NAV and Investment Update

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] 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

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
Anurag Gupta
Matt Dimond
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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Note (1) - inclusive of interest rate swap.

 

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