All you need to know about Temasek’s Astrea IV bonds

All you need to know about Temasek’s Astrea IV bonds

 If you don’t already know, Astrea IV is a wholly-owned subsidiary of Azalea Asset Management Pte. Ltd, which is indirectly wholly owned by Temasek Holdings.

Bonds have traditionally been viewed as less volatile investments, paying out regular income over a fixed period of time. This characteristic also makes them a useful investment for retirees to continue receiving visible cash flows for their daily living requirements. Of course, investors who prefer less uncertainty in price fluctuation will also be drawn to bond investments.

In fact, earlier this month, Temasek Holdings CEO Ho Ching described the upcoming Astrea IV PE Bonds as a good “way to grow (our) retirement nest egg”. Unlike most bonds, the Astrea IV PE Bonds will be the first-of-its-kind allowing retail investors to access the private equity investment class that is usually exclusive to high net worth individuals, large financial institutions and funds. Here is a short run down of the description of the Astrea IV PE Bond.

Temasek's Astrea IV bonds
From Temasek’s Astrea IV bond’s prospectus

THE Azalea Group, a Temasek unit specialising in investments in private equity, has launched its first PE-backed bond for retail investors, with a smaller-than-expected retail tranche of S$121 million according to Straits Times.

The retail tranche of Class A-1 bonds carries an interest rate of 4.35 per cent. Retail investors may subscribe via ATM with a minimum investment of S$2,000.

The bonds are expected to be issued on June 14, and are expected to begin trading on SGX on June 18. The total size of the A-1 tranche is S$242 million. Half of that, however, is a placement tranche that was marketed to institutions and accredited investors.

The tranches offered to institutions and accredited investors comprised S$121 million of A-1 bonds, US$210 million of A-2 bonds and US$110 million of Class B bonds. A-2 bonds carry an annual interest rate of 5.5 per cent, and B bonds have an interest rate of 6.75 per cent.

Astrea IV’s Class A-1 bonds were allocated yesterday, with all 25,660 valid applicants in its $121 million retail offering – which was 7.4 times subscribed – receiving some allocation.

Astrea said 65 per cent of the bonds were allocated to applicants who subscribed for $30,000 or less, with all those applying for $4,000 or less receiving full allocations.

Subscribers who did not receive the full allocation will have their balances refunded through their bank accounts by 6pm today.

The bonds will be issued today (14th June), and retail investors can check their allocations by logging into their Central Depository accounts from tomorrow.

The retail offering followed the successful placement of three classes of bonds to institutional and other investors in Singapore and elsewhere.

Apart from $121 million in Class A-1 bonds, they comprise US$210 million (S$280 million) in Class A-2 bonds and US$110 million in Class B bonds, which will also be issued today.

Astrea IV bonds are expected to commence trading at 9am next Monday.

Get the prospectus here and product highlights can be found here.

Here’s an opinion from one of our veteran community members, @bullythebear:

1) Firstly, this is not Hyflux. This is a rated A bond by the rating agency. While I don’t give a shit what they say about the bond, ultimately a rated A bond is still better than an unrated bond because the financials support it.

2) Putting money into a bond is lending money to others, who are likely going to take the borrowed funds and invest at a higher returns while giving you a lower interest. If you’re not comfortable lending them at 4.35% while they earn an astronomical returns of 15 to 30% and pocketing all the difference, then don’t lend. The risk profile of investing in private equity fund directly and lending money to private equity fund in the form of bonds are totally different. While it’s true that private equity investors have higher upside, they have a greater downside as well.

3) After IPO, the bonds is going to be transacted in the open market at SGX on 18th Jun, 9am. If you’re not going to hold until they redeem back, you can sell it off at the market price. The market price is just what the name suggests – it can be higher or lower than the capital you put in, and you still have to include commissions. If you hold until maturity at the 5 yr or 10 yr mark, then you’ll get back all your principal, and perhaps plus a little more because of the bonus redemption premium.

4) The interest rate is going up now, so in the event of a huge rise in interest over the next 5 yrs or so, the market price of the bond might go lower. If you can’t hold for the entire duration of the bond until they redeem it, you might have to suffer a capital loss. But if you hold till redemption, it’ll be redeemed at the principal value, minimally. In other words, it’s capital guaranteed upon maturity.

5) Since the interest rate is going up, there might be more enticing bond than this in the future. I wouldn’t put my whole warchest into here. A suitable allocation here should be fine. I’ll be applying for this. Initially I wanted to put in some new funds from my parent’s retirement fund into here, but I think I’m having second thoughts.

To learn where bonds stand as an asset class, refer to our previous post.

To see what other investors are saying about the Singapore’s Private Equity (PE) bond (click the green view now button):

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