Astrea V Private Equity Bonds: 10 Things You Need To Know Before Investing
Bonds are generally considered a safer and less risky type of investment instrument. They are also a great way for stock investors to diversify their portfolios. Here in Singapore, bonds have gradually become more popular over recent years.
Besides the Singapore Savings Bonds (SSBs), which issues new tranches of bonds every month, other bonds that have recently been central to the discussion include Singapore Airlines (SIA) Retail Bond 2019, Temasek’s T2023-S$ Bonds and of course, the Astrea IV Bonds issued last year.
Here are 10 things you should know about the Astrea V Bonds before investing in it.
#1 What Are Astrea V PE Bonds?
Astrea V Private Equity (PE) Bonds are backed by cash flows from a diversified portfolio of PE funds. Astrea V comes on the back of the hugely successful Astrea IV bonds issued last year, and is only the second listed retail PE bonds that provide investors with access to the private equity.
Private equity is an investment class that is not easily accessed by retail investors. This is because investing in private equity usually requires:
- Deep understanding, access to information and deals as well as professional expertise. (Which Astrea V’s manager, Azalea handles)
- A very large investment amount (Which is why Astrea V is segmented into smaller-denominated bonds)
- A long and unpredictable holding period, which makes it an illiquid investment. (Which Astrea V solves by being tradable on the Singapore Exchange (SGX))
While the Astrea V breaks the barriers to private equity investing for us, retail investors we still need to be mindful that we are investing in bonds rather than private equity.
For those who were following the Astrea IV when it was issued last year, Astrea V is issuing a larger bond offering worth US$600 million. This is larger than the Astrea IV, which issued US$510 million.
There will be three classes of bonds, Class A-1 Bonds, Class A-2 Bonds and Class B bonds, of which only Class A-1 Bonds will be open for public subscription for retail investors like us. The Class A-1 bonds is expected to raise S$315 million (or close to US$230 million), which is also larger than the S$242 million offered on Astrea IV’s public subscription allotment. Of the S$315 million, S$135 million has been set aside for placement, and S$180 million will be available to the public.
Astrea V’s portfolio comprises US$1.3 billion and includes 38 funds, invested in 862 companies. These companies are primarily based in the US (56%), Europe (22%) and Asia (22%).
Astrea V Pte. Ltd. is the issuer who owns the assets that we will be investing in. It is a wholly owned subsidiary of Azalea Asset Management Pte. Ltd., which is in turn a wholly-owned subsidiary of Temasek Holdings (Private) Limited.
#2 What Is The Interest Rate And Maturity Date?
The interest returns on the bond is as follows.
|Bonds||Size||Expected Ratings||Interest Rates||Maturity|
|Class A-1||S$315 million||Asf (Fitch)
|3.85% p.a.||Scheduled: 20 June 2024
Final: 20 June 2029
|Class A-2||US$230 million||Not rated||4.5% p.a.||Scheduled: 20 June 2024
Final: 20 June 2029
|Class B||US$140 million||Not rated||4.75% p.a.||Scheduled: N.A.
Final: 20 June 2029
The Class A-1 bonds that are available for public subscription will pay an interest rate of 3.85% per annum (p.a.). This will be paid semi-annually. This is slightly lower than the interest rate of 4.35% offered by the Astrea IV bonds when it was issued.
This is mainly because of the interest rate environment we are in today compared to the one when Astrea IV was issued. When we asked why this was the case, the representative from Azalea also noted that the interest rate was derived from the book building exercise, which market participants agreed on.
The representative also noted that the Swap Offer Rate (SOR) during the Astrea IV issue was around 2.2%, while it is around 1.8% currently. It was further noted that looking at the currently traded Astrea IV bonds, its share price has risen nearly 6% since it was issued, and is currently offering yield of under 3.0%.
The Astrea V bonds has a scheduled call date on 20 June 2029, or five years from its issue date. There is also a final maturity date of 20 June 2019, should there be insufficient cashflow to redeem the bonds. If this happens, there will be a one-time step-up interest rate of 1%, to 4.85% p.a., till the Final Maturity date on 20 June 2029.
Similar to the Astrea IV Bonds, there will also be a one-time bonus payment of 0.5% of principal at redemption if a performance condition is met on or before the Scheduled Call Date in 2024. This performance condition is met when the Sponsor receives 50% of the total equity of the issuer on or before the Class A-1 Scheduled Call Date.
#3 What Is The Minimum Amount For Investing In Astrea V Bonds?
We must invest at least S$2,000 for the Class A-1 Bonds per application under the public offer. We must also invest in multiples of S$1,000 as Class A-1 Bonds are issued in denominations of S$1,000.
We cannot use our funds under the CPF Investment Scheme (CPFIS) to purchase the Class A-1 bonds from the initial offer or from the market thereafter. Similarly, we cannot use our SRS funds to apply for the initial offer for the Class A-1 bonds. However, it is possible for us to use our SRS funds to purchase the bonds from the market after the listing of the Class A-1 Bonds on the SGX.
#4 Can Singapore Investors Only Buy Astrea V’s Class A-1 Bonds?
Azalea is offering three classes of bonds – Class A-1, Class A-2 and Class B bonds. However, retail investors in Singapore are only offered Class A-1 bonds.
