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Astrea VI Private Equity Bond: 10 Things To Know Before Investing

One of the few ways retail investors can gain access to private equity.


Astrea VI IPO

There are three main reasons why it is attractive to invest in bonds: i) it is generally safer than investing in stocks, ii) we get a fixed return each year, and iii) we get visible income flows for several years.

The newest bond IPO that we can invest in is the Astrea VI Private Equity Bonds. Astrea VI PE Bonds is offering $250 million in its initial public offering (IPO). This is upsized from previous Astrea IV and Astrea V PE Bonds – which was popular with retail investors. Astrea IV’s public offer was $121 million and was 7.4 times oversubscribed, while Astrea V’s public offer was $180 million and was 4.5 times oversubscribed.

Here are 10 things we need to know before investing in it.

Read Also: Step-By-Step Guide To Bond Investing In Singapore

#1 Astrea VI PE Bonds Is The Latest IPO In The Hugely Popular Astrea Series

The IPO of Astrea VI PE Bonds is not particularly surprising, as it comes less than 2 years after the previous Astrea V PE Bonds IPO, which itself came about 1 year after Astrea IV PE Bonds IPO.

For this reason, investors interested to put their money in the Astrea series of private equity bonds have an option – to invest in the Astrea VI PE Bonds IPO or to invest in Astrea IV or Astrea V PE Bonds on the Singapore Exchange (SGX).

When we spoke to Azalea Asset Management, the management team behind the Astrea series of private equity bonds, they mentioned their intention to IPO a new series “every 12 to 18  months”.

Read Also: Astrea IV, V, VI: The Key Differences Between These Private Equity Retail Bonds & How You Can Invest In Each Of Them

#2 Is This A Temasek Holdings’ Backed Bond?

What many retail investors will know is that Temasek Holdings indirectly owns Azalea Asset Management.

However, Astrea VI is not a Temasek Holdings issued bond, neither it is backed by Temasek Holdings or Azalea Asset Management.

Cash flows to bondholders who invest in Astrea VI will be backed by its underlying private equity fund portfolio – which means we need to assess it as an investment.

#3 What Exactly Is The Astrea VI Private Equity Bonds For Retail Investors?

When we invest in the Astrea VI Private Equity Bonds, we are gaining exposure to the cash flows backed by private equity funds.

As an asset class, it isn’t easy for retail investors to exposure to private equity. This makes Astrea VI a unique investment proposition. Nevertheless, investors in Astrea VI PE Bonds need to understand that we are not directly gaining exposure to private equity.

Furthermore, retail investors can only invest in Class A-1 Bonds of the Astrea VI PE Bonds. For institutional investors and accredited investors, there is also the Class A-2 Bonds and Class B Bonds that they can invest in.

The Class A-1 Bonds is scheduled to be called in 5 years, on 18 March 2026. However, its maturity date is 18 March 2031 (in 10 years). If it is not called on its scheduled call date, there will be a step-up interest of 1.0% per annum.

#4 How To Invest In Astrea VI PE Bonds IPO?

The Class A-1 Bonds in Astrea VI PE Bonds IPO is currently open for retail investors as of 10 March 2021. We need to take note that the closing time and date is 16 March 2021 (Tuesday) at 12 noon.

Timetable of Offer
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.

 

Investors must invest a minimum of $2,000, and in multiples of $1,000. According to the Astrea VI prospectus, all retail investors who apply for less than $50,000 will receive either full or part of their investments. For retail investors who apply for $50,000 or more, they will be balloted first, and only successful applicants will receive either full or part of their investments.

Those who are still keen to invest can do so via:

  • ATMS: DBS Bank, OCBC and UOB
  • iBanking: DBS, OCBC and UOB
  • mBanking: DBS and UOB

Note that the placement tranche of Class A-1 Bonds are already placed at 3.0% per annum to institutional and accredited investors, as well as the Class A-2 and Class B bonds.

#5 Buy And Sell Astrea VI (And Astrea IV And Astrea V) PE Bonds On SGX

For retail investors who do not get their full allocation of Astrea VI PE Bonds, we can still buy more when it is listed on SGX from 19 March 2021 onwards.

Similarly, we can choose to invest in the previous editions – Astrea IV and Astrea V PE Bonds – that are already trading on the SGX. As these bonds were listed in 2018 and 2019 respectively, their scheduled call date is closer. Within this, we also need to note that the returns may be lower as there is generally lower risk associated with similar bonds with shorter maturity dates.

#6 What Is The Underlying Private Equity Funds?

While investors are only going to get a fixed return from the bonds that we are investing in, it is worth understanding the private equity funds that are backing these cash flow.

Astrea VI is backed by investments in a portfolio of 35 private equity funds, and 802 investee companies, worth US$1.5 billion.

These private equity funds are well-diversified across the U.S, Europe and Asia.

