Astrea Bond is Back! If you are looking to invest for passive income, you should continue reading.

Azalea Asset Management is listing the Astrea 8 private equity (PE) bonds in July. This will be the fifth retail bond giving Singapore investors access to the PE asset class. In this article, I’ll cover:

  • What are Astrea Bonds all about?
  • The track record of previous Astrea Bonds
  • Is it worth investing in Astrea 8 Bonds?
  • How you can subscribe to the Astrea 8 Bonds

What is Astrea Bond?

Astrea 8 is fully owned by Azalea Asset Management, which is wholly owned by Seviora Holdings. Seviora Holdings is indirectly owned by Temasek Holdings.

So, Astrea Bonds comes with the strong backing of Temasek Holdings. Although Temasek doesn’t guarantee these bonds, many people feel more confident investing in them because of the association.

Astrea 8 will issue two classes of bonds: Class A-1 (SGD-denominated) and Class A-2 (USD-denominated). You can find the preliminary prospectus here.

ClassA-1A-2
Expected Ratings (Fitch)A+ sfA sf
Tenor15 Years15 Years
CurrencySGDUSD
Callable Date5th year (July 2029), coupon steps up by 1% if not called6th year (July 2030), coupon steps up by 1% if not called
Yield Guidance (p.a.)4.00% to 4.50%6.00% to 6.50%
Lot SizeS$2,000 with increments of S$1,000US$2,000 with increments of US$1,000

Update on July 9, 2024 

Total Orderbooks >SGD 1.35bn across 2 tranches

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

Final Price Guidance:

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

For the latest update, please check our Telegram Channel.

History and Track Record of Astrea Bonds

Astrea IV was the first retail bond available to Singapore investors, launched in June 2018. You can read about past launches in my previous articles about Astrea Bonds.

Recently, in June, I just updated my clients that Astrea V would redeem all Class A-1 Bonds on 20 June 2024. Those who owned Astrea V A-1 Bonds should have received the principal amount and unpaid accrued interest with a 0.5% bonus. I said that I anticipated a new Astrea bond issue, and here we have Astrea 8.

Astrea Bonds have shown a reliable track record of meeting redemptions:

  • Astrea III (2016), Astrea IV (2018), and Astrea V (2019) were all redeemed at their callable dates.
  • Astrea VI (2021) and Astrea 7 (2022) have set aside 75% and 41% of their respective reserve accounts.
  • Such reserve accounts contain cash that must be set aside to build up sufficient reserves to redeem the bonds on the call date.

The expected rating of Astrea 8 is A+ sf for A-1 class and A sf for A-2 class by Fitch. Refer to Fitch rating details here.

Are Astrea Bonds Worth Buying?

Below are the investment and portfolio highlights of the Astrea 8 bond.

Source: Preliminary Prospectus of Astrea 8 Bond

I have love and hate options about Astrea Bonds. Let’s talk about recognizing the merits of the bonds first.

The Good

  1. Strong Backing and Credit Rating: Issued by Azalea Investment Management, owned by Temasek Holdings. The bonds have an indicative credit rating of A+ (sf) for Class A-1 and A (sf) for Class A-2. Even if it is not guaranteed by Temasek, it stands out well.
  2. Diversified Portfolio: Indirect exposure to 38 PE funds across 1,028 underlying companies, diversified across various regions and sectors. Most of the underlying funds are based in the US (63%) followed by Europe (20%) and Asia (17%). The vintage years range from 2015 to 2020. We all know Private Equities are risky investments and good geographical and sectoral diversification ease some of my concerns.
  3. Retail-Friendly: It is interesting that both bond classes are open to retail investors. The minimum lot size is $2K, unlike the usual $250K for new bonds.

The Not-So-Perfect

When the earlier issue Astrea V was launched, I wrote an article about it, I strongly encourage you to read this article: Astrea V Private Equity Bond: Why I am not thrilled about it.

  1. Risk Compensation: Are investors adequately compensated for the risks? When Astrea V Class A-1 Bond was launched in 2019, I pointed out the potential issues in a rising interest rate environment. The bond’s coupon was only 3.85%. If you were to subscribe to the bond and hold to the maturity, you may suffer some opportunity costs in the past 5 years.
  2. Current Yield: In today’s high-interest-rate environment, the indicative yield of 4% to 4.5% for SGD bonds and 6.00% to 6.50% for USD bonds isn’t bad, but it’s not exceptional. Given the recent Great Eastern bond with a 3.928% coupon and the iFast bond with a 4.328% coupon, I would want to bid a slightly higher yield. But I guess many retail investors may find these returns sufficient and it is likely the bond will be oversubscribed again, so the final yield may be at the lower end of the indicative range.
  3. No Institution-Only Class: This time, Astrea does not have an institution-only class. Check the yield difference between retail and institutional class bonds.

How to Subscribe to the Astrea 8 Bonds IPO

There are a few ways to subscribe: Retail Offer and Private Placement.

  • Retail Offer: Subscribe via ATM, mobile banking applications and internet banking websites from 9 am on July 11 to 12 pm on July 17.
  • Private Placement: If you are an Accredited Investor (AI), you can apply before the public launch through your broker or financial adviser like us and you can set a limit yield and only take the bond if the final auctioned yield meets your desired returns.

Note the final interest rates will be priced after the book-building process, as per other Astrea PE bonds across various issuances. The retail investors will be offered the same rates determined during the book-building process.

Based on past experiences, these bonds will likely be oversubscribed, meaning most investors may not receive the full allotment. If you qualify as an Accredited Investor, applying via private placement can increase your chances of securing an allotment, especially for larger sums.

For a detailed explanation of how private placement works, check out my article here.

Additional Reading – Astrea VI Bond IPO: Why You Should Have Applied Via Private Placement.

Update on July 11, 2024 

The private placement tranche is over, and now the public offer starts. Retail investors are offered the same rates as below.

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

If you use the bank’s internet banking or mobile app to apply, select “Electronic Securities Application” or “ESA”.

Take note of the timetable of key events as below.

Let me summarize…

We have seen SGD interest rate top this year and a high chance of dropping in the foreseeable future. The latest 6-month Singapore T-Bill (BS24113N) only had a yield of 3.7%. The yield spread between risk-free rate and investment-grade bonds is extremely low now.

In such an environment, I think it’s worth considering Astrea 8 bonds for several reasons:

  1. Lock In High-Interest Rate: Unlike the previous few tranches of Astrea bonds, this bond is launched at a high interest rate environment. With a potential decline in future interest rates, it’s a good time to lock in long-term returns through bonds.
  2. Good Credit Rating and Track Record: Astrea bonds have a strong crediting rating and a history of redeeming at call dates. There should be no foreseeable cash flow risks at this moment.
  3. Flexible Investment: The smaller board lot size of $1K or US$1k makes it easier to complement your existing portfolios. You do not have to make your portfolio overly concentrated and conservative in order to buy this bond.

Risks

  1. Interest Rate Risk: If high interest rates persist, the bond price might drop, similar to earlier tranches.
  2. Reinvestment Risk: Being able to call the bond in the past years was impressive. But in a declining interest rate environment, it works against the investor. The issuer might call the bond and refinance at a lower rate, leaving investors with reinvestment risk, meaning it is harder to find a good deal when that time comes.

What do you think about Astrea bonds? Do you have any questions? Leave your comment below.

As an investment professional, I help my clients manage their investments to achieve their financial goals. If you find this article useful and want to learn more about bond investing for stable passive income, contact me via the form below.

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About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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