16th Oct 2023 10:37
(Alliance News) - Hipgnosis Songs Fund Ltd on Monday pulled a previously declared interim dividend, hurting the music intellectual property rights investor's shares further ahead of key votes on its future.
Shares in the company slumped 11% to 66.11 pence each in London on Monday morning.
Hipgnosis said it now expects to receive "significantly lower retroactive payments" of songwriter royalties for 2018 to 2022. Due to the expected decision by the US Copyright Royalty Board for that period, Hipgnosis plans to reduce its retroactive accrual to USD9.9 million from the USD21.7 million it had accrued at the end of March.
To ensure compliance with a covenant of its revolving credit facility, Hipgnosis will withdraw its interim dividend payment. It also will discuss the royalties issue with its lenders.
It is a blow for investors, as Hipgnosis Songs Fund's model suggests the tantalising prospect of robust income for shareholders.
"Songs constantly trigger royalty income payments and produce an attractive level of income which can persist for decades and is protected by copyright law," Hipgnosis said in a pre-float filing back in 2018.
The decision also comes ahead of the company's annual general meeting in 10 days, which will see shareholders vote on two key motions, a planned disposal and the company's continuation.
In September, Hipgnosis said it is selling off 29 of its music catalogues for USD440 million to help fund a share buyback programme and reduce its debt.
It is selling off the catalogues to Hipgnosis Songs Capital, which is a partnership between HSF's investment adviser Hipgnosis Song Management Ltd and funds advised by New York-based alternative asset manager Blackstone Inc.
The proposals are designed to re-rate its share price and narrow the discount to operative net asset value.
The sale is being done at an 18% discount to the fair value of the assets as at March 31, though HSF said it is a 51% premium to the valuation implied by the firm's own 30-day average market capitalisation up to September 13.
Even prior to Monday's sell-off, the HSF shares had fallen some 20% since the disposal announcement.
The vote on the disposal will be put to shareholders next Thursday.
As will a continuation vote. If passed, HSF gets another three years.
AJ Bell analyst Russ Mould commented: "Investors will decide the future of Hipgnosis Songs Fund at a continuation vote on 26 October. It's not looking good, given how the value of the company continues to decline and now it isn't even paying a dividend – shocking given how income was meant to account for a key part of investment returns. It's hard to see how the board of directors can put up with this chaos – perhaps it is time to oust the management team and bring in someone else."
By Eric Cunha, Alliance News news editor
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