REG - Sequoia Econ Infra - NAV and Investment Update

Sequoia Economic Infrastructure Income FundAnnouncement

16/04/2024 07:00

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RNS Number : 6801K  Sequoia Economic Infra Inc Fd Ld  16 April 2024

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO
THE UNITED STATES

16 April 2024

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

 

Monthly NAV and portfolio update

The NAV per share for SEQI, the specialist investor in economic infrastructure
debt, increased to 93.77 pence per share from the prior month's NAV per share
of 93.44 pence, representing an increase of 0.33 pence per share.

A full attribution of the changes in the NAV per share is as follows:

                                        pence per share
 29 February 2024 NAV                       93.44
 Interest income, net of expenses       0.76
 Asset valuations, net of FX movements      -0.52
 Accretion from share buyback                0.09
 31 March 2024 NAV                          93.77

 

 

As the Company is approximately 100% currency-hedged, it does not expect to
realise any material FX gains or losses over the life of its investments.
However, the Company's NAV may include unrealised short-term FX gains or
losses, driven by differences in the valuation methodologies of its FX hedges
and the underlying investments - such movements will typically reverse over
time.

 

Market Summary

 

During March 2024, central banks across the UK, US and Eurozone maintained
policy rates at 5.25%, 5.50% and 4.00%, respectively. Government bond yields
declined across the UK and the Eurozone by approximately 0.2% and 0.1%
respectively and were broadly flat in the US during the same period. Although
inflation has fallen 60% from its peak in June 2022, CPI inflation still
exceeded expectations in the US during March 2024 and increased to 3.5% over
the year, up from 3.2% in February 2024. In the UK, the latest figures for
February showed that inflation fell to 3.4% for the year - the lowest level
for almost two and a half years. In the Eurozone, inflation also dropped to
2.4% in March 2024 from 2.6% the previous month.

 

The market is still pricing in rate cuts during Autumn this year, with base
rates expected to fall by up to 0.5% during the second half of 2024. Central
banks predict that the target inflation rate of 2.0% will be met by the US and
Eurozone in 2024 and in early 2025 in the UK.

 

As inflation is abating, energy markets are normalising and interest rates
appear to be at their peak levels, the Investment Adviser believes that these
stabilising macro-economic themes provide a foundation for steadier credit
markets, and the long-term outlook on inflation and base rates points towards
a beneficial tailwind to the Company's NAV, as falling rates would typically
increase asset valuations.

 

 

Share buybacks

The Company bought back 11,792,899 of its ordinary shares at an average
purchase price of 81.53 pence per share in March 2024. The Company first
started buying shares back in July 2022 and has bought back 142,754,724
ordinary shares as of 31 March 2024 with the buyback continuing into April
2024. This share repurchase activity continues to contribute positively to NAV
accretion while investing in its own diversified portfolio. The rate at which
SEQI buys back shares will vary depending on various factors, including the
level of our share price discount to NAV.

 

Portfolio update

 

The Company currently has strong liquidity, with cash of £98.17 million,
compared to undrawn investment commitments of £54.7 million. The Company's
revolving credit facility (RCF) of £325 million is also undrawn. The
Company's policy in the current environment is to operate with little or no
leverage, but the RCF can be used to manage the potential misalignment of new
investments versus the repayment of existing investments.

 

As at 31 March 2024, 58.6% of the portfolio comprised of senior secured loans
and 50.8% remained in defensive sectors (renewables, digitalisation, utility
and accommodation). The Company's invested portfolio consisted of 53 private
debt investments and 2 infrastructure bonds, diversified across 8 sectors
and 30 sub-sectors. It had an annualised yield-to-maturity
(or yield-to-worst in the case of callable bonds) of 10.02% and a cash yield
of 7.6% (excluding deposit accounts). The weighted average portfolio life
remains short and is approximately 3.9 years. This short duration means that
as loans mature, the Company can take advantage of higher yields in the
current interest rate environment.

 

Private debt investments represented 96.9% of the total portfolio, allowing
the Company to capture illiquidity yield premiums. The Company's invested
portfolio currently consists of 42.1% 1  (#_ftn1) floating rate investments
and remains geographically diversified with 52.9% located across the USA,
24.7% in the UK, 22.3% in Europe, and 0.1% in Australia/New Zealand. As at
31 March 2024, the positive effect of pull-to-par is estimated to be worth
approximately 4.1p per share over the course of the life of the Company's
investments.

