16 October 2023 , 12:18
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Hipgnosis Songs Fund, a music fund that owns the rights to songs by artists like Justin Bieber and Shakira, has seen its shares drop after it scrapped its shareholder dividend payout. The company also warned of lower-than-expected earnings from US streaming royalties.
Shares in Hipgnosis tumbled as much as 22% at one point, hitting an all-time low, before settling around 11% down. This came after the company said it had "materially reduced" its forecast for industry-wide payments following a ruling last year by the US Copyright Royalties Board.
The decision, which covers royalties paid to songwriters or rights-holders for music streamed between 2018 and 2022, means the firm will receive "significantly lower" payments. These have dropped from the initially expected $21.7 million (£17.9 million) to just $9.9 million (£8.1 million).
Hipgnosis decided to ditch its planned dividend, which could otherwise have seen it breach the terms of its loan agreements. The company is now in talks with lenders to avoid any further impact on its ability to comply with covenants.
Future dividends will depend on the "satisfactory conclusion" of these discussions, according to the group.
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The fund was launched on the London Stock Exchange in 2018 by chief executive Merck Mercuriadis a former manager of Sir Elton John and Pet Shop Boys alongside Nile Rodgers of Chic.
Mr Mercuriadis has amassed a vast collection of songs with his fund, but earlier this year, he agreed to sell 29 music catalogues for a whopping 440 million US dollars (£362 million). He claimed the shares were undervalued. However, some investors raised their eyebrows, thinking the price was too low.
Russ Mould, investment director at AJ Bell, commented: "Sadly, its 15 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."
He added: "Investors will decide the future of Hipgnosis Songs Fund at a continuation vote on the 26th of 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."
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