NAV and Investment Update

Sequoia Economic Infra Inc Fd Ld

16 October 2023

 

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

16 October 2023

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

NAV update

The NAV per share for SEQI, the specialist investor in economic infrastructure debt, decreased to 92.88 pence per share from the prior month's NAV per share of 92.98 pence, representing a decrease of 0.10 pence per share.

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

	pence per share
31 August 23 NAV	92.98
Interest income, net of expenses	0.86
Asset valuations, net of FX movements	-1.00
Accretion from share buyback	0.04
29 September 23 NAV	92.88

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

In September, the Federal Reserve Board ("Fed") and the Bank of England decided not to raise interest rates, leaving rates unchanged at 5.25-5.50% and 5.25% respectively. The European Central Bank ("ECB") imposed another 25bps hike resulting in their current deposit rates rising to 4.0%. However, the recent strong US economic data may be indicative of interest rates remaining higher for longer than previously thought. Market participants are expecting the US and UK rates to have either peaked or potentially attract one more 25bps hike, with both cases being assigned similar probabilities. In contrast, the ECB is likely to have reached their peak rates and are expected to pause to assess whether inflation cools down over time.

Global high yield corporate bonds (ticker: "GHYS LN Equity") posted negative monthly returns of 0.6% in September compared to positive returns of 0.2% in August. The Investment Advisor expects some continued market volatility in the higher interest rate environment and therefore remains committed to good credit quality investments.

The most recent data provided by the International Monetary Fund (IMF) indicates moderate real GDP growth rates for the aforementioned regions. Specifically, the US is projected to achieve a growth rate of 2.1% for 2023, while the Eurozone and the UK are expected to see growth rates of 0.7% and 0.5% respectively. The Investment Adviser believes the US infrastructure market enjoys a positive outlook, which is well supported by its bipartisan legislation, such as the Infrastructure Bill and the Inflation Reduction Act.

Share buybacks

The Company continued to repurchase shares and bought back 7,098,819 of its ordinary shares at an average purchase price of 82.82 pence per share in September 2023. The Company first started buying shares back in July 2022 and has bought back 87,069,372 ordinary shares as of 29 September 2023. The Board and the Investment Adviser remain confident in the Company's NAV, which is updated monthly through an independent valuation and has expected upside over time from the pull-to-par effect. The rate at which SEQI buys back shares will vary depending on various factors, including the level of SEQI's share price discount to NAV. The Company believes that buying in shares at greater discounts will generate shareholder value over the long term.

Portfolio update

The Company is attractively positioned from a liquidity perspective with cash of £142.6m available, compared to undrawn commitments on existing investments of £29.5m. The Company is currently not geared and its revolving credit facility is undrawn, resulting in additional capacity to manage liquidity. The Company also has an active pipeline of new investments with attractive yields in the current interest rate environment and can tap into the revolving credit facility to manage the misalignment of investment and repayment timings, while prudently balancing its capital allocation. The pipeline is diversified by sector, sub-sector, and jurisdiction, with yields currently ranging from 9% to 11%.

The Company's invested portfolio consisted of 53 private debt investments and 4 infrastructure bonds across 8 sectors and 27 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 10.9% and a cash yield of 7.5%. The weighted average portfolio life remains short and is approximately 3.5 years. Private debt investments represented 97.3% of the total portfolio. The Company's invested portfolio currently consists of 54% floating rate investments and remains geographically diverse with 52.0% located across the US, 25.8% in the UK, 22.1% in Europe, and 0.1% in Australia/New Zealand.

Investors are reminded that declines in unrealised mark-to-market adjustments should reverse over time as the investments approach their repayment date (the "pull-to-par" effect), assuming there are no performance related adjustments required to their value. As at 29 September 2023, the positive effect of pull-to-par is estimated to be worth approximately 4.3p per share over the course of the life of the Company's investments.

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. The Company is currently exploring the implementation of selective interest rate swaps to lock in the current high rates being paid by borrowers and to allow more dynamic management of the portfolio's fixed rate exposure.

No new investments have been made in September 2023 (excluding small loan drawings of less than GBP 0.5m)

The following investments were sold or prepaid in September 2023:

• A full repayment on the 29^th September of Green Genius; which financed the construction of multiple solar PV projects in Poland;

• A full sale of Raptor bonds; an aircraft securitisation vehicle; and

• A small partial repayment on Bannister; a care home provider based in the UK.

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 developments occur.

Ordinary Portfolio Summary (15 largest settled investments)

Investment name	Currency	Type	Ranking	Value £m(1)	Sector	Sub-sector	Cash-on-cash yield (%)	Yield to maturity/worst (%)
AP Wireless US Holdco	USD	Private	HoldCo	60.2	TMT	Telecom towers	6.1	9.6
Lightspeed Fibre Group Ltd	GBP	Private	Senior	59.0	TMT	Broadband	6.5	14.1
AP Wireless Junior	EUR	Private	Mezz	57.9	TMT	Telecom towers	4.7	8.4
Infinis Energy	GBP	Private	Senior	56.4	Renewables	Landfill gas	5.8	7.1
Project Tyre	USD	Private	Senior	56.1	Transport assets	Specialist shipping	10.7	10.7
Expedient Data Centers	USD	Private	Senior	52.6	TMT	Data centers	11.0	11.4
Hawkeye Solar HoldCo	USD	Private	HoldCo	52.4	Renewables	Solar & wind	9.2	10.4
Tracy Hills TL 2025	USD	Private	Senior	51.0	Other	Residential infra	11.8	11.8
Workdry	GBP	Private	Senior	50.0	Utility	Utility Services	9.0	9.0
Sacramento Data Centre	USD	Private	Senior	45.6	TMT	Data centers	7.6	9.0
Kenai	EUR	Private	HoldCo	45.2	Power	Base load	0.0	14.3
Madrid Metro	EUR	Private	HoldCo	43.9	Transport assets	Rolling stock	1.5	8.7
Project Nimble	EUR	Private	HoldCo	43.3	TMT	Data centers	8.8	11.8
Scandlines	EUR	Private	HoldCo	40.6	Transport	Ferries	6.9	7.9
Project Shark	CHF	Private	HoldCo	40.0	TMT	Data centers	9.1	9.2

Note (1) - 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/..

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                              [phone]

Steve Cook

Dolf Kohnhorst

Randall Sandstrom

Greg Taylor

Anurag Gupta

Jefferies International Limited                                                       [phone]

Gaudi Le Roux

Stuart Klein

Teneo (Financial PR)                                                                      [phone]

Martin Pengelley

Elizabeth Snow

Sanne Fund Services (Guernsey) Limited                                   [phone]

(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.

 

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