can withstand large declines in their transaction net asset values without affecting their respective ratings, and the Astrea portfolios’ strong liquidity positions, which have allowed them to continue meeting capital calls, expenses, and interest, even if distributions were to decline. In the agencies’ rating analyses, the Astrea portfolios performed well and better than the stress scenarios.
When does the bond mature?
There is a scheduled call date for Class A-1 bonds on July 2029, while the scheduled call date for Class A-2 bonds is on July 2030.
If the Class A-1 and Class A-2 bonds are not redeemed on their respective scheduled call dates, there will be a one-time 1.0% per annum step-up in the respective rates.
Both the Class A-1 bonds and Class A-2 bonds will legally mature in July 2039.
It is mandatory for Astrea 8 to redeem both bonds on their respective call dates if several conditions are met.
For Class A-1 bonds, the bonds need to be redeemed if the cash set aside in the reserves accounts and reserves custody accounts are sufficient to redeem the bonds. There also needs to be no outstanding credit facility loan.
For Class A-2 bonds, there needs to be no outstanding Class A-1 bonds to be redeemed; the cash set aside in the reserves accounts and reserves custody accounts also need to be enough to redeem the bonds. Like the Class A-1 bonds, there needs to be no outstanding credit facility loan.
Conclusion
Looking at the Astrea bonds traded on 5 July 2024, we can see that the recent Astrea bonds trade close to par. They have provided stability and regular returns to investors to date. The underlying investment is also well diversified as compared to an investment in one listed company bond.
However, it must be made aware that there are a range of investment and market risks which are unique to a PE investment, which are also applicable to even the bondholders.
You can watch the following video for more opinions about Astrea 8 Bonds:
Thanks for the write-up. Any idea the semi-annual coupons are paid at which month?
July and January
Hello wondering if you know this – if I buy the USD tranche , upon maturity or redemption after 6 years, do I get the bond proceeds in USD or SGD? For retail tranche is there also an option for me to bid with my own USD funds instead of converting at their fixed USDSGD fx rate?
You can make an electronic application for the USD Bonds in the same manner as SGD Bonds under the respective public offers.
Applications for the USD Bonds will be made in S$ based on a predetermined exchange rate of US$1.00:S$1.35.
Although interest and principal payments on the US$ denominated Class A-2 Bonds are made by
the Issuer in US$, if you are a direct securities account holder of CDP who has applied for
CDP’s Direct Crediting Service (allowing CDP to credit cash distributions into your designated
bank account), you will receive these payments in S$ by default (converted by CDP at such exchange rate
provided by CDP’s partner bank).
You may opt-out from receiving payments in S$ via CDP Internet. Upon opting out, your foreign currency
cash distribution will not be converted. It will remain in your cash balance with CDP. Please note there is
telegraphic transfer fee imposed by CDP in addition to applicable receiving bank charges per withdrawal
request.
For more information, refer to the Currency Conversion Service (CCY) section under CDP’s FAQ page at
https://www.sgx.com/cdpfaqs.
In the case of redemption at maturity, is the amount to be refunded to us based on the NAV at the prevailing time?
No, redemption at scheduled maturity will be at cost. This is provided there is adequate reserves to do so. There is no capital gain element at maturity.
But if I sell before maturity I could log in capital gains? Is this traded like a typical stock on the exchange?
Also I see that the trading price goes astrea7 for class 1 and class 2 are quite different. Class 2 (usd) seems to trade at a higher price. What’s the reason for this anomaly since both class 1 and 2 invest in the same underlying products? Thanks in advance.
likely due to difference in interest accrued.
Hi,
what’s the difference (in cost) between applying for Astrea8 Vs buying Astrea7 bonds from the market?
In theory the value is the same. Astrea 8 is sold at par while Astrea 7 is at the market price which adjusts for interest rate differential and also includes accrued interest.
If the bond is not redeemed at the end of 5 yrs, can the issuer do so anytime at it’s discretion?
yes, but it needs to have the ability to do so.
if the general expectation is that Interest rates will fall in the near future, what is the corresponding effect on the bond price?
generally bond prices go up when prevailing interest rates fall.
I’m new to PE, any fee or interest incurred if early termination e.g. at 2027 Jan?
How much if yes?
its an exchange traded product, you have to sell in the open market if you want to get back your funds
what is the merit of buying Class A2 bonds vs Class A1 bonds other than higher interest ?
another merit is the exposure to USD and a later call date
Is it true we cannot buy the A-2 bond in USD instead of using SGD? I’ve USD in my DBS Multiplier account.
you can only make the purchase in SGD at a prefixed rate of USD:SGD 1.35
Hi can I subscribe for the USD and also the SGD tranches for this bond fund?
Should I hold to maturity will my USD fund be automatically converted back to SGD at the same rate of 1.35 as prefixed now?
Thanks
Yes you can have one subscription each to the USD & SGD tranche. No it will not be automatically converted back a prefixed rate, it will be at the prevailing rate.
Can I subscribe the USD and also the SGD tranche at one go ?
Should I hold to maturity, will my USD be automatically converted back to SGD at the current prefixed rate of 1.35?
Yes you can have one subscription each to the USD & SGD tranche. No it will not be automatically converted back a prefixed rate, it will be at the prevailing rate.
Is the interest rate of 4.5% fair for the tenor of the bond?
considering the credit rating, it is at a reasonable price
Hi, how do I sell Astrea bonds (e.g. I own Astrea 7)? Do I need to request a transfer from CDP to my broker? Does it differ for USD vs SGD denominated bonds?
it would be best to inquire with your broker on the mechanism for your specific situation. it should not differ between the USD/SGD bonds
Hi, Can you share what is the meaning of indirectly wholly owned by Temasek Holding.
What is Temasek’s role and obligation in this bond (if any)?
Thank you.
Astrea is one of Temasek’s many investments in which Temasek has a 100% stake in.
Temasek has no obligation or direct role. Astrea is just another company backed by Temasek
Hi Alex,
Can I check if there is any max limit for individual application?
If there is a max amount can I apply 4 different applications? or it will be treated as an individual account? Thanks.
there is no max limit but you should only make 1 application per class of bond.
Also, Astrea indicated that they plan to guarantee an allocation for amounts below $50k. this does not mean its a full allocation, just a guaranteed allocation of an amount that will be determined by Astrea.