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More News on Hipgnosis Songs Fund

As we suspected, there has been more news surrounding Hipgnosis Songs Fund (SONG, 66.7p) before its key votes on 26th October. Shareholders are being asked to vote on the deal to sell part of the portfolio and also on the trust’s continuation. In the October newsletter our advice was to vote against the deal but to back continuation.

This morning the trust shocked the market again, delivering the bad news that it was intending to withdraw the quarterly dividend payment already declared to the market almost a month ago. The trust said “it was notified on 13 October 2023 that Citrin Cooperman, the company's Independent Portfolio Valuer, has materially reduced its expectations of industry-wide retroactive payments in relation to the US Copyright Royalty Board's decision in relation to royalties payable to songwriters for the period covering 2018-2022 ("CRB III") for its valuation of the company's portfolio as at 30 September 2023. As a result, the board now expects to receive significantly lower retroactive payments in relation to CRB III and therefore intends to reduce its CRB III retroactive accrual to $9.9m, from $21.7m as at 31 March 2023. Accordingly, in consequence of this unwinding of the CRB III accrual, the board has decided to withdraw the proposed interim dividend of 1.1325 pence per share announced on 21 September 2023 in order to ensure compliance with its revolving credit facility's Fixed Charge Cover Ratio covenant.” This reduction in expected payments of more than 50% further undermines confidence in the valuers and raises more questions about the mismanagement of the trust more broadly. The board says it will be entering discussions with lenders and expects to resume future dividend payments, but there must be question marks now about the trust’s ability to pay, particularly if the proposed asset sale is voted down. From the broker comment we have seen, this seems highly likely, although the continuation vote is harder to call.

One of the trust’s major shareholders, Asset Value Investors, has weighed in on that matter with a strongly-worded letter to shareholders which advocates voting against continuation as well as the proposed asset sale. Here is a link to the letter, which we think makes some valid points. We can certainly understand why many shareholders will be thoroughly exasperated by this highly unfortunate situation, where the share price, further depressed by the dividend news, is at such a wide discount to the official valuation of the assets. Our feeling is that patience will pay off here, as the underlying assets are of a high quality, but what was already a messy situation undoubtedly just got messier.

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