Are Astrea 8 bonds worth buying?

Insights

Bonds

By Gerald Wong, CFA • 11 Jul 2024 • 0 min read

The Astrea 8 Class A-1 Bonds offer a fixed interest rate of 4.35% per annum, and the Class A-2 Bonds offer a fixed interest rate of 6.35% per annum.

astrea-8-bonds-11-july-2024.jpg
In this article

Summary

  • Offer of Astrea 8 PE bonds: Astrea 8 has launched a public offer of S$260 million of Class A-1 Bonds at a fixed interest rate of 4.35% per annum, and US$50 million of Class A-2 bonds at a fixed interest rate of 6.35% per annum. Astrea 8 is backed by cash flows from a portfolio of 38 private equity funds that invested in 1,028 companies across diversified industries and geographies. The portfolio is valued at US$1,471 million as at end-2023. The manager of Astrea 8 Pte Ltd is Azalea, a 100%-owned subsidiary of Temasek Holdings Pte Ltd.

  • Proven issuer track record. The bonds will mature in 15 years in July 2039. The Class A-1 and Class A-2 bonds are callable at the 5th and 6th year, respectively. There will be a one-time interest step up of 1% per annum if these are not redeemed at the call date. We note that the Astrea III and IV were redeemed before their maturity dates. While the bonds are not guaranteed by any party, there are structural safeguards such as the reserves accounts mechanism, maximum loan-to-value (LTV) ratio of 40%, and credit facility if cash flow shortfall occurs. 

  • Decent yield compared to existing Astrea issues. The yield to call of the Class A-1 bonds of 4.35% is above the range of 3.44% to 3.57% for existing Astrea S$ issues. The yield to call of 6.35% for Class A-2 bonds falls within the range of 4.62% and 6.61% for existing US$-denominated Astrea issues. However, the Astrea 8 PE bonds have a longer duration compared to previously issued bonds. 

  • We believe Astrea 8 bonds may be attractive for investors seeking regular income for a longer duration, given the track record of past Astrea series and safeguards in place. We prefer Class A-1 bonds due to the yield premium compared with existing Astrea S$ series. Key risks include liquidity risk, leverage risk, exchange rate risk for Class A-2 bondholders, amongst others.

     

Offer of Astrea 8 PE bonds

Astrea 8 PE bonds (PE Bonds) are secured fixed-rate debt issued by Astrea 8 Pte Ltd. (Astrea 8). 

There are two classes of bonds issued:

  • Class A-1 Bonds of S$520 million at 4.35% annual interest rate; 

  • Class A-2 Bonds of US$200 million at 6.35% annual interest rate. 

  • S$260 million of Class A-1 Bonds and US$50 million of Class A-2 Bonds are available for retail subscription under the Public Offer

astrea 8 pe bonds 2024.jpg
Source: Astrea

Astrea 8 holds a portfolio of 38 private equity funds which invest in 1,028 companies across diverse industries and geographies. 

Interests would be paid semi-annually, and funded by cash flows from the fund’s investee companies. Excess cash will be set aside for principal repayment in two separate reserves accounts. 

The PE Bonds will mature on 19 July 2039. The tenure of 15 years ls longer than the 10-year tenure for earlier Astrea series. 

The bonds have a mandatory call at the end of 5 years and 6 years, for Class A-1 and Class A-2 bonds, respectively. 

There will be a one-time interest rate step up of 1% per annum if the bonds are not fully redeemed at the call date. 

The PE Bonds cannot be redeemed by the issuer before the call date.

astrea 8 pe bond interest rate
Source: Astrea

 

Discover income opportunities in Singapore
icon

Sign up for our free newsletter and get the latest insights on Singapore bonds

Proven issuer track record 

Astrea 8 is managed by Azalea, a 100%-owned subsidiary of Temasek Holdings Pte Ltd. The PE Bonds are not guaranteed by any party.

Azalea has a proven track record with all bond obligations fulfilled to date. Astrea III and IV were fully redeemed before the maturity date. 

Astrea V, which mature in 2029, have fully redeemed Class A bonds, and partially redeemed Class B on the call date in June 2024. 

Astrea VI and Astrea 7 have not reached the scheduled call dates. 

azalea astrea track record.jpg
Source: Company Data

Diversified portfolio of PE funds

Astrea 8 is backed by cash flows from a diversified portfolio of 38 private equity funds which invest in 1,028 companies across diverse industries and geographies. The net asset value of the portfolio was US$1,471 million as of 31 December 2023.

The portfolio has exposure to major investment regions, including North America, Europe and Asia. The portfolio breakdown is largely in-line with the regional breakdown of PE assets under management. 