The Class A-2 and Class B Bonds expect to raise US$230 million and US$140 million respectively. However, these two classes of bonds are only offered to institutional and accredited investors.
It is worth noting that while these bonds pay out a higher interest rate, they are not rated and have lower priority, and thus greater risk, compared to the Class A-1 bonds.
#5 What Are The Risks Of Investing In Astrea V Bonds?
There are three main risks associated with investing in the bonds: investment risk, market risk and leverage risk.
Private equity investments tend to be unpredictable in that the amount and timing of cashflow can be uncertain. They also tend to have limited disclosures regarding the performance of the underlying investee companies.
Adverse economic landscape could also result in a decline in valuations of the investee companies or potentially see private equity deals dry up, leading to lower or slower cashflows.
The use the leverage to increase exposure to the investee companies cuts both ways. In an increasing interest rate environment or an economic downturn, using leverage could lead to substantial loss. Conversely, it could also boost returns in positive economic environment. These will impact the cashflows to Astrea V bondholders.
Should there be a situation where there’s a need for you to sell the bond, there could be a limited trading market for the bond, resulting in difficulty in selling the bond at a price that is deemed attractive to you.
#6 Is My Money Guaranteed When Investing In Astrea V?
The short answer to this question is that our investments are not guaranteed by Temasek Holdings or Azalea. It is however an asset-backed security, which means that it is guaranteed by the cashflows from the investee companies in the private equity funds. Do note that there is still a risk that the cashflows may fall short, and that our initial investment is still not guaranteed.
Further, the Astrea V Class A-1 Bonds are expected to be rated Asf by Fitch and A+ (sf) by S&P. Which puts it as among some of the highest rated bonds.
#7 What Is The Liquidity Like For Astrea V Investors?
You can sell and purchase the bonds from the open market once the bonds are listed on the SGX on 21 June 2019.
However, liquidity depends on the activity within the market and it is possible that the market for the bond to be traded might not be active. The price of the Astrea V PE Bonds could fluctuate above or below its issue price, depending on market conditions.
#8 What Are My Chances Of Successfully Buying The Astrea V Bond?
Your chances of getting the bond depends on how oversubscribed the bond application is.
Last year’s Astrea IV Class A-1 Bonds were hugely popular among retail investors, being 7.4 times oversubscribed. However, rather than having a large number of unsuccessful applicants, Astrea IV’s allotment provided all 25,660 valid applicants with some shares. This was because Astrea IV opted to give more than 80% of their shares to smaller retail investors that subscribed to 60,000 or less shares.
When we spoke to the Azalea representative on how this would work for the Astrea V PE bonds, it was also noted that, based on market feedback, they may consider larger allocations to those applying for S$50,000 or more worth of Astrea V PE bonds. This means that anyone who applies for S$50,000 or less will be allocated in full or in part, while those who apply for more than S$50,000 will be balloted and successful applicants will be allotted a larger amount.
#9 Should I Invest In The Astrea V PE Bonds?
If you have cash that you want to invest, the Astrea V bonds provides an attractive yield at relatively low risk. In today’s volatile market, bonds are a less risky investment vehicles that could provide investors with greater certainty, stability and diversification in their portfolio.
If you are primarily invested in the stock market, you could consider investing in bonds to diversify your portfolio. Even for those who are already invested in bonds, Astrea V’s exposure to private equity offers a unique exposure that you may not currently have in your bond portfolio.
Lastly, based on the overwhelming demand for the Astrea IV PE bonds last year, there should be a similarly high demand for these bonds. However, choosing to apply is ultimately your own decision. There are many other things for investors to consider before applying, such as your current financial situation and your financial goals.
#10 How To Apply For The Astrea V PE Bonds?
Applicants will require a Central Depository (CDP) Account which has to be linked to your bank account with the direct crediting service (DCS).
Here are the key dates that you need to take note of:
|Timetable of Offer|
|Opening date and time||12 June 2019, 9.00 AM|
|Closing date and time||18 June 2019, 12.00 PM|
|Start trading on SGX||21 June 2019, 9.00 AM|
You can invest in the Astrea V bonds via 3 methods:
- ATMs: DBS/POSB, OCBC, and UOB
- Internet Banking: DBS/POSB, OCBC, and UOB
- Mobile Banking: DBS/POSB
Do note that we need to invest a minimum of $2,000, and in multiple of $1,000. Also, if we want to receive a higher allotment, we can consider applying for more than $50,000. A non-refundable application fee of $2 per application will be charged. Detailed information on the Astrea V Bonds can be found on the Astrea V website.
For those that want more information, Azalea will also be hosting public presentations that we can attend:
|Session||Date / Day||Time||Venue|
|Management Presentation on Class A-1 Astrea V PE Bonds||14 June 2019, Friday||6.30 PM||DBS Auditorium, MBFC Tower 3|
|Management Presentation on Class A-1 Astrea V PE Bonds||15 June 2019, Saturday||9.00 AM||DBS Auditorium, MBFC Tower 3|
|Management Presentation on Class A-1 Astrea V PE Bonds||17 June 2019, Monday||6.30 PM||SGX Centre|
Admission is free and open to all members of the public.
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