Astrea allocation is out!

Looks like the yield from this PE Bond interested quite many Singaporean investors.

Astrea_IV_allocations
Astrea PE Bond allocation

What was interesting for me was that even though the A-1 class of bonds it was over 7.4x subscribed, the overall issuance of the PE bonds was only 5x subscribed across the three classes. While both numbers are generally positive, does it show how much more investing opportunities there are for the institutional investor?

Another interesting thing was that for investors who wanted to put in between S$11k – S$60k would only have been allocated S$5k. (That’s barely 8.5% for the upper bound investor). The fact that these investors formed 46% of the overall issuance probably shows how much money is out there trying to find a home.

Lastly, the fact that 65% of the bonds were allocated to applicants who subscribed for S$30k or less. Either means that Azalea wants to boost the trading liquidity of their issuance or they really have faith in this product.

Anyhow, that’s it for my bond subscription and hopefully more balanced portfolio. Onwards to the next goal!

Thoughts on Astrea IV PE Bonds

I don’t want to speculate too much on why Temasek/Azalea is issuing this PE bond when there are clearly easier/cheaper ways to raise money. It might well be a grand start to a possible CPF replacement.

Anyways, here are some (factual) reasons why I would be subscribing to Astrea IV. You can watch their fantastic video here.

What I Like

  • Big Pie – The aggregate amount available to the public under the Class A-1 tranche is only $242 mil which makes up 20% of the total AUM ($1.1 Bln). In fact, given that the total allotment of all 3 tranches is only $562 mil or 50% of the AUM, Azalea is likely to still profit handsomely from this venture.
  • Interest rate hedge – On top of the prevailing coupon of 4.35%, there is a 1% step up if the bond is not called in June 2023. This is one of the more investor friendly features, compared to other recent issuance’s. In the case of rising interest rates, the bond holders are somewhat compensated and if it falls you are likely to get our money back early.
  • Safe PE – Cashflows are locked away ahead of semiannual distributions. Which is useful as the underlying funds might have uneven cashflows. Being in the senior holder also mean you get paid first, even in the case where Astrea IV goes boom.

What could be better

  • Class discrimination – Class A-2 investors get 5.5%, which is 1.15% higher than Class A-1. Same same but different
  • Bond structure – No matter how you upsell it, Astrea IV is a bond. There is no upside participation here. Other than the underlying asset class, you can’t really see past the coupon yield.

Conclusion
While interest rates are rising, I don’t think we are going to be looking at >5% interest rates in 5 years. If that did happen, inflation would be sky high too.

Previously, I had contemplated putting my money in bonds or SSB, given how the yield curve has flattened and how overvalued equities look right now. However, Astrea IV does provide a safe risk adjusted return given the unique asset class.