A lot of it’s possible you’ll recall that I beforehand invested in Astrea’s first Personal Fairness (PE) bonds for retail buyers, as documented right here. Azalea Asset Administration redeemed these bonds final 12 months so I obtained my capital again, along with the 4.35% p.a. coupon that was paid to me all through the previous 5 years the place I held the bonds for.
Now that they’ve launched their newest Astrea 8 PE bonds that are at the moment open for public utility till 17 July 2024, I’ve acquired fairly a couple of DMs about it so right here’s my take.
1. Key Particulars
– The bond is launched by Azalea Funding Administration Pte. Ltd., which is an oblique subsidiary of Temasek Holdings
– There are 2 rates of interest being provided: 4.35% (SGD) and 6.35% (USD) each year, payable in July and January annually
– IPO purposes shut at 12 midday on 17 July 2024.
– You possibly can apply by ATM or on-line banking by way of DBS, POSB, OCBC or UOB. There’s a non-refundable administrative payment of S$2 paid by the applicant for every utility.
– Minimal subscription quantity: $2,000
– In the event you’re making use of for Class A-2, the speed will probably be fastened at an alternate fee of US$1.00:S$1.35.
– You CANNOT use your CPF or SRS funds to use for this bond.
– Bond begins buying and selling on SGX-ST on 22 July 2024
2. Is it a secure funding?
First issues first, I had a couple of readers DM me saying they deemed this as a secure funding as a result of it’s being backed by Temasek. That’s NOT true – please observe that that is NOT a Temasek bond. Fairly, it’s a bond issued by considered one of their subsidiaries.
The Astrea 8 PE Bonds are a part of the Astrea Platform. The Astrea Platform was began in 2006 and is a sequence of funding merchandise by Azalea that’s primarily based on diversified portfolios of PE Funds. In contrast to most bonds that are both government-backed or corporate-backed, these are a extra distinctive class of personal fairness bonds. PE Funds are sometimes close-ended and managed by skilled PE Fund managers, who generate returns by proactively making enhancements in an investee and utilising varied methods, corresponding to serving to the investee enhance its operations and its capital construction to both develop or be purchased out later.
For Astrea 8 PE bonds, the whole portfolio web asset worth (NAV) for these funds is US$1.47 billion, with a fund technique of 76% buy-out and 24% development fairness:
When the primary retail tranche of Astrea PE bonds have been launched in 2018, the market was rightfully skeptical about it again then. Nevertheless, it has been 6 years and Astrea has since gone on to launch a number of extra bond tranches, with the Astrea 8 PE Bonds being the fifth listed retail PE Bonds that may present retail buyers in Singapore publicity to the PE asset class:
| Bond | Launched in | Coupon Price (SGD) |
| Astrea IV | 2018 | 4.35% |
| Astrea V | 2019 | 3.85% |
| Astrea VI | 2021 | 3.00% |
| Astrea 7 | 2022 | 4.125% |
| Astrea 8 | 2024 | 4.35% |
Since then, the Astrea sequence of PE bonds have constructed a powerful monitor file of credit standing upgrades and regular distributions to bondholders. Even by the COVID-19 pandemic, for instance, the Astrea IV and V portfolios generated ample money flows to fulfil all bond obligations and Azalea confirmed that their credit score amenities weren’t utilised. All bond obligations for all Astreas proper by Astrea 7 have additionally been duly fulfilled up to now, and the Astrea PE bonds have additionally loved a number of credit standing upgrades since issuance.
What’s extra, Azalea absolutely redeemed its earlier bonds i.e. Astrea III (in January 2022), Astrea IV (in December 2023), and most lately the Astrea V Class A Bonds on their Scheduled Name Date (20 June 2024), 5 years after issuance.
In the event you didn’t already know this, your bond investments are not capital-guaranteed nor protected by SDIC insurance coverage (since Azalea is neither a financial institution nor an insurer).
3. Dangers vs. Rewards
Whereas the Astrea 8 PE Bonds present retail buyers an opportunity to achieve publicity to non-public fairness at a set return of 4.35% p.a., they don’t seem to be with out dangers. The personal fairness market’s efficiency may be considerably affected by financial situations, market sentiment, and geopolitical occasions.
| Key Dangers | Rewards |
| Volatility in personal fairness markets | Mounted 4.35% p.a. coupon fee + 1% p.a. step-up if not redeemed on scheduled name dates |
| Not capital assured | Potential for capital positive aspects (e.g. if rates of interest falls and also you then promote earlier than maturity) |
In any case, the potential for greater returns comes with greater volatility and danger of loss.
