Singapore's Azalea launches PE-backed bond offering

This is the sixth offering under the Astrea series, which is part of a longstanding initiative to broaden investor exposure to alternative assets. It is the third time that Azalea has included class A-1 secured fixed-rate bonds in an offering and permitted retail participation. These bonds will trade on the Singapore Exchange’s main board.

The overall collateralized fund obligation (CFO) is worth $643 million and underpinned by positions in 35 private equity funds with a net asset value (NAV) of $1.45 billion, according to the prospectus. Azalea will retain a majority stake in each position, with the remainder packaged into three tranches of bonds.

Azalea has already placed S$132 million in class A-1 bonds, $228 million in class A-2 bonds and $130 million in class B bonds to institutional and accredited investors.

The A-1 bonds have a 10-year tenor and a 3% coupon, payable every six months. 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.

In terms of structure, Astrea VI is much like Astrea V, which was launched in 2019. There was a CFO of $600 million, comprising S$315 million in class A-1 bonds, $230 million in class A-2 bonds, and $140 million in class B bonds. Of the class A-1 tranche, S$180 million was sold to retail investors. Nearly 31,000 applications were submitted. Three-quarters of the offering went to 25,900 people each of whom applied for less than S$50,000.

The 35 funds in the Astrea VI portfolio are managed by 28 GPs and offered exposure to 802 underlying companies as of September 2020. The vintage years range from 2012 to 2016 and the weighted average fund life is 5.8 years. Undrawn capital commitments amount to $155.6 million.

Based on the location of the investee companies, the portfolio is 61% North America, 23% Europe and 16% Asia. More than 80% of the NAV is in buyouts and IT and healthcare are the most popular sectors, accounting for 28.2% and 19.8%, respectively. A further 13.2% is in consumer discretionary.

Asian exposure includes pan-regional vehicles raised by Bain Capital, CVC Capital Partners, PAG Asia Capital, and TPG Capital, as well as China-focused funds from Hopu Investment and Yunfeng Capital. The largest positions are with global or North American funds managed by the likes of Warburg Pincus, Bain, TPG, Permira, KKR, The Blackstone Group, Onex Partners, and EQT.

Retail participation was always an objective for the Astrea series, but it took a while to get there. For Astrea I in 2006, $489 million was raised through class A and B rated notes. The rest of the $809 million corpus comprised “quasi-equity,” primarily from Temasek.

When Astrea II launched in 2014, it was structured more like a traditional secondary. The portfolio was worth more than $1 billion. Ardian and four other institutional investors participated alongside Temasek. Astrea III went a step further in 2016 with $510 million in listed notes – backed by fund positions worth $1.1 billion – sold to institutional and accredited investors.

The three-tranche bond structure, including class A-1 bonds for retail investors, was introduced with Astrea IV in 2018. A total of $501 million was raised against a PE fund NAV of $1.1 billion.

In 2019, Azalea raised $650 million for Altrium Private Equity Fund I, a blind pool fund-of-funds offering equity-based PE exposure rather than a set of preselected secondary positions packaged up into a debt product. High net worth participation was limited to accredited investors.

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• Topics
• Southeast Asia
• Secondaries
• Exits
• LPs
• Singapore
• Temasek Holdings
• Azalea Asset Management