Hipgnosis, a company that offers investors the chance to make money from the royalties of tracks by famous artists including Beyoncé and Neil Young, has scrapped plans to pay a dividend after slashing the amount it expects to receive from royalty payments.
The London-listed company said an independent valuer of its portfolio had “materially reduced” its assessment of industry-wide royalty payments after a decision last year by the US Copyright Royalty Board to recalculate the rate.
As a result, the valuer Citrin Cooperman has cut the amount Hipgnosis Songs Fund can expect to receive in royalties from tracks played between 2018 and 2022 from $21.7m (£17.9m) to $9.9m.
“The board now expects to receive significantly lower retroactive payments,” Hipgnosis said. “The board has decided to withdraw the proposed interim dividend.”
The company said it could not afford to pay the interim dividend as it would put it at risk of breaching covenants relating to its revolving credit facility in place with lenders. Its shares tumbled by more than 10% in early trading in response. Hipgnosis earns royalties every time one of the tens of thousands of songs to which it owns the rights is played.
The once high-flying company was founded in 2018 by Merck Mercuriadis, a former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé, who is now an adviser to the business. Hipgnosis has spent billions of pounds buying catalogues in an effort to cash in on what it viewed were assets undervalued in the streaming era.
The company has acquired rights to music from artists including Barry Manilow, Blondie, the Red Hot Chili Peppers and Shakira.
Mercuriadis had argued that investing in music royalties was as valuable as oil or gold because of supposedly predictable and reliable income streams.
However, the business has come under pressure in recent years, with its share price halving from a high of 130p last year to a record low of 65p on Monday.
Russ Mould, the investment director at AJ Bell, said:“The investment company was set up to invest in music royalties, implying their regular cashflows would generate a growing stream of income for investors.
“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.”
This month, investors criticised a proposal to sell, at a considerable discount, almost a fifth of its portfolio for $440m to a Blackstone fund, which is also run by Mercuriadis.
Next week, Hipgnosis will face a vote on the deal and also regarding its “continuation” as a company.
Some shareholders are agitating for a vote against continuation as they believe it will give more power to investors to restructure the business. However, some analysts have said that such a vote could result in the fund liquidated entirely.
Andrew Sutch, the chair of Hipgnosis, plans to retire before the end of the year.
Mould said: “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.”
