Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Jun 14, 2023

National Storage Mechanism | Additional information

RNS Number : 6736C

Sequoia Economic Infra Inc Fd Ld

14 June 2023

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

14th June 2023

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

NAV update

The NAV for SEQI, the specialist investor in economic infrastructure debt, increased to 93.67 pence per share from the prior month's NAV of 93.06 pence per share, representing an increase of 0.61 pence per share. A full attribution of the changes in the NAV per share is as follows:

	pence per share
April NAV	93.06
Interest income, net of expenses	0.78
Asset valuations, net of FX movements	-0.23
Subscriptions	0.06
May NAV	93.67

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 end of May was marked by improving market sentiment, following a more volatile start to the month, with the news that the US will suspend its debt ceiling limit until the beginning of 2025, avoiding a historic and harmful default on US debt repayments. Stronger than expected personal spending and income data also helped drive markets to further price in another 25bps hike from the Fed by July 2023.  

Domestically, Andrew Bailey, the governor of the Bank of England, conceded that the central bank had "big lessons to learn" having not foreseen the persistence of price pressures in the UK economy. Despite the latest CPI figures in April falling to 8.7%, down from 10.1% in March, core inflation remained stubbornly high in certain subsectors. Markets are now pricing a further 100bps tightening by the BoE this year, potentially taking rates to 5.5% by year end.

EU PMI data showed that the bloc's economy has remained steadfast overall but slowed more than expected. Germany meanwhile entered a recession in Q1 after revised data showed a 0.3% quarterly contraction, following a 0.5% quarterly decline in the final three months of 2022.

In line with the above market conditions, the Investment Adviser observed overall volatility in base rate expectations which increased initially on the back of higher-than-expected inflation data, followed by some reversal after successful negotiation of the debt ceiling in the US. Overall, expectations on base rates have trended higher than in the previous month. We further note that there was continued volatility amongst benchmark spreads this month, but with that being said, we also note that the current yield curve inversion may point to a slowdown in inflation. The Company's portfolio yield-to-maturity has also risen this month, from 11.75% in April 2023 to 12.10% in May 2023

Share buybacks

The Company continued to repurchase shares and bought back 9,937,410 of its ordinary shares at an average purchase price of 82.02 pence per share in May 2023. Following this, the Company holds 52,906,501 ordinary shares in Treasury following the commencement of a share buyback programme in July 2022. The Board and the Investment Adviser remain confident in the Company's NAV, including uplifts over time expected from the pull-to-par effect.

Portfolio update

In May 2023, Ziton, the market-leading service provider of major component replacements in offshore wind, successfully closed a bond issuance after it won a new contract with Siemens Gamesa, where the purpose of the issuance was to refinance existing debt, including all the Company's debt investments. The Company has received call notices for its investments in Ziton, resulting in a large appreciation in their value (most of which was applied to the valuations during the April 2023 valuation round). This has resulted in a positive contribution to the Company's NAV of 1.20 pence per share since March 2023.

As at 31 May 2023, the pull-to-par is estimated to be worth approximately 5.6p/share over the course of the life of the Company's investments. 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 31 May 2023, the Company had cash of £160.4m and had drawn £132.8m on its £325.0m revolving credit facility with the remaining balance available to support the Company's working capital and liquidity requirements. The Company also had undrawn commitments on existing investments collectively valued at £66.2m.

The Company's invested portfolio consisted of 60 private debt investments and 6 infrastructure bonds across 8 sectors and 26 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 12.10% and a cash yield of 7.29%. The yield-to-maturity has been rising, which is mainly attributable to the higher interest rate environment and the Company's exposure to floating rate investments, which comprise 54.73% of the portfolio as of May 2023. The weighted average portfolio life is approximately 3.3 years. Private debt investments represented 97.50% of the total portfolio. The Company's invested portfolio remains geographically diverse with 49.3% located across the US, 24.0% in the UK, 26.6% in Europe, and 0.1% in Australia/New Zealand.

The Company's pipeline of economic infrastructure debt investments remains strong and is diversified by sector, sub-sector, and jurisdiction, with yields ranging from 9% -11%. 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 on its hedging book.

The following investments settled in May 2023 (excluding small loan drawings of less than £0.5m):

• The Company financed three student accommodation properties in the Netherlands though a new investment. This refinances the previous loan at a new coupon of 7.5%, reflecting current interest rates. The transaction has also been increased by adding two new properties to the collateral pool. The tenor of the new Senior loan is 10 years and the implied YTM is c.7.82% (excluding upfront fees).

The following investments sold or prepaid in May 2023

• A primary HoldCo loan to Camden B.V. for €55.2m, a holding company with stakes in a portfolio of CCGT power assets in the Netherlands

• A primary Senior loan to Project Spinnaker for £57.5m, a high-speed Broadband provider in the UK; and

• A primary Senior loan to EIF Van Hook Term Loan B for $60.0m, a midstream oil and gas company in North Dakota.

The net repayment of £153.6m during the month allows the Company to redeploy into an active pipeline of new investments at prevailing market rates. Further updates will be provided to shareholders upon the completion of these deals during the summer of 2023. 

Non-performing loans  

There has been ongoing progress over the past month in relation to the Company's two non-performing loans, the marks on which are approximately unchanged this month.

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 (%)
Bannister Senior Secured 2025	GBP	Private	Senior	58.8	Accommodation	Health care	10.71	13.00
AP Wireless US Holdco	USD	Private	HoldCo	58.2	TMT	Telecom towers	6.21	9.89
AP Wireless Junior	EUR	Private	Mezz	57.9	TMT	Telecom towers	4.65	8.24
Project Tyre	USD	Private	Senior	55.3	Transport assets	Specialist shipping	10.43	10.43
Infinis Energy	GBP	Private	Senior	55.0	Renewables	Landfill gas	5.91	7.44
Montreux HoldCo Facility	GBP	Private	HoldCo	53.4	Accommodation	Health care	14.20	13.87
Hawkeye Solar HoldCo 2030	USD	Private	HoldCo	53.0	Renewables	Solar & wind	8.89	9.71
Expedient Data Centers Senior	USD	Private	Senior	50.8	TMT	Data centers	10.60	11.23
Tracy Hills TL 2025	USD	Private	Senior	50.0	Other	Residential infra	11.48	11.47
Workdry	GBP	Private	Senior	50.0	Utility	Utility Services	7.72	7.71
Lightspeed Fibre Group Ltd	GBP	Private	Senior	49.5	TMT	Broadband	7.56	17.02
Madrid Metro	EUR	Private	HoldCo	46.5	Transport assets	Rolling stock	1.38	7.07
Sacramento Data Centre Senior	USD	Private	Senior	45.5	TMT	Data centers	7.44	8.48
Ziton Senior Secured 2022	EUR	Private	Senior	44.2	Transport assets	Specialist shipping	8.93	7.77
Kenai HoldCo 2024	USD	Private	HoldCo	44.2	Power	Base load	0.00	27.41

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                              +44 (0)20 7079 0480

Steve Cook

Dolf Kohnhorst

Randall Sandstrom

Greg Taylor

Anurag Gupta

Jefferies International Limited                                                       +44 (0)20 7029 8000

Gaudi Le Roux

Stuart Klein

Teneo (Financial PR)                                                                         +44 (0)20 7353 4200

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.

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