R.E.A. Holdings plc (RE.)
R.E.A. Holdings plc: Further investment by DSN in REA Kaltim
02-Nov-2023 / 07:49 GMT/BST
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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY
JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
2 November 2023
R.E.A. Holdings plc ("REA" or the "company")
Proposed further investment by PT Dharma Satya Nusantara Tbk ("DSN") in PT REA Kaltim Plantations ("REA Kaltim"), sale
of PT Cipta Davia Mandiri ("CDM") and rationalisation of REA's group structure (the "Transactions")
Highlights
-- Proposed further investment of approximately USD50 million* (net of associated costs) in REA Kaltim, the
company's principal operating subsidiary, to increase DSN's participation in REA Kaltim from 15 per cent to 35 per
cent
-- Potential sale of CDM, a wholly owned subsidiary of REA Kaltim, valuing CDM's business at USD25 million*
-- Net proceeds of up to approximately USD75 million resulting in a reduction of net debt to approximately
USD110 million and a strengthened REA group balance sheet
-- Increased cash resources following completion of the Transactions allowing for the payment of all arrears
of dividends then outstanding on preference shares and ensuring the availability of funds to meet the repayment of
group's GBP30.9 million nominal of 8.75 per cent guaranteed sterling notes falling due for repayment on 31 August
2025
-- Opportunity being taken to rationalise certain REA group subsidiaries, permitting the group to focus on
remaining core plantings and leading to operational efficiencies
-- Transactions to result in REA achieving 100 per cent ownership of PT Prasetia Utama ("PU") and its
extension planting programme (currently 85 per cent held)
-- Proposals in respect of the further investment in REA Kaltim, CDM and PU to be subject to shareholder
approval
* Based on the REA group's consolidated management accounts (unaudited) as at 31 August 2023 and net debt position at
that date
Proposed further investment by DSN in REA Kaltim Plantations
The company is pleased to announce that it has reached an agreement with DSN pursuant to which, subject to the
satisfaction of certain conditions, PT Agro Pratama ("AP"), a wholly owned subsidiary of DSN incorporated in Indonesia,
will subscribe for further shares in the capital of REA Kaltim (the "DSN subscription"). The DSN subscription will
increase the investment of the DSN group in the share capital of REA Kaltim from 15 per cent to 35 per cent.
REA Kaltim is the principal operating subsidiary of the company, incorporated in Indonesia and currently owned as to 85
per cent by the company and 15 per cent by the DSN group. REA Kaltim is engaged in the cultivation of oil palms in the
province of East Kalimantan in Indonesia and in the production of crude palm oil and crude palm kernel oil.
DSN is an Indonesian plantation and natural resources company listed on the Indonesia Stock Exchange in Jakarta and has
been an investor in REA Kaltim for the past seven years. The DSN group's current investment in REA Kaltim is held
through AP (which currently holds 5 per cent of the current issued share capital of REA Kaltim) and a sister company to
AP, PT Swakarsa Sinarsentosa ("SWA") (which holds 10 per cent of the current issued share capital of REA Kaltim).
The principal conditions to which the DSN subscription is subject are the receipt by the company of shareholder
approval as required by the Listing Rules of the Financial Conduct Authority and the receipt of consent from PT Bank
Mandiri Tbk as lender to REA Kaltim.
The subscription monies due from AP for the DSN subscription will be payable in cash and will be calculated by
reference to the consolidated net assets as at 31 December 2023 of REA Kaltim and its continuing subsidiaries (being
all of REA Kaltim's existing subsidiaries other than PT Cipta Davia Mandiri ("CDM"), PT Kartanegara Kumalasakti ("KKS
"), PT Persada Bangun Jaya ("PBJ2") and PU (together the "excluded subsidiaries") which, as detailed below, are
proposed to be divested by REA Kaltim) (REA Kaltim and its continuing subsidiaries being the "continuing REA Kaltim
group").
In valuing the net assets of the REA Kaltim group for the purposes of the DSN subscription, the plantation and related
assets will be valued at: (a) USD10,500 for each planted hectare owned by the continuing REA Kaltim group (some 31,000
hectares), subject to certain minor exclusions and to a deduction of USD6,000 per hectare in respect of 515 hectares to
reflect the prospective release of such hectarage to an unrelated third party for coal mining; and (b) USD12.5 million in
respect of the net present value of future economic benefits from the two biogas plants owned by REA Kaltim. The
valuation of USD10,500 per hectare includes the value attributed to related property, plant and equipment, including the
continuing REA Kaltim group's three oil mills and the transhipment terminal. The shareholdings in the excluded
subsidiaries will be valued at the expected net proceeds from the proposed divestment of these companies by REA Kaltim
and the balance of the assets and the liabilities of the continuing REA Kaltim group will be reflected at book value.