Source: Astrea VI PE Bonds prospectus

The private equity funds are managed by established private equity fund managers, such as Bain Capital, Warburg Pincus and TPG. Within the portfolio, the 802 investee companies are also diversified across various sectors.

Astrea VI invested in 35 private equity funds and 802 invest companies

Source: Astrea VI PE Bonds prospectus

Interestingly, about 20% of the portfolio is already exposed to investee companies that are already listed entities.

#7 What Is The Return We Will Get By Investing In Astrea VI?

As mentioned, we are investing in bonds backed by cash flow from private equity, rather than the underlying private equity itself. As such, it is deemed as a relatively safe investment, especially with additional safeguards in place for bond investors – which we will go into later.

Astrea VI interest rates

Source: Astrea VI PE Bonds prospectus

Retail investors are only able to invest in the Class A-1 Bonds. This has an interest rate of 3.0% per annum, and will be paid on a semi-annual basis (or twice every year) on 18 March and 18 September each year.

There is also a one-off Bonus Redemption Premium of 0.5% that retail investors may be entitled to. However, this only occurs if a performance threshold is achieved by the fund. The performance threshold is met when the manager accumulates US$421 million (or 50% of the total equity of US$841 million).

As mentioned earlier, there will also be a 1.0% per annum step up in interest if the Class A-1 Bonds are not called on its scheduled call date in 5 year’s time.

#8 Why Can’t Retail Investors Invest In Class A-2 Bonds And Class-B Bonds?

Class A-1 Bonds of the Astrea VI PE Bonds hold the highest seniority in repayments. This also makes it the safest tranche of bonds.

Investors can gain access to Class A-2 Bonds and Class-B Bonds if they are accredited investors. This is actually a safeguard for retail investors, as products offered to accredited investors in Singapore are typically higher risk or more complex financial instruments.

Read Also: What Does It Mean To Be An Accredited Investor In Singapore?

According to the Securities and Futures Act, an individual can be an accredited investor if their:

  • net personal assets exceed in value $2 million (or its equivalent in a foreign currency)
  • income in the preceding 12 months is not less than $300,000 (or its equivalent in a foreign currency)

#9 Is A Return Of 3.0% Per Annum Good Or Bad?

While it’s hard to answer this question, because it’s based on investor sentiments and the economic environment, we can look at the previous Astrea IV and Astrea V PE Bonds to determine if this is a good interest rate.

When they were first issued, the Astrea series of bonds offered:

Astrea IV PE Bonds 4.35% p.a.
Astrea V PE Bonds 3.85% p.a.
Astrea VI PE Bonds 3.00% p.a.

This may look as if Astrea VI is offering a poor return. But that’s not how bonds work – they react to the interest rate environment, and today’s interest rates are lower than in 2018 and 2019 when Astrea IV and V were issued respectively.

The good thing is that we can compare the returns to a regularly issued government security – the Singapore Savings Bonds.

Read Also: Complete Guide To Buying The Singapore Savings Bonds (SSB)

Astrea Series Returns when first issued Returns of SSB when the bond was issued Premium to SSB rate
Astrea IV PE Bonds 4.35% p.a. 2.43% 1.92%
Astrea V PE Bonds 3.85% p.a. 2.13% 1.72%
Astrea VI PE Bonds 3.00% p.a. 0.97% 2.03%

Looking at the respective premium to SSB rates, the Astrea VI PE Bonds actually offers quite an attractive rate.

Also, we can look at the Astrea IV and Astrea V bonds trading on SGX today. Their respectively yield is:

The difference is about 0.19% to wait close to 12 months more for the scheduled call date. Those investing in Astrea VI has to wait a further 21 months (from Astrea V) for their scheduled call date. The premium is about 0.62% – which (simplistically speaking) also looks decent.

#10 Safeguards For Retail Investors Of Class A-1 Bonds In Astrea VI PE Bonds

There are four main safeguards for retail investors of Class A-1 Bonds.

Safeguards for investors in Astrea VI

Source: Astrea VI PE Bonds prospectus

A Reserves Account is built up for repayment of Class A-1 bondholders. Only after the reserves have been kept aside will the payment for other expenses and the sponsor be made.

There is also a sponsor sharing safeguard to ensure a quicker build of reserves. After the performance threshold has been met (50% of the equity portion), half of cash flows to the sponsor will be portioned to the reserves account to ensure a quicker build up for repaying Class A-1 bondholders.

Once the maximum loan-to-value ratio has been breached, which means the value of the portfolio is not worth double of what bondholders has invested (or lend to them), all cashflows will flow into the Reserves Account up to its cap to repay Class A-1 bondholders.

There is also a credit facility, which Azalea Asset Management pointed out has not been used previously in Astrea IV or Astrea V, in the event there is insufficient cash flow for expenses and to pay bondholders their interest.

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