A unit of Singapore state investor Temasek Holdings is aiming to raise $500 million through private equity (PE) bonds targeted at retail investors.
A prospectus that was lodged with Monetary Authority of Singapore’s Opera site on Wednesday, said Temasek’s indirect wholly-owned subsidiary (Azalea Asset Management) would be offering three classes of bonds.
“These Astrea IV PE Bonds are secured bonds, backed by cash flows from a $1.1 billion portfolio of investments in 36 Private Equity Funds. The Class A-1 Bonds will be the first listed retail private equity bonds on SGX-ST Mainboard. Retail investors in Singapore will enjoy a regular fixed income from these bonds,” the prospectus said while adding that a part of the retail tranche of S$242 million will be available for subscription through ATMs for a minimum investment of S$2,000.
Some of the Class A-1 tranche will, however be offered through placement and the respective sizes of the public offer (through ATM) and placement bonds for Class A-1 have yet to be determined, and will only be disclosed in the final prospectus that will be registered with MAS.
This marks the first such structure globally where retail investors can subscribe to private equity bonds.
Azalea, which owns equity interests in the Astrea Platform, said the latter, that is a series of investment products based on private equity – Astrea I, Astrea II, Astrea III and Astrea IV – was an innovative offering. “Astrea IV is a significant step in achieving Azalea’s vision of broadening the co-investor base for investment platforms or products based on PE Funds,” it said.
Traditionally, private equity investments involve large sums of capital and long investment holding periods, which are significant barriers for retail investors. Class A-1 bonds help break down these barriers by lowering the minimum investment amount to S$2,000 and keeping the investment period to as short as five years. Investors may exit earlier by selling their Class A-1 bonds on the SGX-ST, its prospectus explained.
Azalea further said it was taking a step-by-step approach to providing access to private equity, starting with a bond.
“Class A-1 bonds and Class A-2 bonds are the most senior class of rated bonds. “Class A-1 Bonds, denominated in SGD, is the first step to connecting retail investors to private equity. Besides fixed interest payment, Class A-1 bondholders will receive a bonus payment of up to 0.5% of principal at redemption if performance condition is met,” it added.
The expected ratings given to the Class A-1 and A-2 bonds is “Asf” – translating into an “A” grade for structured finance and the Class B bonds have been rated “BBBsf”.
Meanwhile, the fund Investments are diversified across vintages with a focus on buyout and growth equity strategies. As of December 31, last year, the fund was invested in 596 investee companies, covering various regions and sectors.
Furthermore, no single investee company was said to be larger than 3 per cent of Net Asset Value (NAV) and the the sectors of these investee companies include information technology, consumer discretionary, industrials, healthcare, financials and energy among others.
Cash distributions from the Fund Investments are received by Astrea IV via the asset-owning companies, which then pays 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”.
Providing additional details about the Astrea platform, the prospectus noted that 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.