Over the six months ended 30 September 2016, Sequoia Economic Infrastructure’s NAV has increased from 97.04p to 101.29p, largely as a result of interest income net of expenses of 2.64p, an increase of 2.70p in asset valuations and a gain of 1.91p in FX movements net of hedging movements, reduced by dividends of 3p. The share price has risen by 6.5% over this period, resulting in an annualised total return of 9.1%.
The fund had assets of £480.5 million at the end of September, of which 96% was invested in a diversified portfolio of infrastructure loans and bonds, including investments in the process of settling. The average yield-to-worst on the acquired portfolio is 8.3% and the average life is 4.6 years. The yield on the portfolio has the potential to increase if LIBOR increases, or if investments that are marked at a discount to par are prepaid by the borrower before their maturity. Even disregarding this potential upside, the current yield is sufficient to meet the targeted return of 7-8%, comprising a 6p per share dividend yield plus 1-2p per share of capital appreciation.
They say that the acquired portfolio is diverse, with 36 holdings in 20 different sub-sectors and 7 different jurisdictions. The risk profile of the portfolio remains moderate with 63% of the portfolio as senior debt secured against hard assets, and with only 12% of the portfolio relating to infrastructure projects in their construction stage.
On 17 October 2016, they executed an 18-month secured loan with JP Morgan Chase Bank, London Branch, of £40 million. The rationale for this is to enable the Investment Adviser to acquire or advance infrastructure loans in what remains a strong and attractive market, where yields in excess of 8% can be earned on infrastructure debt. The leverage level is very low at an LTV of circa 8%.
SEQI : Sequoia Economic Infrastructure running at 9.1% annualised return