Hipgnosis share price dives more than 10 per cent after it cancels dividend
Shares in Hipgnosis Songs Fund, the music rights owner, plunged as much as 16 per cent when the markets opened on Monday, following an announcement it has abandoned plans to pay an interim dividend.
The London-listed company, which owns rights to songs by pop icons including Rihanna and Justin Bieber, said it scrapped the dividend payment due to concerns over its compliance with debt covenants.
Hipgnosis revealed that its independent portfolio valuer, Citrin Cooperman, has significantly lowered industry-wide payment expectations, thanks to a change in rates by the US Copyright Royalty Board.
As a result, Hipgnosis expects reduced income.
To avoid breaching the terms of credit agreements with lenders, the company chose to skip paying out its previously announced interim dividend.
Hipgnosis said future dividend payments hinge on the success of current talks with lenders to find a solution and mitigate further challenges.
Shares stabilised in the morning and hovered around 10 per cent for the rest of the day.
It comes after shareholders recently called on the company to sell some of its holdings as Hipgnosis struggles to reverse a floundering share price.
Russ Mould, investment director at AJ Bell said: “The investment company was set up to invest in music royalties, implying their regular cash flows would generate a growing stream of income for investors.
“Sadly, its fifteen minutes of fame has gone up in smoke amid accusations of poor corporate governance, a disastrous attempt to sell some assets at a big discount to a private fund which its adviser also manages, and now a dividend crisis.
“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,” he added.
But Marzio Schena, chief executive of European royalties investment platform ANote Music, said he believes “a positive outlook on Hipgnosis remains,” especially if it can confirm future dividend payouts will remain unaffected by debt servicing costs and maintaining debt covenants.
Shareholders are set to decide the fate of Hipgnosis at a continuation vote on 26th October.
The investment company was set up to invest in music royalties, implying their regular cash flows would generate a growing stream of income for investors.
Following the announcement, Asset Value Investors (AVI), which manages a five per cent stake in Hipgnosis, released an open letter to fellow shareholders, saying “a reset is urgently required”.
It urged them to vote against continuation later this month and against a sale of the portfolio.
“We urge undecided shareholders not to be swayed by a misleading narrative that a failure to pass the Continuation Resolution results in a wind up of the Company or a fire sale of assets,” the letter read.
Last month, rival London-listed music investment company Round Hill Music received a cash offer for a multimillion dollar buyout, sparking speculation that a similar deal could rescue Hipgnosis from its share price doom.