Hipgnosis Songs Fund (LSE: SONG) experienced a sharp decline in its share prices, plunging by 16% on Monday as markets opened, following the company’s decision to abandon plans for an interim dividend payment. The renowned music rights owner made this startling announcement due to mounting concerns over its compliance with debt agreements.
The company disclosed that its independent portfolio valuer, Citrin Cooperman, had substantially reduced industry-wide payment expectations. This revision was prompted by recent alterations in rates instituted by the US Copyright Royalty Board. Consequently, Hipgnosis anticipates a decrease in its income, casting a shadow over its financial outlook.
In light of the reduced income expectations, the company made the strategic decision to forgo the previously announced interim dividend. This move was primarily aimed at preventing any potential breach of credit agreements with lenders, a scenario that could further exacerbate the company’s challenges.
Hipgnosis emphasised that the prospect of future dividend payments now hinges on the outcome of ongoing discussions with lenders. The company is actively exploring solutions to mitigate the challenges posed by the altered industry landscape and ensure sustainable financial stability.
This development comes on the heels of mounting pressure from shareholders, who recently urged the company to consider selling some of its holdings in a bid to bolster its floundering share price. Hipgnosis, initially established to invest in music royalties and generate consistent cash flows for its investors, now finds itself at a critical crossroads.
Responding to the crisis, Asset Value Investors (AVI), which manages a significant five per cent stake in Hipgnosis, penned an open letter to fellow shareholders. In the letter, AVI called for an urgent “reset” and implored shareholders to vote against continuation later this month and reject a sale of the portfolio. The letter cautioned against succumbing to a “misleading narrative” suggesting that a failure to pass the Continuation Resolution would lead to a company wind-up or a hasty fire sale of assets.
In the backdrop of these challenges, market speculations have been rife about potential solutions. Last month, rival London-listed music investment company Round Hill Music received a substantial cash offer for a multimillion-dollar buyout. This development has sparked discussions within the investment community, with some analysts and investors speculating whether a similar deal could potentially rescue Hipgnosis from its share price woes.