4. What are you shopping for into?
Astrea 8 PE bonds are backed by money flows from a portfolio of 38 PE funds managed by 27 respected common companions. As of 31 December 2023, these funds spend money on 1,028 corporations throughout varied areas and sectors.
The funds are principally primarily based within the US (63%), adopted by Europe (20%) and Asia (17%). The weighted common fund age is 6.1 years, which is “extremely money move generative” in response to Azalea’s chief funding officer. That’s as a result of extra mature PE funds usually tend to generate money flows from its underlying holdings, that are then used to fund coupon funds to bond holders.
5. Astrea 8 vs. Astrea 7 Bonds: What’s the Distinction?
After all, as an alternative of making use of for Astrea 8 PE bonds, you possibly can additionally purchase Astrea 7 bonds from the secondary market as we speak. Which might be a better option?
If you need a bond that will probably be redeemed earlier, then Astrea 7’s scheduled name date of 27 Could 2027 (in 3 years time) can be extra interesting. The market value of previous Astrea bonds consider the rate of interest differentials and consists of accrued curiosity, the place market dynamics and present rates of interest (at time of your search and buy) may even affect the precise value and yield of Astrea 7 bonds that you simply’ll truly be getting.
However, Astrea 8 bonds are being offered at par worth.
6. Structural safeguards within the Astrea PE Bonds
Historically, PE bonds weren’t accessible to retail buyers, so when Azalea first launched theirs in 2018, there have been structural options put in place to cater to defending retail buyers. These embody a prescribed sequence of precedence funds in order that money is reserved to pay retail bond holders first earlier than fairness buyers:
What’s extra, the sponsor Azalea holds 100% of the portfolio’s fairness, which implies the portfolio might want to lose 60.2% of worth earlier than bond holders are affected. There’s additionally a reserve account to make sure a money build-up to repay principal quantities, and the loan-to-value ratio is to be maintained at underneath 40%.
7. Can the bond issuer determine to not redeem Astrea 8?
No. By design, it’s necessary for Astrea 8 to redeem the Class A-1 and/or Class A-2 Bonds on their respective Scheduled Name Dates, if the next situations are met:
- For Class A-1 (SGD) Bonds: The money put aside within the Reserves Accounts and the Reserves Custody Accounts are ample to redeem the bonds, and there’s no excellent Credit score Facility mortgage.
- For Class A-2 (USD) Bonds: There isn’t any excellent Class A-1 Bonds to be redeemed, the money put aside within the Reserves Accounts and the Reserves Custody Accounts are ample to redeem the bonds, and there’s no excellent Credit score Facility mortgage.
Ought to the bonds not be redeemed on their respective Scheduled Name Dates, then there will probably be a one-time 1.0% each year step-up within the respective charges, which implies Class A-1 bond holders can count on to be paid 5.35% within the sixth 12 months onwards, whereas Class A-2 bond holders will obtain 7.35% p.a. till the bonds have been absolutely redeemed.
8. If it’s such a superb deal, why is Azalea issuing these bonds?
To acquire funding for its operations, corporations sometimes can borrow from the banks or increase funds by issuing bonds or fairness.
Issuing bonds typically prices lower than fairness, because it doesn’t entail giving up any management of the corporate and permits the issuer to cap its funds – on this case, at 4.35% p.a. for the SGD class. Fairness possession, alternatively, entitles fairness buyers to a share of the earnings, which might be greater than 4.35% if the fund supervisor does effectively.
As for whether or not 4.35% p.a. is an efficient deal for you, that is the place you’ll should issue what options you’ve entry to. Simply final month, I did a comparability of choices for my money when Chocolate Finance opened up their 4.2% p.a. provide for as much as $20,000:
Therefore, with the launch of Astrea 8 PE bonds, this might put it in the identical class as Chocolate Finance for me as they’re each open for purposes at considerably the identical time:
| Astrea 8 PE Bonds | Chocolate Finance | |
| Price of return | 4.35% p.a. | 4.20% p.a. |
| Lock up period / Liquidation choices | 5 years (maintain till maturity) or liquidate inside a couple of days (promote on the open bond market) | None, withdraw tomorrow |
| Min. funding | S$2,000 | S$1 |
| Max. funding | Is dependent upon your allocation | S$20,000 for 4.2% p.a. |
| Provided by | Azalea Funding Administration Pte. Ltd., owned by Azalea, a subsidiary of Temasek | ChocFin Pte Ltd |
| Years of operation | 7 years | 2 years |
| Invests in | Personal fairness funds | Quick-term, high-quality bonds |
TLDR: Are the Astrea 8 PE bonds value making use of for?