Certain other minor adjustments will be made.
The DSN subscription is estimated at USD52 million based on an implied value of the continuing REA Kaltim group of USD170
million as derived from the REA group's consolidated management accounts (unaudited) as at 31 August 2023 with the
final subscription price to be determined as detailed below.
In connection with the DSN subscription, AP has agreed to advance USD10 million to REA Kaltim within 7 days following
execution on 2 November 2023 of the share subscription agreement, by way of a pre-closing loan guaranteed by the
company. AP's obligation to make such loan is not conditional on the Transactions completing. If the DSN subscription
does not become unconditional or is otherwise terminated, the pre-closing loan will be repayable in cash together with
interest at 5.75 per cent per annum.
The pre-closing loan will facilitate satisfaction of conditions to the DSN subscription, including the intended
rationalisation of subsidiaries of REA Kaltim as described below.
Provided that the DSN subscription becomes unconditional, REA Kaltim will repay the pre-closing loan to AP in cash,
together with interest at 5.75 per cent per annum, on completion of the issue of the new shares in REA Kaltim to AP. At
the same time, AP will pay to REA Kaltim an amount equal to 90 per cent of an estimate of the subscription price on
account of the final subscription price. The final subscription price will then be determined by reference to the
audited balance sheet of REA Kaltim as at 31 December 2023, which balance sheet is expected to be available by 30 June
2024. Following the determination of the final subscription price, AP will pay the excess of the final subscription
price over the aggregate amounts paid by AP on account (or, should such be the case, REA Kaltim will reimburse the
shortfall).
As soon as practicable following the issue of the new shares in REA Kaltim to AP, the DSN group will increase its
shareholder loan to REA Kaltim by refinancing a proportion of the company's shareholder loan to REA Kaltim, such that,
following such refinancing, the aggregate balance of the shareholder loans owed by REA Kaltim will be owed as to 65 per
cent to the company and as to 35 per cent to the DSN group. At the relevant time, the outstanding shareholder loans are
expected to be USD23.2 million, provided as to 85 per cent (USD19.7 million) by the company and 15 per cent by the DSN
group (USD3.5 million). On that basis, the DSN group would advance, and the company would be repaid, USD4.6 million to
adjust the loan balances to USD15.1 million from the company (65 per cent) and USD8.1 million from the DSN group (35 per
cent).
In connection with the DSN subscription, the company has acknowledged that the DSN group may gradually, over the period
to 30 June 2028, seek to increase its participation in REA Kaltim to an eventual level of 49 per cent. Any such
proposed increase will be subject to agreement of the price and other terms at the time and subject to the receipt of
all necessary consents and approvals, including the approval of REA shareholders, to the extent required.
Potential sale of CDM
The company is seeking to sell CDM and has granted the DSN group a priority right to acquire CDM (the "potential CDM
sale").
CDM, a wholly owned subsidiary of REA Kaltim, is engaged in the cultivation of oil palms in the province of East
Kalimantan in Indonesia.
The sale of CDM would relieve the continuing REA Kaltim group of the further investment that would be required to take
CDM to full maturity and permit the group to focus its efforts on its remaining plantings which are more concentrated
within a single geographical area. The CDM estate is the most outlying estate within the REA Kaltim group.
If the DSN group exercises its priority right, the price to be paid pursuant to the potential CDM sale will be based on
a valuation of the business of CDM calculated by reference to the net assets of CDM as at the close of business on 31
December 2023, attributing a value of USD8,000 to each planted hectare of CDM (some 2,800 hectares overall) excluding
some 925 hectares that are not fully titled and that have been designated for transfer to a local cooperative scheme.
The non-plantation related assets and the liabilities of CDM (excluding a loan from the DSN group and intra-group
balances) will be reflected at book values. The resultant valuation based on REA group's consolidated management
accounts (unaudited) at 31 August 2023 is estimated at USD25 million.
The actual price to be paid for the equity of CDM will be calculated after adjusting the valuation of CDM's business
for the amounts of the DSN group's loan and intra group balances. It is expected that such calculation will result in
the equity of CDM being valued at a negative amount. REA Kaltim will pay to CDM an additional capital contribution
equivalent to the amount by which such value is negative and the CDM equity will be sold for a nominal amount. The
group will effectively recover the value of CDM's business by recovery of certain intra group balances and reduction of
indebtedness.
