Hipgnosis has scrapped a planned dividend after being told that its royalty payments would be much lower than previously expected.
The London-listed investment trust, which invests in rights to music catalogues, revealed it will no longer hand investors a 1.31p per share interim dividend because o doing so would threaten its ability to abide by debt covenants.
The US Copyright Royalty Board in May this year declared that songwriters’ and publishers’ would see an increase in their royalty rates for music streamed between 2018 and 2022 from 10.5 per cent to 15.1 per cent.
No payout: Hipgnosis said it will no longer hand investors a 1.31p per share interim dividend
But Hipgnosis said that on Friday, its independent portfolio valuer, Citrin Cooperman, had ‘materially reduced’ its forecasts on industry-wide payments related to the judgement.
As a consequence, the firm has more than halved the expected amount it anticipates receiving in retroactive payments from $21.7million to $9.9million.
It added that it was speaking with lenders to ensure debt covenants were being satisfied and any future dividend payouts would depend on a ‘satisfactory conclusion’ to those talks.
Following the update, Hignosis Songs Fund shares became the biggest faller on the FTSE 250 Index, with a 10 per cent decline to 66.5p by mid-Monday afternoon. Over the past 12 months, they have slumped by around a quarter.
Founded by former music manager Merck Mercuriadis and Chic guitarist Nile Rodgers, Hipgnosis has spent over £1billlion buying back catalogues of some of the most famous musicians.
These have included Fleetwood Mac’s Lindsey Buckingham and Christine McVie, Neil Young, Barry Manilow, Colombian singer Shakira, and the Red Hot Chilli Peppers.
Funding for the acquisition spree has come from share placings and borrowing, which has been exacerbated by rising interest rates.
To cut debts and fund a stock buyback, the group agreed in September to sell 29 music catalogues and a portfolio of non-core songs for $465million to funds advised by asset manager Blackstone.
However, the Financial Times recently reported that some major shareholders would not support the sale due to its perceived low value and lack of transparency over costs.
Investors will vote on the proposed deal later this month, as well as whether to approve the fund’s ‘continuation’.
Should the latter motion fail to be approved, this could lead to a fire-sale of Hipgnosis’s assets.
Russ Mould, investment director at AJ Bell, said the prospects were ‘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.’
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