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“It appeared like the actual factor, however I used to be so blind.” Blondie’s “Coronary heart of Glass” captures the emotions that many buyers in music rights investor Hipgnosis should now be feeling.
The UK funding belief as soon as purchased rights with all of the abandon of a rock band spending its advance on excessive dwelling. The ensuing calamities now embody the board suspending outcomes as a result of it lacks confidence in a valuation of firm belongings.
Hipgnosis’s core declare was that music rights of the sort it bought from artists resembling Debbie Harry have been critically undervalued. In a enterprise missing clear market pricing, shareholders needed to make do with valuations from Citrin Cooperman, a small specialist consultancy.
The hazards of this have been signalled years in the past by this column and FT Alphaville.
A revamped board led by Robert Naylor, the previous chair of rival Spherical Hill Music, is main a assessment of the corporate’s choices. It says that Citrin’s valuation of Hipgnosis’s belongings was “materially greater” than implied by current music trade transactions
The board additionally took a shot on the fund’s funding adviser, Hipgnosis Music Administration, which is 51 per cent owned by Blackstone.
Music values have been falling as low cost charges have been pulled greater by rising rates of interest. Hipgnosis’s share value displays this, down 45 per cent because the begin of 2022. Its internet asset worth, in the meantime, has gone up about 23 per cent. The low cost to NAV of 55 per cent is at a file.
Rights investor Alchemy purchased Roundhill in September at an 11 per cent low cost. Hipgnosis offloaded a non-core portfolio at a 14 per cent low cost to its September valuation. HSM tried to promote a bigger portfolio to a separate fund owned by Blackstone at a steep 24 per cent low cost, however the deal was blocked by shareholders.
Hipgnosis has an excessive amount of debt. Covenants stipulate its borrowings need to be lower than 30 per cent of the NAV. To fulfill that requirement, Hipgnosis could have little possibility however to start promoting its catalogue. As soon as it begins, it might need to hold going. The whole windup of the fund seems more and more inevitable.
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