Astrea VI Bonds at 3% Per Annum. To Buy or not to Buy!

After several months of disappointing interest rates from the Singapore Savings Bonds, I was contemplating between putting my savings in a Khong Guan biscuit tin or under the comfort of my pillow (not the smartest personal finance decision).

Source: Dreamscaper.sg

That was until I chanced upon a headline that shimmers me a bit of hope in this low-interest-rate environment.

“The Astrea bond is back…”

The Astrea VI Class A Bonds – 3% p.a.

Having covered the Astrea IV and Astrea V bond, we look forward to what Astrea VI has to offer.

So What’s The Big Deal About Astrea VI?

Here’s what we know about Astrea VI:

• Astrea VI is a Temasek-linked private equity (PE) vehicle
• Astrea VI Class A-1 Bonds in Singapore is available for collection at selected DBS/POSB branches during operating hours until 12pm on 16 March 2021.

While the Astrea VI Bond is launched by Azalea Asset Management, which is indirectly wholly-owned by Temasek Holdings, we should not automatically assume that the product is risk-free.

Astrea VI is ultimately a private equity collateralized fund obligation (PE CFO), backed by cash flows from a diversified portfolio of PE funds.

How Much Do I Need To Invest In The Astrea VI Bond?

Retail investors like ourselves will need a minimum of S$2,000 to invest in the Astrea VI Bond.

At the moment, Astrea VI has plans for three tranches, in the hope of raising a total of US$643 million in total. That works out to be about S$861.72 million.

The three bond tranches are:

• Class A-1 bonds where they plan to raise S$382 million (US285 million), with a lock-in period of 5 years
• Class A-2 bonds where they expect to raise US$228 million, also looking at a 5-years’ period
• Class B bonds with an expectation of US$130 million

Here are their respective interest rates:

• Class A-1 bonds: 3.00% p.a.
• Class A-2 bonds: 3.25% p.a.
• Class B bonds: 4.35% p.a.

For retail investors like us, we’ll probably be looking at the Class A-1 bonds. Class A-1 bonds are the least risky ones anyway.

Interest Rate, Interest Rate Step-Up And Maturity Date Of Astrea VI

For a quick summary of information about the Astrea VI (Class A-1 Bonds):

How To Buy Astrea VI Bonds?

Astrea VI will be available for our subscription through ATMs at multiples of S$1,000, at a minimum investment of S$2,000 to invest.

Retail investors (the public) will be offered S$382 million Class A-1 Bonds.

Application date for Astrea VI Bond: 10 March 2021, 9am

• Application close on 16 March 2021, 12pm
• The issue date of the bond: 18 march 2021

What Is The Interest Yield For Astrea VI Bond?

The interest yield for Astrea VI differs with each tranche. As retail investors, we will only be focusing on the Class A-1 bonds.

The public issuance will be on 10 March 2021 at 9am, where investors like you and I can head over to the ATMs to apply for it.

If you wish to participate in the private placement or wholesale bond offer, you will need to go through bond brokers such as bondsupermart.

Should I Invest In Astrea VI Or Not?

The best investor profile for the Astrea VI will be:

• If you want a fixed flow of regular income
• You have an amount of spare cash which you are willing to park somewhere for at least 5 years
• You are willing to stomach a bit of risk to get slightly higher returns
• You are going for a more stable and chill approach, instead of looking for crazily high capital growth.

What Is The Maturity Of Astrea VI Bond?

Astrea VI have a scheduled call date of five years and a legal maturity date of 10 years.

This means that investors can expect to be paid a one-time bonus payment of 0.5% (if conditions are met), and you’ll effectively miss out on the next five years’ worth of interest payments where there is a step-up interest.

The yearly interest rate of 3% is quite beguiling though…

What Are You Investing In, If You Buy The Astrea VI Bond?

Astrea VI diversifies your investment money into a portfolio of private equity.

By investing in the Astrea VI, you are investing in a portfolio of:

• 35 private equity funds, and a total of 802 companies.
• These 35 private equity funds account for a net asset value (NAV) of USD1.456 billion.

A quick recap of Astrea IV and Astrea V’s portfolio, they consist of 36 and 38 funds respectively. Of which, Astrea IV exposed you to 596 companies and Astrea V exposed you to 862 companies.

Class A-1 of Astrea VI was given a rating of A+(sf) and A+sf by S&P and Fitch Ratings. Astrea IV was recently upgraded by Fitch Ratings. And in case you’re wondering, A+(sf) is not a typo. The (sf) stands for structured finance, and it’s to distinguish structured finance ratings from the ratings of other securities.

Do note that Astrea Private Equity bonds are private equity collateralised fund obligations (CFOs). Hence, they fall under a different credit rating category, where ‘A+sf’ is the highest rating that they can attain, instead of the usual ‘AAA’ rating applicable for corporate bond issuers.

Read also: Keep calm and invest in Singapore Savings Bond (SSB)

Further Reading: Pros and Cons of Astrea VI

If you are still on the fence on if you should invest in the Astrea VI, we list out some of the pros and cons to help you make a better decision.

When it comes to investing, it’s always good to understand more about the benefits and risks which you will be undertaking.

Pros: Structure Of Astrea VI

As seen above, DBS Bank is again, the capital call facility. Assuming there is a shortage of cash flow, DBS will step in to provide short-term funding.

Pros: The Astrea VI Portfolio Is Well Diversified

Astrea VI’s portfolio is well-diversified over a large number of funds and investments.

Here’s a quick comparison:

• Astrea IV: 36 funds and a total of 596 underlying investments across various sectors and regions.
• Astrea V: 38 funds and a total of 862 companies, across various sectors and regions.
• Astrea VI: 35 funds and a total of 802 companies across various sectors and regions.

In terms of numbers, it seems to be less diversified than the Astrea V, but still a good amount of companies and funds.

The following is a breakdown of some of the portfolio’s characteristics:

As you can see, the portfolio sector breakdown is as such:

• IT: 28.2%
• Healthcare: 19.8%
• Consumer Discretionary: 13.2%
• Industrials: 12.4%

A quick comparison with the past few Astrea bonds:

Source: Bondsupermart

Cons: Bonds Backed by Private Equity

With every form of investment, there will be a certain level of risk pegged to it.

Given that Astrea VI is a bond backed by private equity, it is difficult to exit. Shares of private companies are not traded in the stocks market and any form of exit opportunity for private equity can be a tedious process that may take years.

Pros/Cons: Cash flow and Priority of Payments

Another possible con is that Class A-1 Bonds is in the 5th clause when it comes to the payment schedule, should things go south.