NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION IN WHOLE OR IN PART IN OR INTO THE UNITED
STATES
15
February 2024
Sequoia Economic Infrastructure Income Fund
Limited
("SEQI" or the "Company")
Monthly NAV update
The NAV per share for SEQI, the
specialist investor in economic infrastructure debt, increased to
93.54 pence per share from the prior month's NAV per share of 92.69
pence, (being the 29 December 2023 cum-income NAV of 94.41 less the
dividend of 1.71875 pence per share declared in respect of the
quarter ended 29 December 2023 and payable on 29 February 2024),
representing an increase of 0.85 pence per share.
A full attribution of the changes in
the NAV per share is as follows:
|
pence per
share
|
29
December 2023 NAV
|
94.41
|
Interest income, net of
expenses
|
0.80
|
Asset valuations, net of FX
movements
|
0.01
|
Accretion from share
buyback
|
0.04
|
Dividend
|
-1.72
|
31
January 2024 NAV
|
93.54
|
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
The US Federal Reserve, the Bank of
England and the European Central Bank all left rates unchanged
during January 2024 at 5.50%, 5.25% and 4.00% respectively. The
recent data on annual inflation shows that CPI decreased during the
same period by 0.3% to 3.1% in the US, remained the same in the UK
at 4%, and is expected to decline by 0.1% in the Eurozone to 2.8%.
The market is still pricing in significant rate cuts this year,
with base rates expected to fall by up to 1.5% over the course 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.
Following a considerable reduction
in key risk-free rates in December 2023, January 2024 saw some
reversal of this: 10-year Government bond yields in the US, the UK
and Europe rose by 0.1%, 0.2% and 0.3% respectively over the
month. This was partially offset by modest
declines in credit spreads.
The Company's yield-to-maturity is
down marginally from 10.0% in December 2023 to 9.9% in January
2024, mainly due to the repayment of three loans with above average
weighted yield-to-maturities.
The Investment Adviser believes that
the long-term outlook on inflation and base rates still points
towards a beneficial tailwind to the Company's NAV, as falling
rates would typically increase asset valuations. Investors are
reminded that unrealised mark-to-market adjustments from rising
interest rates 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 31 January 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.
The Investment Adviser also notes
that the portfolio has been resilient in being able to generate
healthy cashflows despite ongoing macroeconomic challenges.
Inflation is falling, energy markets are normalising and interest
rates appear to be at their peak levels. These stabilising
macro-economic themes provide a foundation for steadier credit
markets. For a significant period now, the Investment Adviser has
also focused on making senior secured - rather than subordinated
loans, and has favoured sectors of the infrastructure market with
defensive characteristics rather than cyclical sectors. As at 31
January 2024, 57.3% of the portfolio comprised of senior secured
loans and 51.6% remained in defensive sectors (renewables,
digitalisation, utility and accommodation).
Share buybacks
The Company continued to repurchase
shares and bought back 5,847,346 of its ordinary shares at an
average purchase price of 82.97 pence per share in January 2024.
The Company first started buying shares back in July 2022 and has
bought back 121,781,804 ordinary shares as of 31 January 2024 with
the buyback continuing into February 2024. This share repurchase
activity continues to contribute positively to NAV per share over
time.
The Board and the Investment Adviser
remain confident in the Company's NAV, including uplifts over time
expected from the pull-to-par effect. 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 £133.4 million, compared to undrawn
investment commitments of £42.4 million. The Company's revolving
credit facility (RCF) of £325 million is also undrawn. The
Company's policy in the current market 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
4 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 9.9% and
a cash yield of 7.9% (excluding deposit accounts and investments
rated lower than single C). The weighted average portfolio
life remains short and is approximately 3.9 years, which has
increased from 3.5 years in December 2023 due to the repayment of
three investments which reached maturity and the addition of two
new investments which mature in 2028 and 2030. Private debt
investments represented 97.7% of the total portfolio. The Company's
invested portfolio currently consists of 42.9%[1] floating rate investments and remains
geographically diversified with 52.7% located across the USA,
24.8% in the UK, 22.4% in Europe, and 0.1%
in Australia/New Zealand.
