Upcoming new bond issue : Astrea Capital IV bonds

Market talk is that Azalea Asset Management Pte Ltd, a fully owned subsidiary of Temasek, is working on a set of new bonds targeted to be issued in 1st week of June. They have set up a new company, Astrea Capital IV Pte Ltd, to issue the new bonds. Not much details have been released yet, but I have been told to study their existing bonds in secondary market (issued by Astrea III Pte Ltd ) as the new bonds are likely to be very similar.

Issued by Temasek company

These are the most complex bonds bonds that I have come across. If they are not issued by a Temasek company, I would not have bothered. Azalea made it clear that the bonds are not “backed” by Temasek.

If you cannot digest the links provided in this blog post, please stay away from these bonds. We should always be clear in what we are investing in.

Investment grade bonds can be Supercharged

Bonds issued by Pte Ltd normally cannot be leveraged. But if they are rated investment grade by Fitch/S&P, they can bought using margin accounts in Maybank Kim Eng. As I understand now, for the upcoming issue, some of these bonds will be investment grade, while some will not be.

Current Astrea III Pte Ltd bonds

To give an idea of what is upcoming, here are what they issued in 2016, that is trading in the secondary market.

  • Class A-1
    • SGD
    • Coupon : 3.6%
    • Subordination : Senior
    • Tenor : 10Y maximum, 3Y expected
    • Coupon step up of 1% if exceeds 3Y
    • Credit Rating : A
    • May have bonus payout of up to 0.3%
    • Maintain reserve account of principal over 3 year period
    • May be able to purchased in sizes of S$5,000, opened to retail investors
  • Class A-2
    • USD
    • Coupon : 4.65%
    • Subordination : Senior
    • Tenor : 10Y maximum, 5Y expected
    • Coupon step up of 1% if exceeds 5Y
    • Credit Rating : A
    • no bonus payout
    • Maintain reserve account of principal over 3 year period
  • Class B
    • USD
    • Coupon : 4.65%
    • Subordination : Junior to class A
    • Tenor : 10Y maximum.
    • Credit Rating : BBB
    • no bonus payout
  • Class C
    • USD
    • Coupon : 9.65%, no cash coupons. Coupons instead are re-invested as additional bond principal.
    • Subordination : Junior to class B
    • Tenor : 10Y maximum.
    • Credit Rating : unrated
    • Bonus redemption of 5%

In my opinion, investors should consider only Class A-1 and Class A-2 bonds.

This link contains some details of these bonds:

https://www.bondsupermart.com/main/article/What-You-Should-Know-About-the-Upcoming-Astrea-III-Notes—Part-2-302

Structure of the bond

Astrea III bonds are Collateralized Fund Obligations. We have not seen much of such terms since the global financial crisis.

Here are 2 links that explains what CFOs are.

Maybank Kim Eng

Bondsupermart

Azalea retains 100% of equity, this aligns interest with bond holders

Bond holders are senior to equity holders. If things go wrong, bond holders will be paid first before equity holders.

If I were to buy it, I will only consider Class A-1, because:

  1. SGD
  2. 3Y
  3. highest seniority
  4. reserve account ensures that a portion of their earnings is set aside for principal amount
  5. open to retail investors. the only one that may be able to be purchased in sizes of $5,000

Business Times has an article on Azalea opening up to retail investors:

https://www.businesstimes.com.sg/companies-markets/temasek-unit-to-open-private-equity-door-for-retail-investors

Let me know if you want to be informed when this bond is launched. If you have any questions on these bonds, do whatsapp or contact me.


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