Astrea VI Private Equity Bonds: 8 Facts Investors Need To Know About This Hot Bond

Past issuances of Astrea bonds were quickly snapped up by retail investors. This time round, the Astrea VI PE bond is offering 3% p.a. returns. A highly anticipated launch, here are the key details to know about before applying.

Like a sequel to a popular book, retail investors have been kept waiting for almost two years. 

Azalea Asset Management has just released the Astrea VI private equity (PE) bonds for application on 10 March 2021, following their past issuances that were a hit amongst retail investors. 

For context, Astrea IV Class A-1 Bonds (launched in June 2018) were oversubscribed 7.4 times and Astrea V (launched in June 2019), was 4.5 times oversubscribed.  

Azalea Asset Management invests in suitable private equity funds and packages them into diversified portfolios for targeted investors, with the aim to provide investor access to private equity. They are also indirectly owned by Temasek. 

About Astrea VI PE bonds

Launched by Azalea Asset Management, Astrea VI is issuing three classes of bonds: Class A-1, Class A-2 and Class B. 

• Class A-1: The safest class and the only class that can be subscribed by retail investors in Singapore. Its expected rating is A+sf/A+ (sf) by Fitch and S&P respectively. $250 million Class A-1 bonds are being offered to retail investors in Singapore and are scheduled to be redeemed at the end of five years, or up to 10 years.

• Class A-2 and Class B: US$ denominated bonds with fixed rates of 3.25% and 4.35%, respectively. However, these two classes are only offered to certain institutional or accredited investors in Singapore and elsewhere outside the United States. They are not offered to the retail public in Singapore. 

Where will your money go? With bonds, your money is essentially lended to the issuer. For Astrea VI, the money that you invest is backed by 35 PE funds, adding up to a total of US$1.5 billion. The portfolio of PE fund investments are managed by reputable fund managers and diversified across multiple industries.

This video by Azalea Asset Management provides a great overview of Astrea VI PE bonds. 

Source: Azalea Asset Management

Why invest in Astrea VI bonds? 

Astrea VI bonds offer an opportunity for investors to diversify their portfolio. Bonds are a good stabiliser of a portfolio, coming with low risk and modest payouts. This can provide a good balance to other asset classes you have in your portfolio, such as stocks, exchange traded funds (ETFs) and cryptocurrencies that come with increased risk. 

Astrea VI bonds also provides retail investors with exposure to private equity — an investment class not easily accessed by retail investors. Private equity is typically saved for the big boys, such as accredited or institutional investors with large investment amounts. 

With the previous Astrea bonds having proven to be highly popular amongst retail investors, there is little doubt this latest launch will be any different. Here are eight facts investors need to know about Astrea VI PE bonds before applying. 

#1 3% per annum (p.a.)

This payment of 3% will be given out semi-annually, on 18 March and 18 September each year to Astrea VI bondholders. The previous Astrea V bond offered 3.85% p.a. interest rate for their Class A-1 bonds in 2019.

In the current low interest rate environment, 3% per annum is a modest rate for a fixed income product with low risk. If you were to compare to other low-risk products in the market right now, 3% p.a. is higher than: 

• Singapore Savings Bonds (SSBs)
• Fixed deposits
• Singlife account 
• Cash management accounts
• High yield savings accounts (only DBS Multiplier and Maybank Save Up Programme allows you to earn up to 3% p.a.)

If you’re looking for higher returns, bonds aren’t the first place to look. You can instead consider investing your money with a robo-advisor that allows you to select a portfolio based on your risk appetite and financial objectives. 

#2 10 year maturity date

You should be prepared to hold the Astrea VI bonds for at least five years or longer, for up to 10 years. 

There is a scheduled call date at the end of year five, on 18 March 2026. If the following conditions are met, it is mandatory for the issuer to redeem the Class A-1 Bonds on the scheduled call date:

a) the cash set aside is sufficient to redeem all Class A-1 Bonds; and
b) there are no outstanding Credit Facility loans.

If conditions are met: The issuer will redeem the Class A-1 bonds in full on 18 March 2026. There could also be a bonus payment of 0.5% of your bond principal at redemption, if Astrea Capital VI receives US$421 million (which is 50% of the issuer’s equity) by 18 March 2026. This is also why it pays to hold for at least five years. 