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 January 2024
(excluding small loan drawings of less than £0.5
million):
• A senior loan for $65 million to
Roseton, a dual fuel-fired electricity generation plant located in
the Town of Newburgh in Orange County, New York State. The 1,210 MW
generation asset is critical to supporting grid reliability in the
greater New York City region. The yield-to-worst on this loan is
approximately 10.0%; and
• A primary loan for €50 million to
Euroports (2nd Lien 2030), a leading international ports operator.
The borrower issued a new bond to refinance Euroports (2nd Lien
2026) and SEQI has upsized its loan by an additional €8 million.
The yield-to-worst on this loan is approximately 11.0%.
The
following investments repaid in January 2024
• A full repayment of a primary
mezzanine loan to Euroports (2nd Lien 2026) for €42 million, as
mentioned above. The yield-to-worst on this loan is approximately
12.6%;
• A full repayment of Project
Lanthanum for $40 million, a leading developer of hyperscale data
centres in Ashburn, Virginia. The yield-to-worst on this loan is
approximately 12.5%;
• A full repayment of £33.3 million
on Bannister Senior Secured, a specialist mental healthcare service
provider in the UK. The yield-to-worst on this loan is
approximately 9.5%; and
• A full repayment of a senior loan
to Tracy Hills Holdings Company LLC Facility B for $15 million on
the revolving credit facility. The borrower can choose to draw up
to $15 million on this facility until the loan matures in 2029.
Tracy Hills is a residential infrastructure project in California.
The yield-to-worst on this loan is approximately 12.0%.
Non-performing loans
The portfolio is performing well and
there have been no material changes to the non-performing loans.
The portfolio is highly diversified, with the average loan
representing about 1.6% of the total portfolio and the largest
4.4%. 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
|
6.08
|
AP Wireless Junior
|
EUR
|
Private
|
Mezz
|
60.0
|
Digitalisation
|
Telecom
towers
|
4.47
|
7.49
|
Project Sienna
|
GBP
|
Private
|
Senior
|
56.0
|
Other
|
Waste-to-Energy
|
9.80
|
9.90
|
Project Tyre
|
USD
|
Private
|
Senior
|
53.5
|
Transport
assets
|
Specialist shipping
|
11.17
|
11.00
|
Hawkeye Solar HoldCo
|
USD
|
Private
|
HoldCo
|
52.0
|
Renewables
|
Solar
& wind
|
8.87
|
9.76
|
Expedient Data Centers
|
USD
|
Private
|
Senior
|
51.1
|
Digitalisation
|
Data
centers
|
10.90
|
10.89
|
Roseton
|
USD
|
Private
|
Senior
|
51.1
|
Power
|
Other
Electricity
|
10.32
|
10.32
|
Workdry
|
GBP
|
Private
|
Senior
|
50.0
|
Utility
|
Utility
Services
|
8.94
|
8.93
|
Kenai HoldCo 2024
|
EUR
|
Private
|
HoldCo
|
48.7
|
Power
|
Base
load
|
0.00
|
12.02
|
Sacramento Data
|
USD
|
Private
|
Senior
|
44.5
|
Digitalisation
|
Data
centers
|
7.33
|
8.25
|
Project Nimble
|
EUR
|
Private
|
HoldCo
|
43.8
|
Digitalisation
|
Data
centers
|
8.55
|
10.89
|
Euroports 2nd Lien
2030
|
EUR
|
Private
|
Mezz
|
42.7
|
Transport
|
Port
|
11.68
|
11.68
|
Scandlines Mezzanine
|
EUR
|
Private
|
HoldCo
|
41.4
|
Transport
|
Ferries
|
6.70
|
7.19
|
Project Shark
|
CHF
|
Private
|
HoldCo
|
41.2
|
Digitalisation
|
Data
centers
|
8.99
|
8.99
|
Tracy Hills
|
USD
|
Private
|
Senior
|
40.4
|
Other
|
Residential Infra
|
11.86
|
11.86
|
|
|
|
|
|
|
|
|
|
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
|
|
|
Greg Taylor
|
|
|
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.