Temasek raises $510m via PE-backed bonds

August 2016 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

A unit of Singapore state investment company Temasek Holdings has raised $510m via bonds backed by its interests in private equity funds that coinvest with PE mega powers including Blackstone Group LP and KKR & Co.

The unit issued the bonds in late June backed by cash flows from 34 PE funds and the bonds will expose investors to a $1.14bn portfolio held by the funds which has been invested across 590 portfolio companies.

Interest in the bonds came primarily from institutional investors including insurance companies, endowment funds and foundations, according to Azalea Asset Management, a wholly-owned subsidiary of Temasek. About a third of the bonds were allocated to individual investors.

“Traditionally, private equity is an asset class only available to a selected group of investors with significant capital to invest over the longer term,” Azalea chief executive Margaret Lui said in a statement. “We are actively exploring suitable opportunities for retail investors to participate in private equity-based products in the future.”

Interest in the company’s offering was strong, with the bonds subscribed more than eight times. All tranches have legal final maturities of 10 years. The first two bonds can be called after three and five years. Two categories of the debt totalling $440m have been listed by the firm, in a first for such notes in the country, according to Azalea. The bonds were issued by Astrea III, a vehicle that holds interests in 34 private equity funds that is sponsored by an Azalea unit.

The quality of the Temasek brand in a receptive market has also been highlighted by some analysts as being one of the key drivers for the launch. The persistent environment of low interest rates has likely contributed to the strong demand for Temasek’s issue; however, for many analysts one of the most important factors for investors ought to be the quality of the underlying collateral and whether investors can properly understand the product.

It is believed that the newness of the asset class in Singapore could act as a bellwether for the pricing of other issues moving forward; the type of deal structure, according to Fitch Ratings, is more common in the US.

“This is certainly a very high profile deal,” said Gregory Fayvilevich, a senior director for funds & asset management at Fitch in New York. “Maybe this will spur additional developments in the market. We have gotten a couple of calls from other market participants interested in the type of structure that’s available here.”

The bonds, with a 10-year maturity, include S$228m of Class A-1 notes and $170m of Class A-2 notes, $100m of Class B notes and an unrated $70m of Class C notes. Credit Suisse Group AG and DBS Group Holdings Ltd arranged the sale. The listed bonds can be traded by accredited investors including both institutional and sophisticated investors. Around a third of the bonds were allocated to private banks, 29 percent went to fund managers, including hedge funds, 29 percent went to corporates, endowments and others, and 10 percent to insurers. Going forward, Ms Lui has noted that Temasek may reportedly consider expanding the issuance to baseline retail investors, rather than the current accredited investors; however, this would likely require new regulatory provisions, something that Temasek is willing to discuss with regulators in the future.

According to a statement announcing the issue, the bonds will be listed on the Singapore Exchange, except for the Class C bonds; an Azalea spokesman said the listing is expected to occur the week after 8 July. Chue En Yaw, head of PE funds at Fullerton Fund Management, which manages Astrea III, said: “Given that this is a very new asset class... we hope to set some benchmarks.”

Richard Summerfield