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Will Not be Subscribing to the Astrea 8 Private Equity Bond Issue, But You May Find it Suitable.

Astrea 8 Pte Ltd, a subsidiary deeper under Temasek, is issuing a series of Private Equity (PE) bonds that are available for IPO.

If you are interested in these PE bonds, get ready to go to an ATM and try subscribing. Astrea 8 is a subsidiary of Temasek private equity entity Azalea. This is not the first time that Azalea has issued the Astrea series of PE bonds, and it likely won’t be the last.

The Astrea series of bonds in a way serves a few purpose with a big one to provide a national service and introduce affordable fixed income to more Singaporeans.

I think it has serve its purpose and usually the IPO of the Astrea series of bonds are usually oversubscribed.

Some have asked me whether they should subscribe or whether I will get the Astrea 8. Whether I subscribe or even buy more from the open market is not so important because my goals may be very different from yours.

If I don’t buy the PE bond is because of this reason. However, the bond might be suitable for your financial goals.

The Class A-1 and Class A-2 bonds available for the public to subscribe have tenors of 5 and 6 years, respectively. Technically, their legal maturity is 15 years, but the bonds are likely to be called within that former timeframe.

Use this PE bond if the time horizon to reach your financial goal is slightly longer than 5 to 6 years. The PE bond also suits the risk-averse investors. The Class A-2 bond is in USD and you should only go with this bond if you have USD and would like to keep them as USD.

Some may wonder why we should invest in these bonds yielding 4.30% when the yield of 6-month Singapore Treasury bill is 3.7% p.a. Your 6-month Singapore Treasury bill or your short term deposit is only valid for a short duration after which you run the risk of the interest rate that you will enjoy going down to something lower. The risk of short term securities is that in the long run, you enjoy a moderately lower yielding experience.

The Astrea 8 would allow you to lock in the yield for 5 to 6 years instead of worrying about whether the yield will go up or down. The SGD Clas A-1 has a 1.1% credit spread above the 5-year Singapore government bond yield. There is not much term premium currently as the yield curve is inverted.

Unlike what some would say, the PE bond is not without risks. The coupons of the Astrea 8 will be paid by the income cash flows returned from the private equity funds that is in Astrea 8. These funds may be concentrated in a small number of companies each and these companies runs a chance of going bust.

If this lending is “truly” without risk, then it will not start yielding at this indicative yield but much lower.

Azalea wishes to assure the mostly retail Singaporean investors by structuring the Astrea 8 structure in a way that the repayment of the coupons and principal of the bonds are paid first before the Astrea 8 equity holdings will get paid. This incentivise the curation of the funds to firstly provide enough cash flow for the bonds if not they won’t even smell return for themselves.

But still, it is not without risks.

Currently, the total orderbook for the offer is more than SGD 1.35 billion across 2 tranches:

  • Class A-1 Bonds: Books over SGD 680M
  • Class A-2 Bonds: Books over USD 500M

The final yield-to-maturity guidance:

  • Class A-1 Bonds: 4.35%
  • Class A-2 Bonds: 6.35%

The minimum that you can apply for Class A-1 is S$2,000 and Class A-2 is US$2,000. There is a minimum fee of $2 when you apply for the public offer. You will get how much you apply for depends on the demand and for applications of less than S$50,000 for Class A-1 and US$50,000 for Class A-2 bonds will be allocated in full.

Here are some illustrations about what I have mentioned.

Information of the Astrea 8 PE Bond

This illustration shows us more information about the offer:

There is more money allocated for Class A-1 for the public offer compare to the Class A-2. That is likely because the retail prefer the SGD bond than the USD one.

Time Table of Astrea 8 Public Offer

Take note that the offer will start in 11 July and ends on 17 July at 12 pm.

The Efforts Put in to Increase the Certainty of the Principal and Coupons.

The income from the underlying funds will have to fulfill a unique hierarchy of payments before the equity holders of Astrea 8 can enjoy the returns of the underlying fund investments.

This is illustrated in the chart below:

Majority of th money is set aside in Reserve accounts, which will go into the repayment of the Class A-1 and A-2’s principal.

The illustration below show the past Astrea issues:

Azalea has a good track record of fully redeeming their bonds. The Reserve amount in Astrea 6 and 7 shows that the principal and income payment is being securely funded by underlying income.

Current Market Rates

The USD-denominated Class A-2 bond seem to enjoy a higher credit premium of 2% versus the credit premium of 1.1% for the SGD-denominated Class A-1 bond.


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Kyith

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S K Sharma

Thursday 11th of July 2024

How does one buy the USD tranche ie paying for it in USD and receiving dividends in USD? DBS's website under ESA (Electronic Securities Application) shows payment for both the SGD tranche (Class A1) and the USD tranche (Class A2) in Singapore dollars.

Kyith

Thursday 11th of July 2024

Hi Sharma, I thnk the disadvantage is that you be subjected to the exchange rate by the bank who did the conversion. I think in the past, we can subscribe to IPO via cashiers orders in other currency if we do the conversion.

Jon

Thursday 11th of July 2024

Can we subscribe USD? Seems like it's not an option for Astrea 8

Kyith

Thursday 11th of July 2024

we should be able to apply for A-2

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