Astrea VI bonds: Buy or Bye

There is a new bond offering for Astrea VI bonds. The sponsors of the bond come from Astrea Capital VI Pte Ltd, an indirectly wholly-owned subsidiary of Azalea Asset Management Pte. Ltd, which in turn is wholly owned by Temasek Holdings. That name SHOULD NOT immediately give you assurance of the safety of this bond and is not in any way guaranteed by Temasek or Azalea, so please be aware of that.

Taken from prospectus

BOND DETAILS:

1) Maturity date: 18th Mar 2031

2) Scheduled call date: 18th Mar 2026

3) Expected rating: A+sf / A+ (sf)

4) Interest rate: 3.00% pa, payable semi-annually on 18th Mar and 18th Sep each year

5) Special features:

a) If the bonds are not redeemed back in full on their scheduled call date (i.e. 18th Mar 2031, which is five years from now), there will be a one-time 1.0% pa step up in the interest rate (i.e. to 4.0% pa)

b) A bonus redemption premium, not exceeding 0.5% of the principal amount of the bonds, is payable upon redemption if the performance threshold is met on or before the scheduled call date.

6) The bonds will be listed on the mainboard of SGX (on 19th Mar 2021, 9AM) so you don't have to wait till maturity if you need to liquidate your holdings. However, you have to sell at whatever price it is transacting on at that point in time, which depends on supply and demand. The bond will mature 10 years from now in 2031 at par value if it is not redeemed at the scheduled call date 5 yrs later in 2026.

7) The conditions to redeem back all the bonds on the scheduled call date is as follows:

a) the cash set aside is sufficient to redeem all the bonds fully

b) There are no outstanding credit facility loans

Once all the conditions are met, the bonds must be redeemed at the scheduled call date. Failing this, there will be a step-up in the interest of 1.0% pa, as stated above in point (5a).

8) Min amount to apply is S$2k and thereafter in multiples of S$1k, with an admin fee of $2 that is paid upon application. You can apply through ATM (DBS/POSB, OCBC, UOB) or internet banking websites or mobile apps (can't do it from OCBC mobile app).

Closing date and time: 16th Mar 2021, 12:00 NOON

9) I'm not the best at explaining the cash flow and priority of payments for the investments. Here's a nice pictogram taken from the prospectus that I cut and paste here for your perusal:

Taken from the prospectus.

10) The nitty-gritty details can be found in the prospectus here.

(https://www.azalea.com.sg/storage/app/media/reports/Prospectus/astrea-vi-pte-ltd-prospectus-9-march-2021.pdf)

MY TAKE:

1) The last publicly listed bond from Astrea is back in 2019 - that's for the Astrea V private equity Class A-1 bond. I wrote about Astrea IV bonds here (https://bullythebear.blogspot.com/2018/06/astrea-iv-private-equity-class-1-bond.html) and eventually subscribed to it, and it's doing pretty okay, even during the Mar flash crash where it plunged to the near par value of $1. It had recovered with the rest of the stocks in SGX.

2) Back then in 2018, the bond has an interest rate of 4.35%, with the possibility of stepping up to 5.35% if not redeemed 5 yrs later in 2023. I know it's different times now, but 3% seems to be a little hard to part with my money, especially if there is a real risk of losing your capital. Is it enough to risk your capital for 3% pa? You have to answer that yourself.

3) This is NOT a fixed deposit and must not be treated as such. Yes, it's a higher interest than a fixed deposit but the capital is definitely not guaranteed. Do not associate the safety of this bond with the name Temasek Holdings.

4) I'm 70% sure that I'm not going to apply for this. I thought of getting some for my parent's retirement portfolio, but nah, better not risk it especially for 3%. I'm still holding on to the Astrea IV bonds though, and will likely hold until they recalled it back in 2023. The 30% why I am thinking of buying this is to replace the Astrea IV bonds that I'm very sure will be recalled back in another 2 years time (i.e. 2023). I'm currently using this as another place to park my emergency cash. I'm just afraid when the time comes to tap on it, the value might drop way below my principal, like during the Mar flash crash of 2020.

5) Based on a quick behind-the-envelope calculation, the already publicly traded Astrea IV 4.35% bond is traded at 1.056 at last close, so it's giving a current yield of about 4.1% pa, which is higher than the newly issued Astrea VI bonds at 3% pa. But don't forget that the Astrea IV bond is now trading at $1.056, which is above par value. So, when it's redeemed back at par value of $1.00, you'll lose $0.056 too. Capturing all these details, the yield to maturity of the Astrea IV bond is at about 1.5% pa, but we haven't included the bonus 0.5% of bond principal upon redemption at the scheduled call date. Included that bonus, we have a yield to maturity of 1.76% pa. Still lower than 3% pa of the newly issued bond. This means it's still better to apply for the Astrea VI 3.0% bond at par value.

All of the above information could have errors. I try not to do it, but it might still happen. Please do your own due diligence and I do not take responsibility if you act on the above information in any way.

(Title pic taken from prospectus)