Astrea bonds open up private market for S'pore retail investors, but note the risks, say observers

Straits Times

05-08-2025

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Astrea 9 will be the sixth series of listed PE bonds with tranches for public subscription.
SINGAPORE – With interest rates on flagship savings accounts coming down, fixed deposits becoming less attractive and rates on risk-free Singapore government securities also coming off highs, retail investors are looking around for places to park their spare cash.
Many flocked to the auditorium at the Singapore Exchange (SGX) in Shenton Way on Aug 4 evening to find out more about the Astrea series of private equity (PE) bonds issued by Azalea, an indirect subsidiary of Temasek Holdings.
The private markets were traditionally out of the reach of retail investors until 2018, when the Astrea IV series of PE bonds was launched.
Astrea 9 will be the sixth series of listed PE bonds with tranches for public subscription.
Mr Kyith Ng, founder of financial blog Investment Moats, said a private equity fund invests in companies which are not listed.
By buying this Astrea 9 PE bond, a retail investor is essentially lending money to a portfolio of 40 PE funds which invest in 1,086 unlisted firms, as opposed to buying a corporate bond issued by a listed company.
A bond issued by a private equity fund is considered to be riskier, he noted.
According to the product highlights sheet of Astrea 9, there may be a limited trading market for the bonds, which thus poses liquidity risks.
Retail investors must be prepared to hold these PE bonds until maturity as they may not be able to sell their bonds at a price which is attractive, or even sell them at all.
In addition, there is no guarantee of returns, so investors may lose all or part of their investment.
Notwithstanding the risks, Mr Ng said there are safeguards in place to prioritise the half-yearly interest coupon payments and the final principal amount to retail bondholders.
He added that the diversified portfolio of 40 PE funds further reduces the risks for retail investors.
Azalea is offering $380 million of Class A-1 bonds at a fixed interest rate of 3.4 per cent a year, as well as US$50 million (S$64.4 million) of Class A-2 bonds at a fixed interest rate of 5.7 per cent a year.
The Class A-1 Bonds are denominated in Singapore dollars, while Class A-2 Bonds are denominated in US dollars. Investors applying for the Class-A2 bonds will pay in Singdollars at the fixed exchange rate of $1.2852 for every US$1. If they are subsequently allotted less than the amount they applied for, they will be reimbursed in Singdollars at the same exchange rate.
The bonds are backed by cash flows from a portfolio of PE investments that is diversified across sectors from information technology (31 per cent), industrials (21 per cent) and healthcare (15 per cent) to financials (8 per cent) and consumer discretionary (8 per cent).
The portfolio is also diversified across geographical regions, with the bulk of the focus in the United States (66 per cent), Europe (26 per cent) and Asia (8 per cent).
Senior lab technician Dallas Goh, 34, has been buying the PE bonds since Astrea IV, when these investments were first made available to retail investors.
It is no different this time round. Mr Goh is using $25,000 to subscribe for the US-dollar version and $25,000 for the Singapore-dollar version of Astrea 9.
He is expecting strong interest in the latest series of PE bonds and thinks he can get at most $10,000 worth for each tranche.
Mr Goh was initially going to apply only for the US dollar-denominated tranche of Class A-2 bonds but changed his mind after UOB announced on Aug 1 that it will drop the deposit rates on its flagship UOB One account from Sept 1.
'I think rates will be dropping at the other banks soon. So I might as well just lock in some money for the Singdollar denominated bond even though the rates are not too ideal,' he said.
He added that he is not too concerned about the weak US dollar, which will eat into his returns in Singdollar terms.
'The US dollar still has strength as a global reserve currency,' he noted.
The US dollar index, which measures the value of the US dollar against a basket of six major foreign currencies like the Japanese yen and the euro, is down around 9 per cent from the beginning of the year to Aug 4, but remains off its year-to-date low of 96.776 on July 2.
Mr Lim Jun Jie, director of investor solutions and marketing at Azalea Investment Management, said that holders of the US-dollar denominated tranche of Class A-2 bond face exchange rate risks as the coupons and principal amount are paid out in US dollars.
The bonds are held in the Central Depository (CDP) and any cash distributions in US dollars are by default converted into Singapore dollars at the prevailing exchange rates.
Retail investors who wish to hold on to their cash in US dollars will have to opt out of this currency conversion service, he noted.
A first-time retail investor in Astrea who prefers to be known only as Ms Kim decided to dip her toes into Astrea 9 with around $20,000 to $30,000 for the Singapore-dollar tranche.
The 54-year-old was sceptical at first, but after attending the seminar, she said she felt reassured that her investments would be relatively safe.
'Azalea is a subsidiary of Temasek Holdings,' she said, adding that she has confidence in the investment company.
To which point, Mr Chue En Yaw, chief executive and chief investment officer of Azalea Investment Management, clarified that Astrea PE bonds are 'not guaranteed by anybody, including Temasek'.
Mr Goh added that Azalea has a track record of redeeming its bonds so far.
In addition, they are rated A bonds, so they should have a rather low default rate, he said.
According to Azalea, the PE bonds issued by Astrea III, Astrea IV and Astrea V have been fully redeemed and retail investors have got back their principal.
The Astrea VI Class A-1 bonds for retail investors are also on track to be fully redeemed on March 18, 2026, Azalea noted.
Cash flows are typically generated from the 40 PE funds when they exit or sell their underlying investee companies.
Some of that money goes towards paying interest coupons and to be set aside as cash reserves for the repayment of the principal.
Azalea's Mr Lim noted that cash reserves are set aside every six months and if by the five-year mark, not enough has been set aside, Azalea will extend the bonds and retail investors will be compensated with an additional percentage point increase in the interest rate.
This means Class A-1 bondholders get 4.4 per cent a year, while Class A-2 bondholders will get 6.7 per cent a year.
'That higher interest rate will apply until such time that Azalea reserves enough cash in the reserve accounts to redeem the bonds,' he said, adding that a review will be done every six months.
High on potential investors' minds will be whether the interest rates are commensurate with the risks.
Investment Moats' Mr Ng used the Nikko AM SGD investment grade corporate bond ETF to get a rough gauge on the yield for Singdollar corporate bonds.
That fund has a weighted average maturity of 5.89 years and a weighted average yield to maturity of 2.86 per cent, according to its most recent June 2025 factsheet. The yield to maturity is the expected annual rate of return if the bond is held to maturity.
This compares with 3.4 per cent a year for the Singdollar version of Astrea 9.
As for US-dollar corporate bonds, the iShares iBoxx $ Investment Grade Corporate Bond ETF gives a rough indication.
That fund has a weighted average maturity of eight years and a weighted average yield to maturity of 5.08 per cent as at Aug 1.
That compares with 5.7 per cent a year for the US-dollar version of Astrea 9.
Both the Class A-1 and Class A-2 Bonds have a final maturity of 15 years on Aug 8, 2040.
However, the bonds can be redeemed at the end of five years on the scheduled call date, which falls on Aug 8, 2030.
The public offer for Astrea 9 closes on Aug 6 at noon and the bonds are expected to be issued on Aug 8.
The Class A-1 bonds and Class A-2 bonds are expected to list and start trading on the mainboard of the SGX on Aug 11.