Sequoia Economic Infrastructure Income Fund Ltd.

Net Asset Value • Jul 17, 2023

National Storage Mechanism | Additional information

RNS Number : 1442G

Sequoia Economic Infra Inc Fd Ld

17 July 2023

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

17th July 2023

Sequoia Economic Infrastructure Income Fund Limited

("SEQI" or the "Company")

NAV update

The NAV for SEQI, the specialist investor in economic infrastructure debt, remains at 93.67 pence per share from the prior month's NAV of 93.67 pence per share.

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

	pence per share
May NAV	93.67
Interest income, net of expenses	0.72
Asset valuations, net of FX movements	-0.81
Accretion from share buyback	0.09
June 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

Despite inflation showing signs of abating in the USA, UK and the Eurozone, central banks are still expected to continue to raise base rates across all the above jurisdictions to reach their respective inflation targets. The Company believes it is therefore able to take advantage of credit markets that are currently favourable to debt providers. As loans mature, the Company is able to redeploy capital at higher returns, often in excess of 10%, and improve its cash yield and average credit rating on our portfolio. Tighter lending conditions across not just the banking sector but also the liquid credit markets (specifically the high yield and leveraged loan markets) mean that the Investment Adviser can be extremely selective in the opportunities it chooses to pursue, and can also negotiate more favourable economics, such as less leverage being applied to yields and therefore improving on LTV's. In addition, higher yields available in the market have allowed the Investment Adviser to add investments (typically rated infrastructure bonds) to our liquid asset bucket. In accordance with this, the Company has also increased its proportion of floating rate investments year on year, from 49.0% in June 2022 to 54.5% in June 2023, which has contributed to a higher yield to maturity, up from 9.80% in June 2022 to 11.98% in June 2023.

The Company also has 60.9% of the portfolio in defensive sectors, which offers some protection in an inflationary environment. These include telecommunications, accommodation, utilities, and renewables, which are viewed as defensive because they provide essential services, often operate within a regulated framework and have high barriers to entry.

Share buybacks

The Company continued to repurchase shares and bought back 9,624,046 of its ordinary shares at an average purchase price of 78.26 pence per share in June 2023. Following this, the Company holds 63,058,021 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. The rate at which SEQI buys back Shares will vary depending on various factors, including the level of our Share price discount to NAV. The Company believes that buying in Shares at greater discounts will generate Shareholder value over the long term.

Portfolio update

In June 2023, the Company invested $20.0m in Westinghouse Electric Company LLC ("WEC"), a leading provider of infrastructure services to operating nuclear power generating facilities. The Company provides mission-critical maintenance and repair services as well as highly engineered fuel, spare parts, and equipment to the global nuclear installed base. WEC is positioning itself to take advantage from the renewed interest in nuclear energy due to energy security concerns particularly in Eastern Europe and a push by advanced economies towards clean energy sources. The investment advisor identified an opportunity to invest in secondary first lien term loans of the issuer which were attractively priced. The company and loans are rated B2/B by Moody's and S&P and an attractive yield to worst of 10.0%.

The Company also invested $18.5m in Project Ocean II, supporting the deployment of a Floating Liquification Natural Gas (FLNG) vessel. The FLNG vessel is going through its commissioning phase and is expected to be deployed offshore in the near term. The vessel is on a long-term availability based tolling agreement with a major UK energy player rated investment grade. This yield to worst on this loan is 10.73%.

As at 30 June 2023, the pull-to-par is estimated to be worth approximately 6.1p/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 30 June 2023, the Company had substantial liquidity available with cash of £110.4m and undrawn commitments on existing investments collectively valued at £62.7m. The Company has also repaid its revolving credit facility (£132.8m) with the capital repayments it has received, resulting in additional capacity to manage future volatility in exchange rates, while simultaneously reducing cash drag on non-invested capital.

