Merian Chrysalis, Hipgnosis Songs look to raise £400m

Investment trust fund-raising sparks to life with Merian Chrysalis and Hipgnosis Songs Fund announcing plans to issue more shares at a discount to their current prices to meet investor demand.

Investment trust fund-raising has sparked to life with Merian Chrysalis (MERI ) and Hipgnosis Songs Fund (SONG ) announcing plans to issue a further £400 million of shares to meet investor demand.

Merian Chrysalis, which has excited investors with its portfolio of unquoted growth companies, is looking to raise at least £100 million in a placing that will allow investors to buy new shares at a discount to their current price.

Shares in the £254 million Guernsey investment company closed last night at 133p, a 19% premium over their net asset value (NAV) of 111.16p. This morning Merian Chrysalis said the new shares would be priced at a ‘modest’ premium to ensure existing shareholders would not be diluted.

It said the placing price would not be more than 10% below the mid-market price when the offer closes on 23 September. The shares responded by falling 5p or 3.8% to 128p.

Merian Chrysalis revealed two weeks ago it was considering raising more cash. It plans to invest around half  in existing portfolio companies, which include rapidly growing fin tech companies such as Transferwise, Starling Bank and global payments provider Klarna.

The additional shares in the companies will be bought from the Merian UK Mid Cap and Merian UK Smaller Companies Focus funds which the Chrysalis managers Richard Watts and Nick Williamson also run.

These purchases will be made at what the company said would be ’a modest discount’ to their latest valuation, thereby boosting its NAV.

The rest of the money will buy stakes in new companies, allowing the portfolio to rebalance and reduce individual company exposures. For example, Klarna, currently the fund’s largest holding at 20% of assets could see its weighting in the larger fund reduced to 11-14%.

This will be Chrysalis’ third share issue. It raised £100 million at launch last November and a further £100 million in April.

Meanwhile the proposed C-share issue from Hipgnosis Song marks a big step towards its founder Merck Mercuriadis’ ambition to create a royalty fund of at least £1 billion capable of changing the economics of the music industry.

The Jersey investment company is currently valued at £409 million having raised £392 million since its flotation in July 2018, £51 million in a share placing just two weeks ago.

The C-share issue will enable the company to raise a bigger sum of money for the pipeline of song portfolios Mercuriadis and his investment team at The Family (Music) have identfied.

The money raised will initially invest in a separate pool of assets from the main fund to avoid ‘cash drag’ and extra expenses on SONG’s current shareholders. Once fully invested in song royalties the new portfolio will merge with the rest of the fund and the C-shares will ‘convert’ into the existing ordinary share class.

The company has announced its intention to move its shares to the premium segment of the London Stock Exchange from the specialist fund segment where it now sits.

It has also published its first fact sheet listing for the first time the 27 catalogues of 7,475 songs in which it has invested £314 million.

This reveals that its most valuable song - generating 7% of income last year - is ‘Something Just Like This’, a worldwide hit from songwriters The Chainsmokers and Coldplay two years ago. Hipgnosis says its songs were bought on an average multiple of 12.84 times historic income.

Hipgnosis is aiming to pay 5p per share in quarterly dividends this year as part of a total annual shareholder return of 8-10%. The shares have dipped 0.8p to 104.23p, just above their operative NAV of 103.27p. This is higher than the conventional NAV under IFRS accounting rules which includes the cost of repaying debt and is currently estimated by Morningstar to be 95.71p. 

The C-shares will be issued at 100p. A prospectus will be published shortly.

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