If conditions are not met: The redemption will take place in any subsequent period when the conditions are met. There will also be a one-time 1% step-up in the interest rate to 4% p.a. after 18 March 2026. The maturity date of 18 March 2031 is the latest date on which the bonds will be redeemed in full — the reason bondholders have to be prepared to hold the bond for up to 10 years. 

However, in your own worst case scenario where you are in need for your cash, there remains the possibility of selling it on the open market, though this could be difficult, depending on the liquidity in the market. It could even result in a slight loss of your initial capital.

#3 $250 million public offer

Astrea VI is offering $250 million worth of Class A-1 Bonds to retail investors in Singapore. Retail investors do not have access to Class A-2 or Class B Astrea VI bonds. 

This public offer comes after the successful placement of $132 million of the Class A-1 Bonds, US$228 million of the Class A-2 Bonds and US$130 million of the Class B Bonds to institutional investors and accredited investors.

#4 $2,000 minimum investment amount 

The minimum investment amount is $2,000. There is no limit to the amount you can apply for. Do keep in mind that you have to invest in multiples of $1,000. This means you can’t invest with your lucky $8,888 but opt for either $8,000 or $9,000. 

This minimum investment amount is similar to the previous Astrea bond issuances. While this is higher than the minimum of $500 required for SSBs, it is lower than the minimum investment amount of $3,000 or $10,000 imposed by some robo-advisors.

#5 How much should you apply for?

While the minimum investment amount is $2,000, do you have a better chance of getting Astrea VI bonds if you apply for a larger quantum? 

Depending on demand, Astrea VI plans to allocate valid applications as follows:

1. All applications of less than S$50,000 will be allocated in full or inpart;
2. Applications of S$50,000 or more will be balloted, with successful applicants allocated in full or in part. 

This means that if you apply for less than $50,000, you will be allocated Astrea VI bonds, with the main question being whether you are allocated a portion of your application amount, or the full amount you applied for. If you apply for more than you intend to receive, keep in mind that there is a possibility that you are allocated your application size, in full. 

A look back at the allocation results of the Astrea V bond shows that a larger percentage of the public offering was allocated to investors that applied for amounts between $5,000 to $39,000. 

However, the bottom line is, when deciding on the application amount, it’s more important to settle on an amount that is within your means, especially as you’ll need to hold the bond for at least five years.  

#6 What are the risks involved

Like all other investment products, putting your money in Astrea VI bonds does come with a degree of risk. Firstly, Astrea VI Bonds are not guaranteed by any entity, including Temasek. This means that your capital is not guaranteed and there is not certainty as to when the bonds may be redeemed. 

Private equity investments also come with its own set of risks such as the risk involved when using leverage. Other risks include the risk of default by the issuer, changes in market interest rates and the risk of inflation. The lack of liquidity could also be a point of concern for investors. 

If you’re looking for investment products with higher liquidity, here are some asset classes to read up on: Cash management accounts, Regular Savings Plans, Exchange Traded Funds, Real Estate Investment Trusts, Blue-chip stocks and Robo-advisors. 

#7 Yes, it can be traded on the Singapore market 

If you’re worried about liquidity, you’ll be glad to know that Astrea VI bonds can be traded on the SGX. Astrea VI will start trading on the SGX-ST on 19 March at 9AM. 

However, while you’re able to buy or sell on the open market, liquidity could be an issue if there are few buyers or sellers of Astrea VI bonds — there is no assurance that you will definitely be able to sell your Class A-1 bonds. 

#8 Are there any fees? 

Yes, you have to pay an administrative fee of $2 at the point of application. This $2 is non-refundable, regardless of how much allocation of the bonds you receive. 

Aside from that administrative fee, there are no other fees Astrea VI bondholders need to pay to Astrea VI, with all on-going fees and expenses for the Astrea VI transaction paid for by Astrea VI.

Great, how do I apply? 

Here are the three ways you can apply for the Astrea VI bond.

Option 1: via the ATM (DBS/POSB, OCBC, UOB)
Option 2: via the Internet (DBS/POSB, OCBC, UOB)
Option 3: via Mobile (DBS/POSB)

You will need a CDP account in order to apply. Find out more about Astrea VI here.

The public offer is open from 10 March 2021 and will close at 12PM on 16 March 2021, so act fast!

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