Temasek unit's private equity bonds draw takers

A Temasek Holdings logo is seen at their office in Singapore.
A Temasek Holdings logo is seen at their office in Singapore.PHOTO: REUTERS

$683m worth of notes offer interest rates as high as 9.25%

The first bonds here to be backed by private equity funds have been priced and met with strong market demand.

The US$510 million (S$682.6 million) Astrea III issue from Temasek Holdings unit Azalea Asset Management comprises four classes of notes with annual interest rates as high as 9.25 per cent.

The issue includes $228 million of class A-1 notes, which promise a yield of 3.90 per cent. They are denominated in Singapore dollars to cater to local investors and have received pre-sale ratings of A for structured finance products by Fitch Ratings and Standard & Poor's.

The class A-2 notes have a yield of 4.65 per cent, followed by class B's 6.5 per cent. These two classes are also expected to be rated investment grade. The A-2 notes are worth US$170 million and the B notes US$100 million.

The remaining US$70 million are in class C notes, which have the highest yield of 9.25 per cent but are not rated and are technically the riskiest. The A-1 notes are $250,000 per lot; the other three series are US$200,000 per lot.

Astrea III has been subscribed by more than eight times. The bonds will be managed by Fullerton Fund Management, another Temasek unit, and trading starts in mid-July.

The bonds are aimed at broadening the co-investor base for private equity portfolios under the Singapore investment company.

Azalea chief executive Margaret Lui called Astrea III a "milestone" and the first of its kind in Asia. "We are happy that we're able to distribute these notes to a wide investor base, ranging from institutions such as insurance companies and hedge funds, to sophisticated individual investors," she said yesterday.

And while Astrea III is not available to unaccredited retail investors, "ultimately we hope to distribute these products to the investing public", Ms Lui noted.

Astrea III is backed by cash flows from 34 underlying private equity funds managed by 26 heavyweight fund managers, such as Blackstone and KKR.

The combined net asset value is US$1.14 billion, with exposure to over 590 companies across the United States, Europe and Asia.

About 23.4 per cent of the portfolio is exposed to the consumer discretionary sector, 22 per cent is in the info-tech sector, 14.5 per cent in industrials, 14.3 per cent in healthcare and 10 per cent in financials.

Fullerton private equity fund head Chue En Yaw said the portfolio is well diversified and the risks to investors are further mitigated by protection features, such as liquidity facilities provided by banks, to ensure interest payments every six months for A-1, A-2 and B notes.

The bonds' diversified portfolio and structural protection against cash flow disruption were reasons for the positive ratings, Fitch Ratings said.

Aberdeen Asset Management research analyst Henry Loh said the bonds "provide an interesting opportunity for investors to get involved in the private equity space, with reasonable protections in place to mitigate risks in the higher tranches".

A version of this article appeared in the print edition of The Straits Times on June 23, 2016, with the headline 'Temasek unit's private equity bonds draw takers'. Print Edition | Subscribe