NAV and Investment Update

Sequoia Economic Infra Inc Fd Ld

15 July 2024

 

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

15 July 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 95.29 pence per share from the prior month's NAV per share of 94.30 pence, representing an increase of 0.99 pence per share.

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

	pence per share
31 May NAV	94.30
Interest income, net of expenses	0.72
Asset valuations, net of FX movements	0.20
Subscriptions / share buybacks	0.07
30 June NAV	95.29

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 June 2024, the ECB announced the first rate cut of 0.25% to 3.75% following a sustained reduction in inflation. Following the announcement, which was on 6 June 2024, the yields on the 5-year German sovereign bond marginally trended downwards, whilst the equivalent French sovereign bond exhibited more volatility in the run up to snap election in France. Bond yields on the 5-year US and UK sovereign debt marginally trended downwards, as the Federal Reserve and the Bank of England maintained policy rates at 5.50% and 5.25% respectively. As at 30 June 2024, 5-year yields were down marginally across all three regions from the previous month, by 0.1% in the Eurozone, and approximately 0.2% in the US and UK.

In the UK, the most recent data on CPI inflation shows that it is back down to the Bank of England's 2.0% target for now, down from 2.4% in April 2024. Inflation is also abating in the US, down to 3.0% in June 2024, from 3.3% in May 2024. In the ECB, CPI inflation has reduced to 2.5% in June 2024, down from 2.6% in May 2024. CPI inflation is expected to remain close to its target of 2.0% by the end of the year across all three regions, mainly due to the unwinding of energy-related base effects.

Due to the slight reduction in risk free rates, as well as benchmark spreads, particularly in the energy and utilities sectors, the valuation of most fixed rate instruments (which represents 58.5% of the portfolio) has marginally increased during June 2024. In keeping with this, the pull to par has also reduced from 3.8 pence per share in May 2024 to 3.7 pence per share in June 2024.

The Investment Adviser also expects abating inflation to provide a foundation for steadier credit markets, highlighting that 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.

UK General Election Results

The General Election on 4 July 2024 produced a substantial majority for The Labour Party. The outcome had been predicted by opinion polls and was therefore already largely priced-in to markets. UK gilt yields, equities and the Sterling exchange rate remained largely unchanged after the results were announced.

Share buybacks

The Company bought back 8,021,984 of its ordinary shares at an average purchase price of 79.23 pence per share in June 2024. The Company first started buying back shares in July 2022 and has bought back 167,819,395 ordinary shares as of 30 June 2024, with the buyback continuing into July 2024. This share repurchase activity by the Company continues to contribute positively to NAV accretion. 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 has drawn £15.0 million on its revolving credit facility (RCF) of £325.0 million during June 2024 and currently has cash of £48.44 million (inclusive of interest income and RCF drawings), and undrawn investment commitments of £45.5 million. The RCF was utilised during May 2024 to manage cashflows through the timing of new investments against the repayment of existing investments.

As at 30 June 2024, the Company's invested portfolio consisted of 54 private debt investments and 2 infrastructure bonds, diversified across 8 sectors and 30 sub-sectors. 57.2% of the portfolio comprised of senior secured loans and 52.0% remained in defensive sectors (Renewables, Digitalisation, Utility and Accommodation). It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 10.39% and a cash yield of 8.3% (excluding deposit accounts). The weighted average portfolio life remains short and is approximately 3.7 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 94.2% of the total portfolio, allowing the Company to capture illiquidity yield premiums. The Company's invested portfolio currently consists of 41.5%[1] floating rate investments and remains geographically diversified with 51.9% located across the USA, 26.9% in the UK, 21.1% in Europe, and 0.1% in Australia/New Zealand.

The portfolio remains highly diversified by sector and size, with the average loan representing about 1.6% of the total portfolio and the largest loan is 4.2% of NAV as at 30 June 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 in June 2024

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 significant liquidity on its RCF. Aside from these uses of capital, the following investments settled in June 2024 (excluding small loan drawings of less than £0.5 million):

• An additional senior loan for £4.4 million to Project Octopus, a telecom infrastructure services provider based in the UK.

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

Non-performing loans

The Investment Advisor continues to actively manage its non-performing loans with the loans being independently marked to market by PwC as part of the monthly review process. We will continue to provide updates to shareholders on a monthly basis.

Notice of Annual General Meeting ("AGM")

The Board and Investment Advisor are pleased to announce that SEQI's Annual Report for the financial year ending 31 March 2024 was published on Wednesday, 26 June 2024. The Company's AGM is scheduled for 1 August and the AGM Notice has been separately published on the Company's website. The AGM includes the Company's scheduled tri-annual Continuation Vote which is further explained in the AGM Notice.

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	61.1	Renewables	Landfill gas	5.32	5.99
AP Wireless Junior	EUR	Private	Mezz	59.8	Digitalisation	Telecom towers	4.48	7.66
Workdry	GBP	Private	Senior	56.0	Utility	Utility Services	8.93	8.93
Project Sienna	GBP	Private	Senior	55.5	Other	Waste-to-energy	9.89	10.41
Hawkeye Solar	USD	Private	HoldCo	52.7	Renewables	Solar & wind	8.80	9.67
Project Tyre	USD	Private	Senior	52.6	Transport assets	Specialist shipping	11.11	10.75
Expedient	USD	Private	Senior	51.4	Digitalisation	Data centers	10.95	10.95
Kenai HoldCo 2024	EUR	Private	HoldCo	50.4	Power	Base load	0.00	10.66
Roseton	USD	Private	Senior	50.1	Power	Other Electricity Generation	10.32	10.32
Sacramento	USD	Private	Senior	44.5	Digitalisation	Data centers	7.34	8.43
Project Nimble	EUR	Private	HoldCo	43.4	Digitalisation	Data centers	8.52	11.21
Euroports	EUR	Private	Mezz	43.0	Transport	Port	11.51	11.33
Scandlines	EUR	Private	HoldCo	41.2	Transport	Ferries	6.68	7.14
Gadwall Holdings (3)	GBP	Private	HoldCo	41.2	Accommodation	Health care	0.00	35.89
Tracy Hills	USD	Private	Senior	40.7	Other	Residential infra	11.86	11.86

Note (1) - inclusive of interest rate swap.

Note (2) - excluding accrued interest.

Note (3) - Montreux HoldCo Facility was restructured and replaced with an equivalent loan on extended terms to a newly established entity, Gadwall Holdings. As part of the restructuring, an additional loan for £34.8 million was also made to ACG BidCo Limited as a senior secured loan. The combined value of both loans to the Group equates to 5.2% of the NAV.

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 Harry Randall
Teneo (Financial PR)		[phone]
Martin Pengelley
Elizabeth Snow Faye Calow
Sanne Fund Services (Guernsey) Limited		[phone]
(Company Secretary)
Matt Falla
Devon Jenkins

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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