To achieve this, on completion of the potential CDM sale, (a) the DSN group will procure the repayment by CDM of all
loans owed by CDM to the REA group, and (b) REA Kaltim will repay the debt owed by REA Kaltim to CDM. To assist with
the funding of the repayment by REA Kaltim of the debt owed by REA Kaltim to CDM, the company and AP will advance
further shareholder loans to REA Kaltim, as to USD19.5 million by the company and as to USD10.5 million by AP. The balance
of the debt owed by REA Kaltim to CDM will be funded from the proceeds of the DSN subscription.
If the potential CDM sale does not complete by 31 May 2024, all rights of the DSN group to purchase CDM will lapse, in
which event the company intends to pursue a sale of CDM to an unrelated third-party buyer.
If a sale of CDM has not occurred by the time that the final subscription price to be paid by AP for the new shares in
REA Kaltim has been determined, the DSN group will increase its shareholder loan to CDM by refinancing a proportion of
the shareholder loan owed by CDM to the REA group, to the effect that, following such refinancing, the aggregate
balance of the shareholder loans owed by CDM will be owed as to 65 per cent to the company and as to 35 per cent to the
DSN group. At the relevant time, the outstanding shareholder loans are expected to be USD60 million, provided as to 85
per cent (USD51 million) by the REA group and 15 per cent by the DSN group (USD9 million). Therefore, the DSN group will
advance, and the REA group will be repaid, USD12 million to adjust the loan balances to USD39 million from the REA group
(65 per cent) and USD21 million from the DSN group (35 per cent).
Further rationalisation of subsidiaries of REA Kaltim
In addition to the Transactions detailed above, the company and DSN have agreed a further rationalisation of
subsidiaries of REA Kaltim. It is intended that this rationalisation be completed as promptly as possible.
The rationalisation comprises: (a) the sale of PU to a new wholly owned UK subsidiary of the company (such that the DSN
group will no longer hold an indirect interest, through REA Kaltim, in PU); (b) the sale of KKS and thus also its
subsidiary PBJ2 (which two companies have nominal gross assets) to an unrelated third party for a nominal
consideration; and (c) the purchase by the REA Kaltim group of the remaining five per cent minority interests in those
of its subsidiaries that are not already wholly owned by it (such minority interests originally being required by
Indonesian law, but no longer so required).
Gross assets of PU, as included in the consolidated REA group financial statements as at and for the year ended 31
December 2022, amounted to USD10.6 million. The profit before tax for the year amounted to USD48,000.
Key employees
It is intended that the President Director and Vice President Director of REA Kaltim will continue in their present
positions under their current terms of appointments following completion of the DSN subscription and potential CDM
sale.
Shareholder approval
The DSN subscription and the potential CDM sale constitute a Class 1 transaction under the UK Listing Rules.
Additionally, and for the purposes of the UK Listing Rules, by virtue of DSN being entitled, through AP and SWA, to
exercise more than 10 per cent of the votes capable of being cast at a general meeting of REA Kaltim, DSN is,
indirectly, a "substantial shareholder" (as defined in the Listing Rules) in REA Kaltim and thus a related party of the
company. Therefore, the Transactions collectively (as they relate to the DSN subscription, CDM and PU) constitute a
related party transaction for the purposes of the Listing Rules.
Completion of the DSN subscription, potential CDM sale and intra group sale of PU are therefore conditional on the
adoption of an ordinary resolution by the company in general meeting to approve the Transactions. Accordingly, a
circular containing further details of the Transactions, notice of a general meeting, and a recommendation by the
directors of the company will be published in due course.
Timetable
The DSN subscription is to be completed by no later than mid July 2024 and the potential CDM sale, should it proceed,
by 31 May 2024. In practice, it is expected that the DSN subscription will complete by the end of February 2024.
Financial information
Gross assets of REA Kaltim, as included in the consolidated REA group financial statements as at and for the year ended
31 December 2022, amounted to USD526.7 million. Net assets of REA Kaltim, as included in those financial statements,
amounted to USD171.4 million and profit before tax for the year amounted to USD36.8 million.
Gross assets of CDM, as included in the consolidated REA group financial statements as at and for the year ended 31
December 2022, amounted to USD104.1 million. Net assets of CDM, as included in those financial statements, amounted to
USD24.6 million and the loss before tax for the year amounted to USD5.2 million.
