Astrea VI private equity bonds launched; subscription starts March 10

THE retail tranche of the latest issuance of private equity bonds, Astrea VI, was launched on Tuesday with a fixed interest rate of 3 per cent per annum.

In a briefing on Tuesday, Azalea Asset Management said S$250 million worth of the lowest-risk Class A-1 bonds will be open for subscription from 9am on Wednesday (March 10).

The offer will close at noon on March 16. Applications will be in multiples of S$1,000 with a minimum of S$2000.

The public offer follows the successful placement of S$132 million worth of Class A-1 bonds; US$228 million of Class A-2 bonds and US$130 million of Class B bonds to institutional and accredited investors. The placement was seven times subscribed.

The fixed rates for Class A-2 and Class B bonds are 3.25 and 4.35 per cent, respectively.

Class A-1 and A-2 Bonds have a scheduled call date in five years on March 18, 2026, and final maturity in 10 years on March 18, 2031.

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Azalea Asset Management, an indirect subsidiary of Temasek Holdings, has set itself a mission to democratise access to private equity for retail investors, in a bid to help enhance their long-term savings.

To date there have been three issuances - Astrea IV, Astrea V and now Astrea VI - with retail tranches.

The latest interest rates are the lowest so far. The Class A-1 bonds of Astrea IV carried a fixed rate of 4.35 per cent at launch in 2018. Astrea V's Class A-1 bonds had a coupon rate of 3.85 per cent in 2019.

Still, the issue may well be well-subscribed, thanks to the hunger for yield amid a low-rate environment. Ten-year Singapore government bonds are trading at about 1.58 per cent. The latest March issuance of Singapore Savings Bonds is quoted at an average return per annum over 10 years of 1.15 per cent.

Azalea said the placement tranche saw strong demand across all classes of bonds, with a combined placement order book of US$3.2 billion equivalent from 149 accounts.

There was a good mix of high-quality institutions (67 per cent) including insurance companies, asset managers, endowments and foundations, as well as accredited investors who accounted for 33 per cent.

Margaret Lui, Azalea chief executive, said: "Azalea VI Class A-1 PE Bonds offer retail investors an opportunity to invest for their future, through an investment grade bond which provides regular income and exposure to private equity at the same time. We are also heartened by the strong demand for the Astrea VI PE Bonds from institutional and accredited investors...

"Looking ahead, Azalea will continue to further develop the Astrea platform and innovate products of different risk profiles for both institutions and retail investors."

Class A-1 Bonds are expected to be rated A+sf by Fitch and A+ (sf) by S&P.

Azalea managing director and head of private equity funds Chue En Yaw said Astrea VI PE Bonds are backed by cash flows from a US$1.5 billion portfolio of investments in 35 PE funds managed by reputable managers. The portfolio gives exposure to 802 underlying companies at launch. By strategy, the exposure is 81 per cent buyout funds and 19 per cent growth equity. "The larger portfolio allows us to offer more PE bonds to retail investors while retaining a conservative capital structure.''

Similar to earlier Astrea issuances, the latest issue features a number of structural safeguards. These include diversification across multiple sectors and a credit facility to fund expenses in the event of cash shortfalls. There is also a prescribed priority of payments to ensure there is enough cash in the reserve accounts for redemption of Class A-1 bonds. The structure also stipulates a maximum loan-to-value ratio with steps to ensure this is not breached.

The LTV ratio of Astrea VI stands at 44 per cent.

The prospectus has described a number of risks. These include adverse macro economic or market conditions which could reduce deal activity and cause the portfolio to receive less distributions.

Read more:

• PE-backed bonds: innovating for income

• New issuance of Astrea PE-backed bonds launched; interest rates to be decided