The Company's invested portfolio consisted of 58 private debt investments and 4 infrastructure bonds across 8 sectors and 27 sub-sectors. It had an annualised yield-to-maturity (or yield-to-worst in the case of callable bonds) of 11.98% and a cash yield of 7.45%. The weighted average portfolio life is approximately 3.3 years. Private debt investments represented 97.1% of the total portfolio. The Company's invested portfolio remains geographically diverse with 48.4% located across the US, 27.0% in the UK, 24.5% in Europe, and 0.1% in Australia/New Zealand. The Company's portfolio yield-to-maturity has decreased marginally this month, from 12.10% in May to 11.98% in June, mainly due to the sale of SAPA 2020-1A bonds.

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 June 2023 (excluding small loan drawings of less than £0.5m):

• A purchase for $20.0m of Brookfield WEC Holdings Inc Senior bonds, a leading provider of infrastructure services to operating nuclear power generating facilities, based in the USA;

• A Senior loan for $18.5m to Project Ocean II, for the financing of a minority stake in the Floating Liquified Natural Gas ("FLNG") asset, based in the UK;

• An additional Senior for £3.6m to Project Octopus, a telecom infrastructure services provider based in the UK;

• An additional Senior loan for PLN 5.2m (equivalent to £1.0m) to Green Genius to finance the construction of solar PV projects in Poland; and

• An additional Senior loan for £1.0m to Clyde Street, a hotel construction project in Scotland.

The following investments sold or prepaid in June 2023

• Two Senior bonds and one loan to Ziton for €64.5m overall, a market-leading Danish service provider of major component replacements in offshore wind;

• Generation Bridge LLC bonds fully repaid for $44.8m, an acquisition facility for a non-coal conventional power asset portfolio in the USA; and

•  The sale of SAPA 2020-1A bonds for $8.1m, an aircraft securitisation backed by a portfolio of 21 aircraft assets on lease to 19 lessees located in 19 jurisdictions.

Non-performing loans  

There has been ongoing progress over the past month in relation to Bulb Energy / Zoa Equity, the marks on which are approximately unchanged this month.

The Investment advisor continues to proactively manage the 4000 Connecticut B loan (formerly known as Whittle Schools) investment and is exploring various alternatives with the borrower and co-lenders to protect the value of its investment. The loan has been marked down in June reflecting higher discount rates and delays in re-leasing the property.

The Company's two non-performing loans account for 3.2% of NAV as of June 2023.

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	58.9	Accommodation	Health care	10.70	12.99
AP Wireless US Holdco	USD	Private	HoldCo	57.2	TMT	Telecom towers	6.19	9.92
AP Wireless Junior	EUR	Private	Mezz	56.6	TMT	Telecom towers	4.70	8.50
Infinis Energy	GBP	Private	Senior	54.0	Renewables	Landfill gas	6.01	7.72
Project Tyre	USD	Private	Senior	53.8	Transport assets	Specialist shipping	10.75	10.75
Montreux HoldCo Facility	GBP	Private	HoldCo	52.8	Accommodation	Health care	14.65	0.00
Lightspeed Fibre Group Ltd	GBP	Private	Senior	51.9	TMT	Broadband	7.22	17.37
Hawkeye Solar HoldCo 2030	USD	Private	HoldCo	51.5	Renewables	Solar & wind	8.96	9.87
Workdry	GBP	Private	Senior	50.0	Utility	Utility Services	8.43	8.42
Expedient Data Centers Senior	USD	Private	Senior	49.8	TMT	Data centers	11.19	11.82
Tracy Hills TL 2025	USD	Private	Senior	49.0	Other	Residential infra	11.65	11.65
Madrid Metro	EUR	Private	HoldCo	45.7	Transport assets	Rolling stock	1.39	7.20
Sacramento Data Centre	USD	Private	Senior	43.9	TMT	Data centers	7.55	8.86
Kenai HoldCo 2024	EUR	Private	HoldCo	43.9	Power	Base load	0.00	28.87
Project Nimble	EUR	Private	HoldCo	42.4	TMT	Data centers	8.93	12.08

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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