Hipgnosis cancels interim dividend, shares tumble
Hipgnosis Songs Fund Ltd
102.00p
16:30 01/10/24
Hipgnosis tumbled on Monday after saying it will no longer pay an interim dividend in order to make sure it complies with its debt covenants, as it now expects lower payments from its US catalogue.
The music rights owner said that its independent portfolio valued has "materially reduced" its expectations of industry-wide retroactive payments in relation to the US Copyright Royalty Board’s decision regarding royalties payable to songwriters for the period from 2018-2022 (CRB III).
As a result, paying a dividend could threaten the group's compliance with debt covenants.
"In consequence of this unwinding of the CRB III accrual, the board has decided to withdraw the proposed interim dividend of 1.1325 pence per share announced on 21 September 2023 in order to ensure compliance with its revolving credit facility's fixed charge cover ratio covenant," it said.
In addition, the company said it’s in talks with the agent and the lenders to avoid any potential impacts of the unwinding of the CRB III accrual on future fixed charge cover ratio covenant compliance.
"Subject to satisfactory conclusion to discussions with lenders, the board expects to declare and pay future dividends as targeted," Hipgnosis said, adding that a further announcement will be made in due course.
At 0855 BST, the shares were down 9.5% at 66.90p.
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.
"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."