These bonds are being launched at a superb time, as present market expectations are for the Fed seems to chop rates of interest within the close to time period.
For buyers who’re apprehensive in regards to the potential fall in fastened earnings choices when that occurs, the Astrea 8 PE bonds provides an opportunity so that you can lock in 5 years of 4.35% p.a. coupon funds (SGD) and even 6.35% p.a. (USD).
Nevertheless, whether or not 4.35% p.a. (SGD) or 6.35% p.a. (USD) is enticing sufficient for you’ll finally depend upon what options you at the moment have entry to.
I’ll personally not be subscribing as most of you understand I’ve already parked my extra money in Chocolate Finance at 4.2% p.a. lately, and I’m at the moment eyeing a number of investments which I count on to provide me wherever between 20% – 50% within the subsequent 6 months to 2 years. On condition that my choices are between double-digit investments vs. settling for a 4.35% or 6.35% p.a. fastened earnings bond, I’m clearly selecting the previous.
After all, these are a lot greater dangers than the Astrea 8 PE bonds, however once more, that’s why I mentioned you guys want to begin making your individual funding selections with out merely asking, “So will Price range Babe be investing?”
In the event you’re extra risk-adverse or do not need entry to investments providing you a greater fee, then I can see how the 4.35% p.a. (SGD) or 6.35% p.a. (USD) coupon funds on Astrea 8 PE bonds may be enticing to you.
So as soon as once more, right here’s a fast abstract of the Astrea 8 PE Bonds – particularly for those who didn’t learn by my evaluation above:
Professionals & Cons:
- Astrea 8 PE bonds have been designed with structural safeguards in place for retail buyers, together with precedence of funds and 100% fairness possession by the Sponsor.
- Azalea has constructed an extended monitor file since 2018 of fulfilling its retail bond obligations, and it’s notable that it didn’t should dip into its money reserves even throughout the pandemic when the worth of many development investments suffered.
- At 4.35% p.a. (SGD) and 6.35% p.a. (USD), this bond provides buyers an choice to lock up and be paid these charges for the following 5 – 6 years respectively within the occasion that rates of interest fall.
- Your funding is diversified throughout greater than 1,000 investee corporations and a number of industries. And at 39.8% LTV, all the portfolio worth is greater than twice the US$585 million of Astrea 8 PE Bonds being issued.
- Cons
- The bonds are usually not capital-guaranteed, and are neither backed by any authorities or listed blue-chip company.
- The personal fairness markets are vulnerable to volatility, thus carrying greater danger than in case your cash was invested in different extra steady investments as an alternative.
- You’re not shopping for a Temasek-backed bond, regardless that the fund supervisor is a subsidiary of Temasek Holdings.
Necessary: That is NOT a sponsored assessment. I used to be neither paid nor acquired any in-kind advantages - from Astrea, Azalea, Temasek and even anybody else - for writing this text.Whereas I personally is not going to be subscribing, you will need to observe that I DID subscribe to the final 4.35% p.a. Astrea IV bonds, which have been the primary retail bonds launched by the fund supervisor again then. My bonds have additionally been efficiently redeemed final 12 months. My selections are merely completely different this time, therefore I will be skipping this tranche this spherical.
That doesn't imply I really feel the Astrea 8 PE bonds are unhealthy; quite the opposite, if I did not have any higher funding choices and cared solely about locking up a good fee for the following 5 years, then I might positively put my very own cash in.
If you’re to use for the Astrea 8 PE Bonds, you possibly can apply by way of ATM or on-line banking earlier than Wednesday, 17 July 2024, 12pm. There will probably be a non-refundable administrative payment of S$2 for every utility. It’s possible you’ll submit just one legitimate utility for every class of the bonds, i.e. you possibly can apply as soon as every for Class A-1 Bonds (SGD) and Class A-2 Bonds (USD) if you want.
The minimal quantity within the respective currencies (SGD/USD) is $2,000, and purposes have to be in multiples of $1,000. In the event you’re making use of for the USD bond, observe that USD funding will NOT be accepted and your SGD will probably be transformed on the fastened alternate fee of US$1.00 to S$1.35 as an alternative.
The bonds will probably be issued on 19 July 2024, and can begin buying and selling on SGX-ST from 22 July 2024.
Please ensure you’ve learn the prospectus or bond web page right here and also you’re absolutely conscious of what you’re subscribing for.
With love,
Daybreak
