Astrea V 3.85% Class A-1 Secured Bonds

The IPO of Astrea V 3.85% Class A-1 Secured Bonds is probably the hottest talk among financial bloggers recently. I am not an expert into bonds and thus am unable to provide any analysis on whether on not you should apply for Astrea V Class A-1 Secured Bonds. Unlike the T2023 Temasek Bond which is guaranteed by Temasek, The bonds are not guaranteed by any entity, including Temasek.

Here are some basic information should you be interested to apply for the bond.

  • Principal Amount: S$315 million
  • Interest Rate:  3.85%
  • Application Start Date/Time: 12 June 2019, 9am
  • Application Close Date/Time: 18 June 2019, 12pm
  • Issuance of Bonds: 20 June 2019
  • Maturity Date: 10 years

Astrea V offers three classes of bonds, Class A-1, A-2 and B, backed by cash flows from a US$1.3 billion portfolio of investments in 38 Private Equity Funds. However, only the Class A-1 Bonds are being offered to the retail public in Singapore. The Class A-1 Bonds have a maturity date of 10 years, with a mandatory call by the Issuer at the end of year 5, if the following conditions are met:

  • the cash set aside is sufficient to redeem all Class A-1 Bonds; and
  • there are no outstanding Credit Facility loans.

If the bonds are not redeemed on their Scheduled Call Date, the annual interest rate will step-up one-time to 4.85% after this date which seems to assured investors that the risk is well managed.

Based on market feedback and depending on demand, Astrea V plans to allocate valid applications as follows:

  • all applications of less than S$50,000 will be allocated in full or in part;
  • applications of S$50,000 or more will be balloted, with successful applicants allocated in full or in part.

Conclusion

The risk seems low based on what I have read in the prospectus but like I said, I am not an expert in analyzing bonds. I probably may add a small percentage to either my stock portfolio or my wife’s stock portfolio for the benefit of diversification. Losing the total value of the bond is not going to kill the entire stock portfolio.

Here are the risks highlighted in the prospectus.

  • Investment Risk: The nature of private equity fund investments is that the amount and timing of distributions are uncertain. There is also limited disclosures regarding the performance of the underlying investee companies, some of which could potentially relate to a decline in returns or cash flows of the fund investments.
  • Market Risk: Adverse macro-economic or market conditions could result in falling PE asset valuations and/or reduction in deal activities. This may lead to less distributions from Fund Investments if the underlying investments were sold during a period of declining asset valuations or deal activities.
  • Leverage Risk: Portfolio PE Funds are likely to employ leverage. Use of leverage may also increase exposure of Investee Companies to adverse financial or economic conditions and impair their ability to finance operational and capital needs. In a rising interest rate environment or an unfavourable market, such leverage could result in a substantial loss to the Portfolio PE Fund and/or the Investee Companies, and thus adversely impact the cash flows to Astrea V.

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