Temasek’s Azalea launches Astrea 7 PE bonds with fixed coupon of 4.125% and 6%

AZALEA investment management on Thursday (May 19) launched its latest batch of Astrea private equity (PE) bonds for public subscription, with retail investors having access to Class B bonds that pay a higher fixed interest rate for the first time.

The public offer of Astrea 7 PE bonds comprises S$280 million in Class A-1 bonds, which pay a fixed interest rate of 4.125 per cent per annum, above the coupon for Class A-1 bonds in the previous Astrea V and VI issuances.

Retail investors can also apply for US$100 million in Class B bonds, which pay a higher fixed interest rate of 6 per cent per annum. However, these bonds come with a higher credit risk profile, as they rank junior to Class A-1 and A-2 bonds and are behind Class A bonds in terms of priority of payment.

Even so, the manager noted that both classes are expected to have investment-grade credit ratings, with an A+sf rating for Class A-1 bonds and a BBB+sf rating for the Class B bonds from Fitch.

Astrea 7 is the fourth time that Temasek-owned Azalea is offering private equity bonds to retail investors. Earlier issuances only sold Class A-1 bonds to retail investors – with coupons of between 3 per cent and 4.35 per cent.

“We always said that we will take a step-by-step phased approach to bringing this exposure to the market,” said Margaret Lui, chief executive of Azalea during a press briefing. She noted that their earlier series of bonds in the market also allowed investors to see the risk and reward coming from different tranches.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

There has also been “significant interest” from retail bond investors to invest in the more junior classes of the Astrea PE bonds.

Lui added: “We are pleased that Astrea 7 offers retail investors in Singapore the option to invest in a US Dollar-denominated bond. This is very much in line with our commitment to broaden access to private equity and better cater to investors with different risk preferences and investment horizons.”

The Astrea 7 Class A-1 bonds are denominated in Singapore dollars, while the Class B bonds are denominated in US dollars, with a minimum subscription of S$2,000 and US$2,000 in the respective classes.

The public offer follows the placement of S$246 million of Class A-1 Bonds, US$175 million of Class A-2 Bonds and US$100 million of Class B Bonds to institutional investors and accredited investors.

The manager said the placement tranche was more than 3 times subscribed. Similar to the previous Astrea issuances, the placement to institutions and accredited investors, through the book building process, helped determine the interest rate.

Astrea 7 PE bonds are backed by cashflows from a US$1.9 billion portfolio of investments in 38 PE funds, which have 982 investee companies. The total size of Astrea 7 PE bonds issued is US$755 million, giving it a 39.6 per cent loan-to-value (LTV), lower than previous issuances.

Lui noted that there are macroeconomic headwinds globally, and they have been prudent with a lower LTV.

While the current markets would be stressful for any investor, having high-quality underlying assets that are robustly structured to be prudent would weather through the cycles, she added. This would apply to PE, which is a long-term product.

The bonds have a maturity date of 10 years. Class A-1 bonds have a mandatory call at the end of 5 years and Class B bonds have a mandatory call at the end of 6 years if certain conditions are met.

The application period for the Astrea 7 PE bonds opens on Friday (May 20) at 9 am, and closes at noon on Wednesday (May 25).