(Alliance News) - Hipgnosis Songs Fund Ltd on Monday said it will divert its free cashflow toward paying down debt and won't resume paying dividends "for the foreseeable future", as an independent study found a lower valuation for the company's portfolio.
Hipgnosis Songs Fund invests in the music rights and is in dispute with its investment adviser, alleging misconduct against Hipgnosis Songs Management Ltd and its founder Merck Mercuriadis.
The dispute was sparked by an arrangement, later rejected by Hipgnosis Songs Fund shareholders, to sell part of the fund's portfolio to a joint-venture between Hipgnosis Songs Management and private equity firm Blackstone Inc. Mercuriadis last month stepped down as chief executive of Hipgnosis Songs Management, and the board of Hipgnosis Songs Fund also changed. The two sides currently are squaring off in UK High Court.
Hipgnosis Songs Fund on Monday said an independent valuation of its portfolio of music royalty rights by Shot Tower Capital LLC found that had a fair market value as of Friday last week of USD1.80 billion and USD2.06 billion, or USD1.74 billion to USD2.00 billion after deducting contingent catalogue bonuses of USD59.9 million.
This is down from fair value as of September 30 last year of USD2.62 billion, or USD2.55 billion after deducting a catalogue bonus provision of USD68.1 million.
The mid-point of the Shot Tower valuation is USD1.93 billion, which is down 26% since September. It represents a 15.9 time multiple of net royalty income.
This would translate into operative net asset value per share of USD1.17, down from USD1.74 on September 30. The sterling equivalent of the Shot Tower valuation is 92 pence per share.
Hipgnosis Songs Fund shares were down 13% to 55.13 pence on Monday morning in London.
"Due to the decrease in operative NAV, the board considers it appropriate to reduce gearing and therefore intends to use the company's free cash flow to pay down debt and, therefore, does not intend to recommence paying dividends for the foreseeable future," it informed shareholders.
"The newly constituted board is making good progress with the due diligence work that will underpin its strategic review," said Chair Robert Naylor, adding: "The board remains focused on identifying all options to deliver shareholder value."
By Tom Waite, Alliance News editor
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Hipgnosis Song. (SONG)