Fund RegionNAV (US$ million)% of NAV
U.S.927.763.0
Europe293.320.0
Asia250.417.0
Total1,471.4100.0
Source: Company data

The fund investments were invested across diversified sectors, with information technology representing the largest exposure at 30% of the net asset value as of 31 December 2023. This is followed by industrials (18%), healthcare (14%), and the consumer discretionary sector (12%). 

None of the portfolio companies represent more than 1.3% of the entire net asset value of the portfolio. 

Top 5 Sector Groups% of NAV
Information Technology29.9
Industrials18.2
Health Care14.1
Consumer Discretionary12.2
Financials8.1
Source: Company data 

The weighted average fund age is 6.1 years. Mature funds are more likely to generate cash flow. Across vintage years, about 31% of the fund investments were made in 2018, followed by 2019 (26%), and 2017 (24%).

Structural safeguards in place

The Astrea PE bonds are designed with safeguards for bondholders.

astrea structural safeguards
Source: Astrea

#1 - Reserves Accounts Mechanism

The Reserves Accounts Mechanism allows cash build-up to repay the principal amounts of the Bonds.  

While the Class A-1 Bonds are outstanding, the cash will flow into the Reserves Accounts for the redemption of the Class A-1 Bonds. 

After the Class A-1 Bonds have been fully reserved or redeemed, 90% of the cash remaining after application of Clause 1 through Clause 7 will flow into the Reserves Accounts for the redemption of the Class A-2 Bonds. 

Astrea payment schedule.jpg
Source: Astrea

#2 - Maximum Loan-to-Value (LTV) Ratio Below 40%

The Loan-to-Value (LTV) ratio is capped at 40%, which is lower than the 50% for earlier Astrea series. If this is breached, additional distributions have to be deposited into the Reserves Account to lower the LTV to 40% before any distribution to equity investors. 

The bond offering will raise US$585 million, or 39.8% of the portfolio value of US$1,471 million as at end-2023 (loan-to-value or LTV). The conservative LTV ratio at issuance may mitigate risk of loss, as the portfolio will need to lose 60.2% of its value before bondholders are impacted. 

In addition, there is an alignment of interest with bondholders, as the sponsor Azalea which owns 100% of the equity will take first loss. 

#3 - Credit Facility 

In the event of cash flow shortfalls, the Issuer may draw on the facility provided by OCBC to fund certain expenses and other amounts payable (including unpaid accrued interest on the Class A-1 and the Class A-2 Bonds) and Capital Calls. 

However, the Credit Facility cannot be used to repay any principal amount on the Bonds.

Decent yield compared to existing Astrea issuances

We would compare the bonds with existing outstanding Astrea series, which are also invested in PE funds managed by Azalea with similar features. 

Existing Astrea S$-denominated issues are priced at yield to call (YTC) of 3.44% to 3.57%. Astrea 8 Class A-1 YTC, at 4.35%, is above this range. 

The YTC of the Class A-2 bonds, at 6.35%, falls within the range of 4.62% and 6.61% for existing US$-denominated Astrea issues. 

However, the Astrea 8 PE bonds have a longer duration compared to previously issued bonds. 

image.png
Source: Company data, Bloomberg as of 10 July 2024. NB: nr refers to not-rated

The 5-year Singapore government bond offers a yield of 3.2%. As such, the Class A-1 Bonds offer a yield spread of 1.15% over the Singapore government bond. 

The 5-year US government bond offers a yield of 4.24%. Hence, the Class A-2 Bonds offer a yield spread of 2.11% over the US government bond. The wider spread for Class A-2 bonds is likely due to wider range of investment options in the US dollar debt market. 

The Astrea bonds should offer a higher yield compared to Temasek notes and Singapore Government Securities due to the higher inherent risks of the underlying private equity funds, in our view. 

Given the above, we believe Astrea 8 PE bonds offer a decent yield, and would prefer Class A-1 bonds for the yield premium to existing Astrea S$ issues.

5 year Singapore government bond yield
Source: Tradingview

Key risks of Astrea 8 PE Bonds

There are various risks associated with investing in Astrea 8 PE Bonds, including investment risks, market risks, leverage risks, amongst others. 

#1 - Investment Risks

As the Astrea 8 bonds are backed by cash flows from a portfolio of private equity funds, there are investment risks due to the nature of private equity fund investments.  In particular, the amount and timing of distributions from the private equity funds are uncertain. 

In addition, there is limited disclosure on the performance of the underlying investee companies.  As such, it may be difficult to keep track of any decline in the returns or cash flows of the fund investments. 

#2 - Market Risk

Any adverse change in macroeconomic conditions may result in declining private equity asset valuations and deal activities. 

Such market developments may also lead to less distributions from the private equity fund investments if exits on the investee companies happen during a period of declining asset valuations or deal activities. 

