Hipgnosis Songs Fund is repurchasing its own shares as stock valuation plunges to almost half of what the company said its catalogs were worth.
London-based trust Hipgnosis Songs Fund has launched a debt-funded share buyback program after its stock valuation plummeted by 30% in the last six weeks. The fund is backed by US private equity group Blackstone, financing the share buybacks using new debt from refinancing at the beginning of this month. The company did not disclose how many shares it intends to buy.
In its annual report in July, Hipgnosis Songs Fund said its portfolio of songs had an operative net asset value (NAV) of $2.5 billion. However, as Financial Times pointed out, the company’s market valuation based on its current share price is around $1.8 billion, or nearly “half what Hipgnosis had said its catalogs were worth.” Meanwhile, the company hasn’t bought a new catalog for more than a year, reports of which only add to the company’s recent share price plunge.
Now the company is using new debt from refinancing earlier in the month to buy back some of its shares, which will run until December 8. The company hopes to break the cycle wherein rising interest rates increase the cost of its debts as falling share prices prevent any efforts to raise more money and buy more song catalogs.
“This is a surprising announcement to us,” said analysts at investment bank Stifel. “Effectively, the fund will be borrowing at just under 6% to buy back stock (…) the market is essentially indicating a lack of credibility over valuations.”
The afternoon following the announcement, shares were up 7%, according to Financial Times. Until share prices stabilize, Hipgnosis Songs Fund is effectively unable to raise new equity to buy more song catalogs without diluting existing shareholders.
Blackstone bought a majority stake in Hipgnosis Song Management last year, which advises Hipgnosis Songs Fund. Blackstone also operates a separate billion-dollar fund, Hipgnosis Songs Capital, which is privately held and advised by Hipgnosis Song Management.