Investor support for Hipgnosis Songs Fund (SONG ) is evaporating following yesterday’s dividend shock, with Newton, its largest shareholder, more than halving its stake.

Newton, the UK arm of US investment giant BNY Mellon, has backed Hipgnosis since launch in July 2018, but today a stock exchange filing revealed it had slashed its position from 10% to 4.3%.

This follows a similar story at debt-laden Digital 9 Infrastructure (DGI9 ), which cancelled its interim dividend last month, precipitating a collapse in the shares as income investors, including multi asset managers, bolted to the exit.

Newton will likely have sold down their position at a loss, given SONG’s shares currently trade at 67p, 33% below their flotation price of 100p, and almost 60% below their latest net asset value.

Numis analyst Ewan Lovett-Turner hit out at Hipgnosis’ valuer Citrin Cooperman after it scaled back its estimate of the windfall retroactive payments song owners would receive from the US Copyright Board’s decision to increase royalties. This led the board to scrap its quarterly dividend after more than halving its estimate of what SONG would receive from $21.7m (£17.9m) to $9.9m.

‘It is highly disappointing to see overly aggressive income recognition, particularly when the delayed nature of cash receipts from royalty income means it is such a fundamental part of income,’ Lovett-Turner said. 

He added that income accruals have been a key focus for investors and expects that SONG will face even more scrutiny in this area, particularly as it will be critical to meeting debt covenants.

Analysts agreed with AVI Investors’ open letter to shareholders, which urged them to vote against continuation, stressing it would not necessarily result in a wind-up or a fire sale of assets, and called the asset sale proposal a ‘truly dreadful deal for shareholders’.

AVI’s flagship equity trust AVI Global (AGT ) scooped up some of Newton’s shares yesterday and increased its position in Hipgnosis to 5%, according to a stock exchange filing.

Investec analyst Alan Brierley said that given the balance sheet issues, over which the dividend was ditched, shareholders may be best placed to sort out this mess now, rather than wait until 2025 or 2026 as recently proposed by the board.

Stifel’s Sachin Saggar said that the next chair replacing the outgoing Andrew Sutch would now recognise a vote against continuation and the first disposal as being a protest vote against the incumbents. He added that it was the cleanest method to ensure shareholders regain control over SONG and not an order to commence an immediate orderly sale of the portfolio.

Numis’ Lovett-Turner said the withdrawal of the dividend highlighted that action needed to be taken to reduce leverage and therefore asset sales are likely to remain high on the agenda. He added it was critical that it was done through a transparent open-market process that was free from the conflicts in the current process. 

Investors will vote on the trust’s continuation and proposal to sell a fifth of its assets at the annual general meeting on 26 October.