#3 - Leverage Risk

The use of leverage by a private equity funds may increase the exposure of Investee companies to adverse financial or economic conditions, which in turn may impact their ability to finance operational and capital needs. This may then lead to less distributions received from the private equity fund investments. 

#4 - Liquidity Risk

The trading market for the bonds may be limited, and there is no assurance that the bonds may be able to be sold at an attractive price.  In addition, there is no certainty as to when the bonds would be fully redeemed before the Maturity Date.

#5 - Exchange Rate Risk

As the Class A-2 bonds are US dollar denominated, bondholders whose investment currency base is not in US dollars may be subject to exchange rate fluctuations.

In particular, a sharp depreciation of the US dollar may lead to foreign exchange losses for Class A-2 bondholders whose investment currency base is not in US dollars. 

What would Beansprout do?

We believe Astrea 8 PE bonds may be attractive for investors seeking regular income over a longer duration, given track record of past Astrea series and safeguards in place. 

We prefer Class A-1 bonds over Class A-2 bonds for the yield premium to existing Astrea S$ issues

However, we would need to be aware of the various risks associated with investing in Astrea 8 PE Bonds, including investment risks, market risks, leverage risks, amongst others. 

In addition, Class A-2 bondholders whose investment currency base is not in US dollars may face exchange rate risks from the US dollar denominated bonds.

You can download a copy of our research report on Astrea 8 PE bonds here.

Read also: Where to park your cash for high yield? T-bills vs Fixed Deposit vs SSB (July 2024)

Join us for a free SGX Academy webinar at 7.30 pm on 16 July, where we will provide an overview of the issuance, pros and cons of subscribing to the bond issuance, and how to apply. Register for free here.

Join the Beansprout Telegram group to get the latest insights on Singapore bonds, stocks and REITs.

How to apply for Astrea 8 PE bonds?

You may apply for the Astrea 8 PE Bonds through ATM, internet banking and mobile banking via DBS, POSB, OCBC and UOB.

You will require a CDP account to apply for the Astrea 8 PE Bonds.

  • The public offer for the Astrea 8 PE bonds open from 9am on 11 July 2024, and will close at 12 noon on 17 July 2024.
  • The Astrea 8 PE Bonds are expected to be issued on 19 July 2024.
  • The Class A-1 Bonds and Class A-2 Bonds are expected to list and start trading on the Mainboard of the SGX on 22 July 2024.

astrea 8 bonds key dates

You may apply for both the Class A-1 bonds and Class A-2 bonds. 

  • The minimum application for the Singapore dollar denominated Class A-1 bonds is S$2,000 per application, and the bonds will be traded in denominations of S$1,000.
  • The minimum application for the US dollar denominated Class A-2 bonds is US$2,000 per application, and the bonds will be traded in denominations of US$1,000.

You may only apply for the Astrea 8 PE Bonds using cash. Applicatons for the Astrea 8 PE bonds using CPF or SRS are NOT allowed. 

astrea 8 bonds how to apply

Subscribe to our free newsletter to stay updated on the Astrea 8 PE bond and get the latest insights on Singapore T-bills, SSBs and other bonds. 

 

Discover income opportunities in Singapore
icon

Sign up for our free newsletter and get the latest insights on Singapore bonds

Disclosure 

Analyst Certification and Disclosures 

The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst herein. The analyst(s) named in this report (or their associates) does not have a financial interest in the corporation(s) mentioned in this report.

An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

Company Disclosure

Global Wealth Technology Pte Ltd (“Beansprout”), or any of its directors and shareholders, does not have any financial interest in the corporation(s) mentioned in this report.

Disclaimer

Beansprout was appointed by Singapore Exchange Regulation (SGX RegCo) and received monetary compensation from SGX RegCo to provide independent research on the Astrea 8 PE Bonds (Bonds). Beansprout is solely responsible for the contents of this document. Singapore Exchange Limited and/or its affiliates, including SGX RegCo (collectively, SGX Group Companies) assume no responsibility (whether under contract, tort (including negligence) or otherwise), directly or indirectly, for the contents of this document. Approval in-principle granted by Singapore Exchange Securities Trading Limited (SGX-ST) and admission of the Bonds to the Official List of the SGX-ST are not to be taken as an indication of the merits of the issuer, its subsidiaries and/or associated companies, or the Bonds.

This report is provided by Beansprout for the use of intended recipients only and may not be reproduced, in whole or in part, or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out herein.

You acknowledge that this document is provided for general information purposes only. Nothing in this document shall be construed as a recommendation to purchase, sell, or hold any security or other investment, or to pursue any investment style or strategy. Nothing in this document shall be construed as advice that purports to be tailored to your needs or the needs of any person or company receiving the advice. The information in this document is intended for general circulation only and does not constitute investment advice. Nothing in this document is published with regard to the specific investment objectives, financial situation and particular needs of any person who may receive the information. 

