Temasek arm launches first listed PE bonds for retail investors

FILE PHOTO - A Temasek logo is seen at the annual Temasek Review in Singapore July 7, 2016. REUTERS/Edgar Su

A unit of Singapore’s state investment firm Temasek has launched the first listed private equity (PE) bonds for retail investors in the city-state.

The $90.5 million (S$121 million) Class A-1 bonds offering for retail investors by Azalea Group will carry a fixed interest rate of 4.35 per cent per annum. The offer for subscription by the public in Singapore will start Wednesday 9 am and close at 12 noon on June 12, an announcement from Astrea IV, the issuer, said late night Tuesday.

The manager is Azalea Investment Management (AIM), an entity owned by Azalea Asset Management which, in turn, is Temasek’s indirectly owned subsidiary.

The bonds are expected to be issued on June 14 and listed on the SGX-ST and expected to start trading on the Mainboard of the SGX-ST on June 18 in board lot sizes of S$1,000, the statement added.

The Temasek unit had said it was aiming to raise a total of $500 million through the PE bonds for retail investors. The current retail offer of Class A-1 bonds follows the successful placement of $90.5 million (S$121 million) of the Class A-1 Bonds, $210 million Class A-2 bonds and $110 million Class B bonds to institutional and accredited investors.

“Overall demand for Astrea IV placement tranche was strong despite broader market volatility and the issuer received a combined placement orderbook in excess of $1.8 billion equivalent from over 100 accounts. Diverse distribution of the orderbook was achieved with a good mix of high quality institutions (74 per cent) and accredited investors participating,” the announcement said.

The three different classes of Astrea IV PE Bonds are Class A-1, A-2, and B, with interest rates of 4.35 per cent, 5.50 per cent and 6.75 per cent per annum, respectively. Each class caters to investors with different risk preferences and investment horizons.

Astrea IV PE Bonds are backed by cash flows from a portfolio of investments in 36 underlying PE funds managed by 27 fund managers. These underlying PE funds have a net asset value of $1.1 billion and are invested in 596 investee companies globally across multiple sectors.

According to the prospectus, about 86.1 per cent of the portfolio funds is invested in the buyout strategy, 12.3 per cent in growth equity and 1.6 per cent in private debt.

In the buyout strategy, which is known to have the strongest historical performance among PE strategies, the top three fund investments are 9.2 per cent of Net Asset Value (NAV) in Blackstone Capital Partners VI, 6.9 per cent in PAG Asia and 6.5 per cent in Silver Lake Partners.

“Traditionally, private equity has been accessible to mostly institutions and high net-worth individuals. This Astrea IV transaction marks the first time retail investors can invest in private equity bonds at an affordable level, starting with a subscription of S$2,000. Over time, we hope to offer more innovative products based on private assets to investors,” said Margaret Lui, CEO of AIM.

In its prospectus, the unit said that no single investee company shall be larger than 3 per cent of NAV and the sectors of these investee companies include information technology, consumer discretionary, industrials, healthcare, financials and energy, among others.

Credit Suisse (Singapore) Limited, DBS Bank and Standard Chartered Bank are the lead managers and underwriters for the offering.

Cash distributions from the fund Investments are received by Astrea IV via the asset-owning companies, which then pay out available cash through the priority of payments semi-annually. Such payments of available cash, follow a defined payment order, flowing from the most senior to the most junior priority, a feature commonly known as the “cashflow waterfall”.

Prior to 2016, certain Temasek entities launched Astrea I and Astrea II respectively, each of them involving investment products based on portfolios of PE Funds. The same year, Azalea launched the Astrea III transaction that introduced the first listed notes in Singapore backed by cash flows from PE funds.

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