On March 8, I have alerted readers of the latest Astrea VI Bond issuance through my blog and Telegram Channel. Astrea has just announced its Astrea VI allocation result today. The final coupon for the retail S$ tranche is 3%. It is not fantastic, but good enough for many, especially the retirement income seekers. But many people have got it wrong during the application process.
I want to use this as a case study to give you a better understanding of how a Bond IPO and Private Placement works.
To recap, Astrea issued three classes of bonds.
- S$ denominated Class A-1 Bonds – 3% coupon
- US$ denominated Class A-2 Bonds – 3.25% coupon
- US$ denominated Class B Bonds – 4.35% coupon
The USD bonds were offered to institutional and accredited investors, while retail investors can subscribe to the SGD bond.
Their Initial Price Guidance (IPG) was about 0.25% to 0.375% higher than the final offer. IPG is used by the issuer to gauge the market interest. Of course, given the popularity of the Astrea series of bonds, it was expected that the final offered coupon is lower.
Even so, the bond was 5.9 times oversubscribed, and many retail investors have got much less than what they hope for. However, I have helped my clients successfully obtained high allocation through private placement. I will share with you how it works so you can make the right decision next time.
What is the difference between Retail Offer and Private Placement?
For the Class A-1 bond, there are two tranches:
- The “Retail Offer”: S$250 million was offered to any Singaporean who wants to apply.
- The “Placement Tranche” S$132 million was offered to institutional and Accredited Investors.
As you can see, the private placement tranche is more than one-third of the total offer, which is not a small size. According to the latest filing by Astrea:
- All applicants who applied for S$8,000 or less received full allocations.
- 76% of the Retail Offer were allocated to applicants who subscribed for less than S$50,000.
- Applications of S$50,000 or more have been balloted at the balloting ratio shown in the table below, which is 50%.
So frankly speaking, if you plan to subscribe to more than $100,000, why are you fighting with other retail investors? You should subscribe via private placement for a higher chance.
Private placement or apply via ATM?
I understand that some people want to save the fee. But the secret is that the fee is so insignificant compared to your bond capital gain even from the first day of the listing. If you can get more allocations and sell once the bond is listed, it is almost a “risk-free” gain. This is penny wise, pound foolish.
But I think the real reason is that many people who are qualified are not aware that they can do private placement. As you can see from the table below, 266 successful applicants received their allocations through the placement in the retail tranche, comparing to the 804 successful applicants who applied who have gone for the ATM bidding for more than $100,000.
These people may not be well-informed. With so much hype about Astrea VI, there are tons of articles advocating how to subscribe via ATM with a minimum of $2,000. But hardly anyone talks about private placement. Of course, you still need to be an Accredited Investor to qualify for private placement, but the criteria are not out of reach for many. For those who have applied for more than $200,000, you are already qualified.
Lastly, I want to remind you that The Class A-1 Bonds are expected to commence trading at 9a.m. on 19 March 2021, The ticker for Class A-1 Bonds is “6AZB”, with the trading name: Astrea VI3%B310318.
The Class A-2 Bonds and Class B Bonds are expected to be listed on the SGX-ST on the same day and can be traded over-the-counter.
As I discussed in the previous articles, bond investing used to be for the rich but it is more accessible nowadays if you know how.
- If you are investing a small sum (less than $8,000), the bond issuer is already kind enough to give you full allocation;
- If you have a large sum to invest in, you should work with your brokers and advisers to try the private placement.
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