Hipgnosis slashes value of song portfolio by a quarter

HIPGNOSIS Songs Fund, which owns the rights to tracks by artists including Blondie and Neil Young, has cut the value of its portfolio by more than a quarter in the latest sign that the music royalties bubble has burst.

The London-listed fund said a new valuation of its catalogues placed it at around $1.9bn (£1.5bn), down more than 26pc since the last estimates made at the end of September.

The revised valuation means Hipgnosis is now worth around 92p per share, significantly below the 110p per share offer made for a $465m catalogue of songs by a Blackstone-backed sister fund last year.

Shareholders rejected that offer citing concerns about a significant discount on the price tag.

Bosses said the sharp reduction in net asset value meant the company would focus on paying down debt and therefore did not expect to start repaying dividends “for the foreseeable future”.

Shares in Hipgnosis dropped by as much as 10pc, giving the company a market value of £685m – less than half the updated valuation of its portfolio.

The writedown follows a strategic review by advisers at Shot Tower, who were appointed by the Hipgnosis board after the company lost a crunch continuation vote last year.

The board has been given six months to outline plans to reorganise the fund or face being wound up.

However, the process has been complicated by a row between the company and its founder Merck Mercuriadis, who acts as investment adviser.

The recent rise in interest rates has cast doubts over the valuation of Hipgnosis’s song catalogue, while concerns have also been raised about conflicts of interest in Mr Mercuriadis’s role and shortcomings in the company’s financial reporting.

The board had asked Hipgnosis Songs Management (HSM), the investment adviser run by Mr Mercuriadis, to place a new valuation on the song portfolio. But it said HSM initially refused to provide an opinion, before offering one that was “heavily caveated”.

Hipgnosis has warned a call option that allows Mr Mercuriadis to purchase the company’s entire portfolio of songs was depressing its value and putting off potential bidders.

It has offered a £20m cash sweetener to any prospective bidders in a sign the board is open to takeover bids.

Robert Naylor, chairman of Hipgnosis Songs Fund, said: “The newly constituted board is making good progress with the due diligence work that will underpin its strategic review.”