Sequoia Economic Infrastructure Income (SEQI), the £1.2bn high yielding debt fund, has finally drawn a line under the collapse of Bulb Energy that contributed to a derating in its shares four years ago.
In its monthly valuation update the investment company said “successful settlements in the full recoverability” of the £55m secured loan to Bulb had helped boost net asset value (NAV) last month. NAV per share gained 1.9p to 93.67p at 30 September when loan repayments, other valuation gains and share buybacks were included, it said.
The energy supplier’s plunge into special administration at the end of 2021 forced SEQI to write down nearly half the value of the Bulb Energy loan. The setback came as rising interest rates and inflation slowed economic growth and focused investors’ minds on credit quality.
SEQI subsequently saw its level of non-performing loans (NPLs) rise to 5.4% in June 2024 with its shares falling from a post-Covid high of 114p in August 2021 to an April low of around 73p. They have since risen to over 78p today.
Behind the scenes, however, SEQI was making progress on its Bulb position. In December 2023 it said it expected to recover £25m and earlier this year said it had received a further £17m back and no longer viewed the loan as non-performing, expecting to make a full recovery including capitalised interest.
Annual results in June showed NPLs had fallen to 1% with the latest update showing a further decline to just 0.5%.
The portfolio run by Steve Cook at Sequoia Investment Management is diversified with 53 senior secured loans and bonds to companies operating in the power, renewable energy, utilities, transport, accommodation and “digitisation” sectors.
Launched 10 years ago, the income fund has consistently met its annual dividend per share target, which has grown from 5p in 2015 to 6.875p per share.
Our view
James Carthew, head of investment company research at QuotedData, said: “Back in November/December 2021, confidence in Sequoia Economic Infrastructure was knocked by news that a loan it had made to Bulb Energy had run into trouble. A small hit to the NAV, coming around the time that investors were growing increasingly nervous about the direction on inflation and interest rates, was enough to push the shares from trading at a decent premium to a discount. In the latest monthly NAV announcement comes news of “successful settlements in the full recoverability of the Bulb Energy loan”, which brings that chapter to a close and underscores the message that loan defaults don’t necessarily translate into losses. SEQI offers a yield of 8.7%. In part, that is down to its 16.4% discount, which looks anomalous given the track record.”