Nothing in this document shall be construed as, or form part of, any offer for sale or subscription of or solicitation or invitation of any offer to buy or subscribe for any securities. The data and information made available in this document are of a general nature and do not purport, and shall not in any way be deemed, to constitute an offer or provision of any professional or expert advice, including without limitation any financial, investment, legal, accounting or tax advice, and shall not be relied upon by you in that regard. You should at all times consult a qualified expert or professional adviser to obtain advice and independent verification of the information and data contained herein before acting on it. Any financial or investment information in this document are intended to be for your general information only. You should not rely upon such information in making any particular investment or other decision which should only be made after consulting with a fully qualified financial adviser. Such information do not nor are they intended to constitute any form of financial or investment advice, opinion or recommendation about any investment product, or any inducement or invitation relating to any of the products listed or referred to. Any arrangement made between you and a third party named on or linked to from these pages is at your sole risk and responsibility. 

You acknowledge that Beansprout is under no obligation to exercise editorial control over, and to review, edit or amend any data, information, materials or contents of any content in this document. You agree that all statements, offers, information, opinions, materials, content in this document should be used, accepted and relied upon only with care and discretion and at your own risk, and Beansprout shall not be responsible for any loss, damage or liability incurred by you arising from such use or reliance. 

This document (including all information and materials contained in this document) is provided “as is”. Although the material in this document is based upon information that Beansprout considers reliable and endeavours to keep current, Beansprout does not assure that this material is accurate, current or complete and is not providing any warranties or representations regarding the material contained in this document. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Any reference to past performance should not be taken as an indication of future performance. To the fullest extent permissible pursuant to applicable law, Beansprout disclaims all warranties and/or representations of any kind with regard to this document, including but not limited to any implied warranties of merchantability, non-infringement of third-party rights, or fitness for a particular purpose. 

Beansprout does not warrant, either expressly or impliedly, the accuracy or completeness of the information, text, graphics, links or other items contained in this document. Neither Beansprout nor any of its affiliates, directors, employees or other representatives will be liable for any damages, losses or liabilities of any kind arising out of or in connection with the use of this document. To the best of Beansprout’s knowledge, this document does not contain and is not based on any non-public, material information. The information in this document is not intended for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to law or regulation, or which would subject Beansprout to any registration requirement within such jurisdiction or country. Beansprout is not licensed or regulated by any authority in any jurisdiction or country to provide the information in this document.

As a condition of your use of this document, you agree to indemnify, defend and hold harmless Beansprout and its affiliates, and their respective officers, directors, employees, members, managing members, managers, agents, representatives, successors and assigns from and against any and all actions, causes of action, claims, charges, cost, demands, expenses and damages (including attorneys’ fees and expenses), losses and liabilities or other expenses of any kind that arise directly or indirectly out of or from, arising out of or in connection with violation of these terms, use of this document, violation of the rights of any third party, acts, omissions or negligence of third parties, their directors, employees or agents. To the extent permitted by law, Beansprout shall not be liable to you, any other person, or organization, for any direct, indirect, special, punitive, exemplary, incidental or consequential damages, whether in contract, tort (including negligence), or otherwise, arising in any way from, or in connection with, the use of this document and/or its content. This includes, without limitation, liability for any act or omission in reliance on the information in this document. Beansprout expressly disclaims and excludes all warranties, conditions, representations and terms not expressly set out in this User Agreement, whether express, implied or statutory, with regard to this document and its content, including any implied warranties or representations about the accuracy or completeness of this document and the content, suitability and general availability, or whether it is free from error. 

If these terms or any part of them is understood to be illegal, invalid or otherwise unenforceable under the laws of any state or country in which these terms are intended to be effective, then to the extent that they are illegal, invalid or unenforceable, they shall in that state or country be treated as severed and deleted from these terms and the remaining terms shall survive and remain fully intact and in effect and will continue to be binding and enforceable in that state or country. 

These terms, as well as any claims arising from or related thereto, are governed by the laws of Singapore without reference to the principles of conflicts of laws thereof. You agree to submit to the personal and exclusive jurisdiction of the courts of Singapore with respect to all disputes arising out of or related to this Agreement. Beansprout and you each hereby irrevocably consent to the jurisdiction of such courts, and each Party hereby waives any claim or defence that such forum is not convenient or proper.

Read also

Want to learn more? Discover more Bond-related insights here.

Gain financial insights in minutes

Subscribe to our free weekly newsletter for more insights to grow your wealth

chatbubble Comments

0 comments