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It’s not often retail investors like us get an opportunity to gain investment exposure to private equity. The good news: Astrea VI Private Equity Bonds – will be open to retail investors from 10 March 2021.
What Is The Astrea VI Private Equity Bonds?
As its name suggests, Astrea VI PE Bonds (SGX: 6AZB) is the sixth in a series of private equity-backed bonds, and the third that retail investors can invest in. The Astrea series of private equity bonds is managed by Azalea Asset Management, an indirect subsidiary of Temasek Holdings. Azalea is also the indirect owner of the sponsor and issuer of the Astrea series of bonds.
To be clear, retails investors are not investing in private equity directly. Instead, we will be investing in bonds that are backed by the cash flows from a diversified portfolio of 35 private equity funds worth US$1.5 billion.
A total of US$643 million is expected to be raised from the Astrea VI PE Bonds, spread out between three tranches of bonds. $250 million will be offered to retail investors under the Class A-1 Bond tranche. Institutional and accredited investors can also invest in Class A-1 Bonds, as well as the Class A-2 Bonds and Class B Bonds tranches.
The Class A-1 Bonds will be listed on the Singapore Exchange (SGX), allowing us to buy and sell these bonds on the open market, similar to how we buy and sell stocks. You can read this article from Bondsupermart for an in-depth coverage on Astrea VI PE Bonds.
What Are Astrea IV, V and VI Actually Invested In?
All of the Astrea IV, V and VI PE Bonds are exposed to a diverse base of private equity funds managed by reputable private PE fund managers such as Bain Capital, Warburg Pincus, TPG and others.
|Bonds||Fund Region||Underlying Funds||Underlying companies|
|Astrea IV||U.S (63%)
|US$1.1 billion in 36 PE Funds
(Including fund managers from Blackstone, Silver Lake and PAG Asia as top 3)
|596 investee companies
Consumer Discretionary: 21%
|Astrea V||U.S (56%)
|US$1.3 billion in 38 PE Funds
(Including fund managers from KKR, Warburg Pincus and TPG as top 3)
|862 investee companies
Consumer Discretionary: 15%
|Astrea VI||U.S. (61%)
|US$1.5 billion in 35 PE Funds
(Including fund managers from Bain Capital, Warburg Pincus and TPG as top 3)
|802 investee companies
Consumer Discretionary: 13%
How To Invest In Astrea VI PE Bonds?
For those who are interested in investing in Astrea VI’s Class A-1 Bonds (SGX: 6AZB), we should pay attention to these key dates:
|Opening Date and Time||10 March at 9 a.m.|
|Closing Date and Time||16 March at 12 noon|
|Start Trading on SGX||19 March at 9 a.m.|
There is a $2,000 minimum investment on Astrea VI PE Bonds at the initial public offering (IPO), and investors can apply in multiples of $1,000.
Beyond just subscribing to Astrea VI’s public offer, we also have the option of investing in the Astrea IV PE Bonds and Astrea V PE Bonds, both of which are currently listed and traded on the SGX.
Once the public offer for Astrea VI is finalised, its Class A-1 Bonds will also be listed on SGX on 19 March at 9 a.m.
Class A-1 Bonds of Astrea VI PE Bonds will pay investors 3.00% p.a. When you compare this to when Astrea IV (4.35%) and Astrea V (3.85%) first offered its Class A-1 Bonds, the interest is slightly lower. However, we have to recognise that the current interest rate environment is lower than when Astrea IV and V were issued.
Currently, Astrea IV Class A-1 Bonds is trading at $104.575, which translates to a yield to worst of 2.266%.
Source: Bondsupermart (9 March 2021)
Astrea V Class A-1 Bonds is trading at $103.465, which puts its yield to worst at 2.557%.
Source: Bondsupermart (9 March 2021)
In a simplistic way of looking at all three different private equity-backed retail bonds available to us, we can tell that the market is pricing in a premium of 0.291% for an approximately one-year difference in maturity date between Astrea IV and Astrea V. Astrea VI will mature more than one and a half year later than Astrea V, and is paying an annual interest of 0.443% point higher.
In essence, it should not surprise us that the longer we have to wait till the bonds mature, the higher the annual return we can expect to earn.
Astrea VI Offering A Larger Slice Of The Bonds To Retail Investors
When Astrea IV was issued in 2018, the public offer to retail investors was $121 million, and was 7.4 times oversubscribed. Astrea V, issued the following year, had a public offer of $180 million, and it was 4.5 times oversubscribed.
Now, Astrea VI will offer an even larger slice of the bonds to retail investors with $250 million in its public offer.
This means retail investors may get a more substantial sum of the bonds we apply for. As stated in the FAQ section of its prospectus, all applications of less than $50,000 will be allocated in full or in part – which means everyone who applies will get a part of the bonds. Those who apply for more than $50,000 of its bonds will be balloted and allocated in full or in part – which means there’s a chance not everyone who applies will get a part of the bonds. As stated in its prospectus, the issuer reserves the right to change it’s allocation plan.
The larger retail offer may also translate to greater liquidity of Astrea VI bonds in the open market.
Why Can’t We Invest In Class A-2 And Class B Bonds?
Class A-1 Bonds are the safest tranche of the Astrea VI PE Bonds – having the highest priority for interest payment and redemption. This means it also offers the lowest coupon payments.
Source: Astrea VI Prospectus
While retail investors can only invest in the Class A-1 tranche, accredited investors have additional option to also access Class A-2 and Class B bonds, to receive higher yields of 3.25% p.a. and 4.35% p.a. respectively.
Class A-2 and Class B Bonds will not be traded on SGX, but we can still buy and sell them on the OTC bond market via platforms such as FSMOne and iFAST Global Markets. However, we need to note that the minimum investment amount for these classes of Astrea IV, V or VI PE Bonds is US$200,000 and we need to be accredited investors.
When Will The Bonds Mature?
All three Class A-1 Bonds issued by Astrea IV, V and VI have a tenure of 10 years, but should be called in its 5th year.
Astrea IV was issued in 2018 with a scheduled call date at 14 June 2023, or 5 years later. Similarly, Astrea V, which was issued in 2019, has a scheduled call date at 20 June 2024.
Astrea VI will have a scheduled call date at 18 March 2026.
If the bonds are not called on its scheduled call dates, investors will receive a step-up interest of 1.0% p.a.
Searching For Suitable Bonds To Invest In Via Bondsupermart
Whether it’s to invest in retail bonds that are listed on the SGX such as the Astrea IV, V and in time to come, VI, or to invest in wholesale bonds that are only available for institutional and accredited investors, Bondsupermart is a platform that you can use to search for the bonds that you want to invest in.
With a wide range of bonds offered across Singapore, Malaysia and Hong Kong, you will be able to find bonds that are suitable for your investment time horizon and with the right risk-return tradeoff that you are looking for.