Based on the REA group's consolidated management accounts (unaudited) at 31 August 2023 and, in particular on loan
balances with REA Kaltim and CDM at that date, the cumulative cash effect on the REA group of the DSN subscription and
the potential CDM sale, following an exercise by DSN of its priority right to acquire CDM, as detailed above, should be
broadly as follows:
Proposed further investment by DSN in REA Kaltim USD'm
Proceeds of share subscription 52.0
Additional loan by AP to REA Kaltim (to be repaid by REA Kaltim to the company) 4.6
Subtotal 56.6
Potential sale of CDM USD'm
Additional loan by AP to REA Kaltim 10.5
Additional capital contribution to CDM (2.0)
Repayment of loan owed by REA Kaltim to CDM (43.2)
Repayment of loan owed by CDM to the REA group 60.3
Subtotal 25.6
Further rationalisation of subsidiaries (2.0)
Total net cash impact of the Transactions 80.2
On the same basis, the group's net debt of USD185 million as at
31 August 2023 would be reduced on a pro forma basis to USD135
million by the DSN subscription and further to USD110 million if
DSN exercises its priority right to acquire CDM.
The DSN subscription will dilute the interest of the company in
REA Kaltim from 85 per cent to 65 per cent so that, going forward,
a reduced proportion of the profits and losses of REA Kaltim and
its subsidiaries will be attributable to the company.
If DSN exercises its priority right to acquire CDM, it is
estimated that the REA group will report an aggregate loss on the
sale of CDM and the rationalisation of other subsidiaries of REA
Kaltim of approximately USD26 million.
Reasons for the proposed Transactions and use of proceeds
The object of the Transactions is to strengthen the financial
position of the REA group and to provide cash resources to pay the
arrears of dividends on preference shares outstanding on completion
of the Transactions and ensure availability of funds to meet the
repayment of the GBP30.9 million nominal of 8.75 per cent
guaranteed sterling notes issued by REA Finance B.V. (a wholly
owned subsidiary of the company) falling due for repayment on 31
August 2025.
The net cash proceeds from the Transactions will be earmarked
for those purposes. The remaining balance will be applied in
augmenting the REA group's working capital.
The overall effect of the Transactions would be to leave REA
with a 65 per cent interest in the 31,000 planted hectares owned by
REA Kaltim and a 100 per cent interest in the 4,000 hectare
extension planting programme on land owned by PU.
The person responsible for this announcement is Carol Gysin,
Managing Director.
Enquiries:
David Blackett Carol Gysin
Chairman Managing director
R.E.A Holdings plc R.E.A. Holdings plc
Tel: 020 7436 7877 Tel: 020 7436 7877
The information communicated in this announcement contains
inside information for the purposes of Article 7 of the Market
Abuse Regulation (EU) No. 596/2014 as it forms part of UK domestic
law by virtue of the European Union (Withdrawal) Act 2018.On the
publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
The contents of this announcement do not constitute or form part
of an offer of or invitation to sell or issue or any solicitation
of any offer to purchase or subscribe for any securities for sale
in any jurisdiction nor shall they (or any part of them) or the
fact of their distribution form the basis of, or be relied upon in
connection with, or act as an inducement to enter into, any
contract or commitment to do so.
This announcement includes statements that are, or may be deemed
to be, forward-looking statements, beliefs or opinions, including
statements with respect to the company's business, financial
condition and results of operations. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"anticipates", "targets", "aims", "continues", "expects",
"intends", "hopes", "may", "will", "would", "could" or "should" or,
in each case, their negative or other various or comparable
terminology. These statements are made by the company's directors
in good faith based on the information available to them at the
date of this announcement and reflect the company's directors'
beliefs and expectations. By their nature these statements involve
risk and uncertainty because they relate to events and depend on
circumstances that may or may not occur in the future. A number of
factors could cause actual results and developments to differ
materially from those expressed or implied by the forward-looking
statements. No representation or warranty is made that any of these
statements or forecasts will come to pass or that any forecast
results will be achieved. Forward-looking statements speak only as
at the date of this announcement and the company and its advisers
expressly disclaim any obligations or undertaking to release any
update of, or revisions to, any forward-looking statements in this
announcement. As a result, you are cautioned not to place any undue
reliance on such forward-looking statements.
Nothing in this announcement is intended as a profit forecast or
estimate for any period and no statement in this announcement
should be interpreted to mean that earnings or earnings per share
or dividend per share for the company for the current or future
financial years would necessarily match or exceed the historical
published earnings or earnings per share or dividend per share for
the company.
Certain figures included in this announcement have been
subjected to rounding adjustments. References in this announcement
to "USD" are to US dollars.
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Dissemination of a Regulatory Announcement that contains inside
information in accordance with the Market Abuse Regulation (MAR),
transmitted by EQS Group. The issuer is solely responsible for the
content of this announcement.
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ISIN: GB0002349065
Category Code: MSCH
TIDM: RE.
LEI Code: 213800YXL94R94RYG150
Sequence No.: 282114
EQS News ID: 1763125
End of Announcement EQS News Service
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