Shares in music royalties investment trust Hipgnosis Songs Fund (SONG) fell 1.4% to 122.2p after it announced plans to raise £150 million to fund more music deals.

The trust said it will issue 124 million new shares at a price of 121p each, a 2.4% discount to Tuesday’s closing price of 124p, and a 2% premium to its adjusted operative NAV (net asset value).

It plans use the net proceeds from the share sale to acquire a ‘substantial pipeline’ of songs containing ‘some of the most influential and successful songs of all time’, which offer ‘substantial revenue growth opportunities through song management.’

‘ACCESS TO MOST SUCCESSFUL SONGS OF ALL TIME’

Hipgnosis Songs Fund’s founder Merck Mercuriadis said: ‘This raise gives our public markets investors, historic and new, the only chance for the next 12 months to get access to Hipgnosis’ existing portfolio as well as a pipeline comprising some of the most important and successful songs of all time, at valuations that are highly attractive considering the continued explosive growth of streaming that will magnify future revenues considerably.’

He added that the trust’s total NAV return of 40.7% since its stock market float three years ago, set against ‘the most challenging social and economic backdrop of our lives’, shows that songs globally are ‘one of the most attractive new asset classes.’

ANALYST VIEW

Stifel analyst Sachin Saggar said the proposed placing is ‘not surprising’ as the fund’s trading update released last week disclosed that its gross leverage had reached $527 million, or around 29% of its adjusted operative NAV after curing the temporary covenant breach of 30% of NAV.

He said: ‘If you take into account the catalogue acquisition of Red Hot Chili Peppers (reported in the press as having a valuation of more than $140 million in May 2021), leverage would rise well above 30% of NAV, prior to an equity issue to raise cash.

‘We view the recent breach of the leverage facility as a soft negative - as while these things do occur, you would not normally expect it to happen on a measure of the amount drawn relative to NAV. This appears to flag some issues around the internal systems and controls.’

READ MORE ABOUT HIPGNOSIS SONGS FUND HERE

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Issue Date: 16 Jun 2021