Temasek-owned Azalea targets $600m from PE-backed bonds

This will be Azalea’s fifth transaction under the Astrea series and the fourth structured as a collateralized fund obligation (CFO). Astrea V will be like its predecessor, which raised $501 million and featured the first listed retail PE bonds to trade on the Singapore Exchange’s main board.

The portfolio comprises positions in 38 funds – managed by 32 different GPs – with a value of $1.32 billion as of March. Temasek will retain a majority stake, with the remainder packaged into three tranches of bonds. The plan is to sell S$315 million ($230 million) in class A-1 bonds, $230 million in class A-2 bonds, and $140 million in class B bonds, according to a prospectus.

The tenor is 10 years, with a redemption option after five years for the class A-1 and A-2 bonds. There is a mandatory call option after five years, which means the issuer must redeem the bonds if there is enough cash in reserve to do so. There is an interest rate step-up in the event there is no redemption and a bonus payment if performance targets are met before redemption.

Retail participation is permitted for a portion of the class A-1 tranche. In Astrea IV, half of the S$242 million raised from those bonds came from a public offer. More than 25,000 individuals in Singapore participated. Nearly 11,000 of these retail investors committed between S$2,000-4,000 in what ranks as one of the most unusual and impactful attempts to democratize the asset class. Some subscribed via ATM.

The Astrea V funds are relatively mature, with a weighted average age of 5.4 years and only $215 million in undrawn commitments across the entire portfolio. The vintages range from 2011 to 2016. The largest positions are with global or North American funds managed by the likes of KKR, Silver Lake, TPG Capital, The Blackstone Group, Bain Capital, General Atlantic, and Warburg Pincus.

Based on the location of the investee companies, the portfolio is 49.3% North America, 22.8% Europe and 24.6% Asia. Asian exposure includes pan-regional vehicles raised by KKR, CVC Capital Partners, TPG, and PAG Asia Capital, as well as country managers such as Hahn & Company in South Korea and Hopu Investment, FountainVest Partners, and Yunfeng Capital in China.

Retail participation was always an objective for the Astrea series, but it took a while to get there. Astrea I in 2006 saw $809 million raised to buy 46 fund positions held on Temasek’s balance sheet. Class A and B rated notes accounted for $489 million of the corpus and the rest was “quasi-equity,” of which $171 million could be called to cover unfunded commitments. Temasek contributed 49.5% of the quasi-equity, with third-party investors putting in 50.5%.

When Astrea II launched in 2014, it was structured more like a traditional secondary, albeit with a few tweaks. Ardian took the lead in pricing a portfolio of fund interests worth more than $1 billion, including unfunded commitments. Temasek remained the single largest shareholder in the 36-fund portfolio with a 38% stake, while much of the rest is said to have been covered by an Ardian fund. Four other institutional investors came in as well. 

For Astrea III in 2016 the portfolio was worth around $1.1 billion and Temasek retained a majority stake, putting the transaction sizes at approximately $510 million. Institutional investors were the largest buyers, with some qualified individual investors also participating.

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• Topics
• Southeast Asia
• Secondaries
• Exits
• LPs
• Singapore
• Temasek Holdings