Temasek-linked PE vehicle to issue US$600m bonds

Singapore

YIELD-HUNGRY retail investors can look forward to a new bond issue by Temasek Holdings-linked private equity vehicle Astrea V. The public offer tranche is expected to be larger than the S$121 million from Astrea IV last year, The Business Times understands.

In its preliminary prospectus lodged on the Monetary Authority of Singapore's Opera site on Wednesday, the private equity (PE) bond issued by Astrea V is largely similar to Astrea IV's 2018 bond issue in terms of structure and features.

Details such as the coupon rates of the Astrea V bond are expected soon. The 4.35 per cent to 6.75 per cent coupon rates of Astrea IV's 2018 bond issue could be instructive for Astrea V's though.

Ang Chung Yuh, manager of fixed income division at iFast and has been invited to a roadshow to find out more about the latest issue, told BT that the coupon rates depend on a lot of factors, including how diversified the portfolio is and the proportion of equity.

Still, he expects investors' response to be strong given the good track record of two earlier Astrea PE bonds, performance of which has been in line with expectations of ratings agency Fitch. These bonds have seen their ratings recently upgraded.

Also, retail investors who were unfamiliar with asset-backed securities have had the benefit of the past year to look at the performance of Astrea IV, Mr Ang said.

Astrea V issue plans to raise a total of US$600 million via three tranches, each designed to target a particular risk appetite.

The least-risky tranche is the Class A-1 offering amounting to S$315 million and scheduled to be redeemed at the end of five years. A portion of the bonds will be offered to retail investors at a minimum investment of S$2,000. The exact amount available for retail subscription will be determined and will depend on the response during bookbuilding - a process in which financial advisers ask important investors how much they might buy and at what yield in order to decide the coupon rate.

BT, however, understands that this is expected to be larger than Astrea IV's S$121 million.

Class A-1 tranche is expected to be rated Asf and A+ (sf) by Fitch and its peer S&P respectively, with the "sf" suffix referring to structured financial instrument.

Class A-2 bonds - also scheduled to be redeemed at end of the fifth year - and Class B bonds are expected to raise US$230 million and US$140 million, respectively. Both classes will be available to accredited investors and institutions only.

Expected ratings for A-2 and B tranches are Asf and BBBsf, respectively by Fitch, but these two tranches are not expected to be rated by S&P.

For A-1 and A-2 bonds, there will be a one-time step-up interest rate of 1 per cent per annum if that tranche is not redeemed after five years.

Bonus payment, not exceeding 0.5 per cent of principal at redemption, will be made to A-1 bondholders if performance condition is met.

Similar to Astrea IV bond, this issue has structural safeguards in place including a reserve account that builds up cash to redeem the tranches.

Astrea V bonds are backed by a US$1.3 billion portfolio of 38 funds managed by 32 PE managers, giving exposure to some 860 companies in various industries including IT, consumer discretionary, financials, industrials, healthcare and communication services.

Astrea V is sponsored by Astrea Capital V, an indirect wholly-owned subsidiary of Azalea Asset Management, which is wholly owned by Temasek.