NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED
STATES
15
March 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, marginally
decreased to 93.44 pence per share from the prior month's NAV per
share of 93.54 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
January 2024 NAV
|
93.54
|
Interest income, net of
expenses
|
0.72
|
Asset valuations, net of FX
movements
|
-0.89
|
Accretion from share
buyback
|
0.07
|
29
February 2024 NAV
|
93.44
|
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 February 2024, central banks
across the UK, US and EU maintained policy rates
at 5.25%, 5.50% and 4.00%, respectively. Sovereign
yields increased by 0.3% in all three regions during the same
period, which extends the trend of increasing 10-year sovereign
yields since the recent temporary decline ending in December
2023.
Interest rates in the UK are
currently expected to fall by up to 2% over the next two to three
years, based on forward market interest rates. The US Federal
Reserve has also indicated that rates are likely at their peak and
could be cut later in 2024 if inflation continues to fall towards
the Fed's 2% target. The markets also expect the European Central
Bank (ECB) to start cutting rates later in 2024. This interest rate
environment reflects continued expectation for lower inflation
across our markets in the future, which should position our
portfolio positively.
Share buybacks
The Company bought back 9,180,021 of
its ordinary shares at an average purchase price of 81.07 pence per
share in February 2024. The Company first started buying shares
back in July 2022 and has bought back 130,961,825 ordinary shares
as of 29 February 2024 with the buyback continuing into March 2024.
This share repurchase activity continues to contribute positively
to NAV growth. 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 £98.27 million, compared to undrawn
investment commitments of £36.1 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.
The Company's invested
portfolio consisted of 53 private debt investments and
3 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 10.1%
(January 2024: 9.9%) and a cash yield of 7.9% (excluding deposit
accounts). The weighted average portfolio life remains short
and is approximately 3.9 years. Private debt investments
represented 97.8% of the total portfolio, allowing the Company to
capture illiquidity yield premiums. The Company's invested
portfolio currently consists of 42.8%[1]
floating rate investments and remains geographically diversified
with 52.7% located across the USA, 24.7% in the UK, 22.5% in
Europe, and 0.1% in Australia/New Zealand.
During February 2024, the decline in
asset valuations by 0.89 pence per share was mostly attributable to
the rise of 10-year government bond yields across all three
regions, which can inversely impact the valuation of the
investments. These unrealised mark-to-market adjustments in the
portfolio resulting from interest rates having risen since loans
were made should reverse over time as the loans approach their
repayment date (the "pull-to-par" effect), assuming there are no
performance-related adjustments required to their value. As at 29
February 2024, the positive effect of pull-to-par is estimated to
be worth approximately 4.0p 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 entered into a $90
million interest rate swap in October 2023 with a maturity of seven
years to lock in a portion of the current high rates being paid by
borrowers. The Company also continues to monitor attractive
opportunities to lock in higher interest rates on a tactical
basis.
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 February 2024
(excluding small loan drawings of less than £0.5
million):
• An additional senior loan for £6
million to Workdry, the UK's leading provider of essential and
emergency water handling infrastructure solutions;
• An additional senior loan for €4
million to Native Dancer; a student accommodation building in
Leiden, The Netherlands; and
• An additional senior loan for $2
million to SL 4000 Connecticut LLC (formerly known as Whittle
Schools). The financing was provided to support the forbearance
extension and provide additional funding until August 2024 to
enable re-tenanting or sale of the building.
The
following investments sold or repaid in February
2024
• A full sale of the Company's
remaining stub of Windstream bonds for $2 million; a high-speed
broadband provider based in the US.
Non-performing loans
During February 2024, the Company
received [a further] distribution of £2 million from the
administrators of Simple Energy Limited (the parent of Bulb
Energy). This receipt takes the total expected recovery on the loan
to Bulb to £53.3 million (including both the expected future
payment from Bulb as announced on 6 December 2023, and the equity
in Zoa valued at cost) compared to a loan amount of £55 million at
the time of default with the Company's recovery on its initial loan
now nearing 100%. Further recoveries are expected.
The portfolio remains highly
diversified, with the average loan representing about 1.6% of the
total portfolio and the largest 4.4% as at February
2024.
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
|
59.7
|
Renewables
|
Landfill
gas
|
5.44
|
6.32
|
AP Wireless Junior
|
EUR
|
Private
|
Mezz
|
59.6
|
Digitalisation
|
Telecom
towers
|
4.52
|
7.79
|
Workdry
|
GBP
|
Private
|
Senior
|
56.0
|
Utility
|
Utility
Services
|
8.94
|
8.93
|
Project Sienna
|
GBP
|
Private
|
Senior
|
56.0
|
Other
|
Waste-to-Energy
|
9.80
|
9.92
|
Project Tyre
|
USD
|
Private
|
Senior
|
53.9
|
Transport
- vehicles
|
Specialist shipping
|
11.17
|
10.99
|
Hawkeye Solar
|
USD
|
Private
|
HoldCo
|
52.2
|
Renewables
|
Solar
& wind
|
8.90
|
9.86
|
Expedient Data
|
USD
|
Private
|
Senior
|
51.5
|
Digitalisation
|
Data
centers
|
10.95
|
10.94
|
Roseton
|
USD
|
Private
|
Senior
|
51.5
|
Power
|
Other
Electricity Generation
|
10.32
|
10.32
|
Kenai HoldCo 2024
|
EUR
|
Private
|
HoldCo
|
49.2
|
Power
|
Base
load
|
0.00
|
11.83
|
Sacramento Data
|
USD
|
Private
|
Senior
|
44.2
|
Digitalisation
|
Data
centers
|
7.43
|
8.66
|
Project Nimble
|
EUR
|
Private
|
HoldCo
|
43.3
|
Digitalisation
|
Data
centers
|
8.66
|
11.57
|
Euroports 2nd Lien 2030
|
EUR
|
Private
|
Mezz
|
42.8
|
Transport
- systems
|
Port
|
11.68
|
11.68
|
Scandlines
|
EUR
|
Private
|
HoldCo
|
41.1
|
Transport
- systems
|
Ferries
|
6.77
|
7.40
|
Tracy Hills TL 2025
|
USD
|
Private
|
Senior
|
40.8
|
Other
|
Residential infra
|
11.86
|
11.86
|
Project Shark
|
CHF
|
Private
|
HoldCo
|
40.4
|
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
|
|
+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.