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Why I will be investing in the Astrea IV private equity Class A-1 bond

Astrea IV is a wholly owned subsidiary of Azalea Asset Management Pte. Ltd, which is wholly owned by Temasek Holdings. They are issuing bonds for their private equity funds, so this is the first time the retail market has access to the private equity space. 

Bond Details

Name: Class A-1 Bonds 10NC5

Interest: 4.35% pa, semi annual payment. If not redeemed after 5 yrs on Jun 2023, steps up to 5.35% pa

Maturity: 10 years, on Jun 14th 2028 with a scheduled call date on Jun 14th 2023. “Scheduled” is not “optional”. If there is sufficient cash set aside for the class A bond to be redeemed, it must be redeemed. It’s not an option. (My take it that it will redeem, so i’ll treat this as a 5 year bond)

Rating:  A by Fitch, and A by S&P

Extra features: There is a bonus redemption premium of an amount not exceeding 0.5% of the principal amount. This means that if the par value if $1.000, the bond might be redeemed at less than or equal to $1.005, if conditions are met. The condition is that the sponsor receives 50% of its total equity (US $313 million) on or before Jun 14th 2023.

More details from the full prospectus here. Product highlights can be found here.  Video explanation found here.

My rationale for investment:

1. Interest rate meets my target interest of 4%. Cash flow statement assuming the issuer redeems the bond after 5 years.

2. I’m comfortable that my money will be used to invest in the PE space, where returns are easily 50% and above. I’m guaranteed the bond coupons at 4.35%. These are my retirement funds, so i’m comfortable with this risk level.

3. Class A-1 bond.  First in line to collect back funds in the event of a default.

4. Diversification from equity and REITs.  Capital isn’t subjected to market fluctuations as I intend to hold this until maturity. I’ll get 100% of my investment back.

5. Am unlikely to purchase this from the market after IPO, since the prices usually shoot above PAR value.

Since this is the first retail bond launched, I figure there will be more of such launches.  In a rising interest rate environment, I’d expect the future launches to offer higher interest rates.  So i’ll be balloting for a small amount of 5k each, for the 3 of us.  I bet this tranche will extremely oversubscribed, as people think these bonds are backed by Temasek Holdings, in which they are not.

A $2 fee to try my luck.

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