Azalea Asset Management, an indirectly-owned company of Temasek Holdings, is back on the market with a new listing: The Astrea VI Private Equity (PE) bond. This marks its fourth Astrea PE bond series and is the third to be listed on the Singapore Exchange.
Its first fund Astrea III, was launched in 2016, but was only made available to institutional and accredited investors. It subsequently launched Astrea IV in 2018, making its bonds available to retail investors for the first time. Astrea V was launched in the following year.
Astrea VI’s total offering size of US$643 million ($866 million) is backed by cash flows amounting to US$1.5 billion generated from a diversified portfolio of 35 PE funds that are managed by 28 reputable general partners.
Of these PE funds, 81% are buyout PE funds while the remaining 19% are growth equity PE funds. Its top three PE fund managers include: Bain Capital (7.9%), Warburg Pincus (6.4%)
and TPG (5.6%).
An interesting feature of Astrea VI is two thirds of the fund will be made available to retail investors through Class A-1 Bonds. The retail tranche of $250 million of these bonds opened for subscription from March 10 to 16, carrying a fixed interest rate of 3% per annum. Such applications will be in multiples of $1,000, while a minimum investment of $2,000 will be required. Trading will start on March 19.
This is the largest amount to be offered in Astrea’s retail tranche and follows “strong demand seen from investors across the previous Astreas”, says Margaret Lui, CEO of Azalea in a briefing on March 9. She adds that this is also the lowest that the interest rates have been set at. For comparison, the Class A-1 Bonds of Astrea IV carried a fixed rate of 4.35%, while that for Astrea V’s Class A-1 Bonds had a coupon rate of 3.85%.
This issue comes amid a prolonged low interest environment seen around the world. The 10-year Singapore Government Bond yields 1.58% while the Singapore Savings Bond is- sued in March is quoted at an average return per annum of 1.15% over 10 years.
“Similar to the previous Astrea issuances, the placement to institutions and accredited investors, through the book building process, helped determine the interest rate. This is the same rate being offered to retail investors in respect of the Class A-1 Bonds,” says Lui.
The public offer for Astrea VI follows the placement of $132 million of Class A-1 Bonds, US$228 million of Class A-2 Bonds and US$130 million of Class B Bonds to institutional and accredited investors. The placement was seven times subscribed and the interest rates for Class A-2 Bonds and Class B Bonds were 3.25% and 4.35% respectively.
The issue attracted subscriptions totalling US$3.2 billion from 149 accounts, ranging from insurance companies, asset managers, endowments, foundations as well as accredited investors.
Azalea says the fund is well diversified, with exposure to 802 companies operating across a broad range of industry sectors and geographies. For instance, 61% of the portfolio’s net asset value comes from the US, which Azalea says has the most developed PE market. Another 23% comes from the EU while the remaining 16% is from Asia.
With a share of 28%, Astrea VI’s strongest investment is in information technology, possibly because of the surge in demand for such platforms following the Covid-19 pandemic. Other key sectors it has investments in include healthcare (20%), consumer discretionary (13%) and industrials (12%).
Chue En Yaw, managing director and head of PE funds at Azalea, says the diversified portfolio allows more PE bonds to be offered to retail investors while retaining a conservative capital structure, he adds noting that the Class A-1 Bonds are rated A+sf Fitch and A+ (sf) by S&P.
Other safeguards put in place include a credit facility to fund certain expenses and capital calls for fund investments, should there be a shortfall in cash flows. It also has a mandate to maintain a maximum loan-to-value (LTV) ratio of 50%, which if not adhered to, will see the lowering of total debt.
The Class A-1 Bonds have a LTV ratio of 19.6% while that for Class A-2 Bonds is 15.7% and Class B Bonds is 8.9%. Overall, Astrea VI has an LTV of 44.2%, meaning that the portfo- lio value is more than twice the funds’ overall offering size of US$643 million.
The Class A-1 Bonds under Astrea VI will have a final maturity of 10 years and a mandatory call at the end of five years. The Issuer will be required to redeem the Class A-1 Bonds on March 18, 2026, if there is sufficient cash set aside to repay the Class A-1 Bonds and other conditions are satisfied. Otherwise, the interest rate on the Class A-1 Bonds will have a one-time
step-up from 3% per annum to 4% per annum after this date until the Class A-1 Bonds are fully redeemed. “There are different risk rewards for the different bond classes to appeal to different investors,” explains Lui.
Commenting on the Astrea VI bond, PhillipCapital’s credit analyst Timothy Ang expects to see “the same strong demand as previous Astrea issues”. “We expect bond yields to tighten once the new bonds start trading on the back of strong demand,” Ang adds.
Looking ahead, Lui and Chue suggest that more offerings are to come on the Astrea Platform. “Azalea will continue to further develop the Astrea Platform and innovate products of different risk profiles for both institutions and retail investors,” says Lui.
