Hipgnosis cuts dividend after royalty warning
- Hipgnosis revealed it will no longer give investors a dividend of 1.31 pence per share
- The company now expects to receive only $9.9 million in retroactive payments.
- Merck Mercuriadis and Chic frontman Nile Rodgers co-founded Hipgnosis
Hipgnosis scrapped a planned dividend after being told its royalty payments would be much lower than previously expected.
The London-listed investment fund, which invests in music catalog rights, revealed it would no longer pay investors an interim dividend of 1.31 pence per share because doing so would threaten its ability to meet debt covenants.
In May of this year, the US Copyright Royalty Board stated that songwriters and publishers would see their royalty rates for music streamed between 2018 and 2022 increase from 10.5 percent to 15, 1 percent.
No payout: Hipgnosis said it will no longer give investors an interim dividend of 1.31 pence per share
But Hipgnosis said that on Friday, its independent portfolio appraiser, Citrin Cooperman, had “materially reduced” its forecasts for industry-wide payments related to the ruling.
As a result, the company has more than halved the expected amount it expects to receive in retroactive payments from $21.7 million to $9.9 million.
It added that it was talking to lenders to ensure debt agreements were met and that any future dividend payments would depend on a “satisfactory conclusion” of those talks.
After the update, Hignosis Songs Fund Shares became the biggest faller on the FTSE 250 index, falling 10 per cent to 66.5p by mid-afternoon on Monday. In the last 12 months, they have fallen by about a quarter.
Founded by former music manager Merck Mercuriadis and Chic guitarist Nile Rodgers, Hipgnosis has spent more than £1 billion buying back catalogs from 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 came from share placements and loans, which has been exacerbated by rising interest rates.
To reduce debt and finance a share buyback, the group agreed in September to sell 29 music catalogs and a portfolio of complementary songs for $465 million to funds advised by asset manager Blackstone.
However the The Financial Times recently reported that some major shareholders would not support the sale due to their 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 “continuation” of the fund.
If this latest motion is not approved, this could lead to a liquidation of Hipgnosis’ assets.
Russ Mould, chief investment officer at AJ Bell, said the outlook was “not looking good, given that the value of the company continues to decline and it is now not even paying dividends, which is shocking given that earnings were supposed to be a factor.” clue”. part of the investment returns.
“It is difficult to see how the board can endure this chaos; perhaps it is time to remove the management team and bring in someone else.”