 

The portfolio remains highly diversified by sector and size, with the average
loan representing about 1.6% of the total portfolio and the largest 4.4% of
NAV as at March 2024.

 

At month end, approximately 100% of the Company's NAV consisted of
either Sterling assets or was hedged into Sterling. The Company has adequate
liquidity to cover margin calls, if any, on its hedging book.

 

Settled investments

 

SEQI continues to carefully scrutinise new investment opportunities in a
disciplined manner alongside other uses of proceeds such as share buybacks and
ensuring it has adequate liquidity on its RCF. Aside from these uses of
capital, the following investments settled in March 2024 (excluding small loan
drawings of less than £0.5 million):

 

• An additional senior loan for $16.8 million to Rand Parent LLC (Atlas
Air), a NY-based global operator in the airfreight transportation services
sectors. The yield-to-worst on this loan is 8.7% as of March 2024.

 

No significant investments (exceeding £0.5 million) sold or repaid in March
2024

 

Non-performing loans

 

The Investment Adviser continues to actively manage its non-performing loans
with the loans being independently marked to market by PwC as part of the
monthly valuation process. Further updates will be provided to shareholders in
the future when material developments occur.

 

Portfolio Summary (15 largest settled investments)

 Investment name      Currency  Type     Ranking    Value £m((2))    Sector                Sub-sector                    Cash-on-cash yield (%)  Yield to maturity/worst (%)
 Infinis Energy       GBP       Private  Senior   60.6               Renewables            Landfill gas                  5.36                    6.11
 AP Wireless Junior   EUR       Private  Mezz     59.9               Digitalisation        Telecom towers                4.49                    7.65
 Project Sienna       GBP       Private  Senior   56.6               Other                 Waste-to-energy               9.79                    9.86
 Workdry              GBP       Private  Senior   56.1               Utility               Utility Services              8.94                    8.93
 Hawkeye Solar        USD       Private  HoldCo   52.3               Renewables            Solar & wind                  8.89                    9.84
 Project Tyre         USD       Private  Senior   52.0               Transport - vehicles  Specialist shipping           11.13                   10.95
 Expedient            USD       Private  Senior   51.5               Digitalisation        Data centers                  10.95                   10.95
 Roseton              USD       Private  Senior   50.8               Power                 Other Electricity Generation  10.32                   10.32
 Kenai HoldCo 2024    EUR       Private  HoldCo   49.7               Power                 Base load                     0.00                    11.37
 Sacramento Data      USD       Private  Senior   44.2               Digitalisation        Data centers                  7.42                    8.66
 Project Nimble       EUR       Private  HoldCo   43.5               Digitalisation        Data centers                  8.61                    11.40
 Euroports            EUR       Private  Mezz     42.8               Transport - systems   Port                          11.68                   11.68
 Scandlines           EUR       Private  HoldCo   41.9               Transport - systems   Ferries                       6.63                    6.93
 Tracy Hills TL 2025  USD       Private  Senior   40.7               Other                 Residential infra             11.83                   11.82
 Project Shark        CHF       Private  HoldCo   39.5               Digitalisation        Data centers                  8.99                    8.99

Note (2) - excluding accrued interest.

Disclaimer: the dividend increase is a target and not a profit forecast

 

The Company's monthly investor report and additional portfolio disclosure will
be made available at: https://www.seqi.fund (https://www.seqi.fund/)

LEI: 2138006OW12FQHJ6PX91

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America. This announcement is not
an offer of securities for sale into the United States.  The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

For further information please contact:

 

 Sequoia Investment Management Company         +44 (0)20 7079 0480
 Steve Cook
 Dolf Kohnhorst
 Randall Sandstrom
 Anurag Gupta
 Matt Dimond

 Jefferies International Limited               +44 (0)20 7029 8000
 Gaudi Le Roux
 Stuart Klein

 Teneo (Financial PR)                          +44 (0)20 7260 2700
 Martin Pengelley
 Elizabeth Snow

 Sanne Fund Services (Guernsey) Limited        +44 (0) 20 3530 3107
 (Company Secretary)
 Matt Falla
 Lisa Garnham

 

About Sequoia Economic Infrastructure Income Fund Limited

The Company seeks to provide investors with regular, sustained, long-term
distributions and capital appreciation from a diversified portfolio of senior
and subordinated economic infrastructure debt investments. The Company is
advised by Sequoia Investment Management Company Limited.

 

 

 

(#_ftnref1) Note (1) - inclusive of interest rate swap.

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