REG-R.E.A. Holdings plc R.E.A. Holdings plc: Further investment by DSN in REA Kaltim
02/11/2023 08:00
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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 $50 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 $25 million*
• Net proceeds of up to approximately $75 million resulting in a
reduction of net debt to approximately $110 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 £30.9 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)
$10,500 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 $6,000 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) $12.5 million in respect of the net present value of
future economic benefits from the two biogas plants owned by REA Kaltim.
The valuation of $10,500 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 $52 million based on an implied value
of the continuing REA Kaltim group of $170 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 $10
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 $23.2 million, provided
as to 85 per cent ($19.7 million) by the company and 15 per cent by the
DSN group ($3.5 million). On that basis, the DSN group would advance, and
the company would be repaid, $4.6 million to adjust the loan balances to
$15.1 million from the company (65 per cent) and $8.1 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 $8,000 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 $25 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 $19.5 million by the company and as
to $10.5 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 $60
million, provided as to 85 per cent ($51 million) by the REA group and 15
per cent by the DSN group ($9 million). Therefore, the DSN group will
advance, and the REA group will be repaid, $12 million to adjust the loan
balances to $39 million from the REA group (65 per cent) and $21 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
$10.6 million. The profit before tax for the year amounted to $48,000.
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 $526.7 million. Net assets of REA Kaltim, as included in those
financial statements, amounted to $171.4 million and profit before tax for
the year amounted to $36.8 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
$104.1 million. Net assets of CDM, as included in those financial
statements, amounted to $24.6 million and the loss before tax for the year
amounted to $5.2 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 $’m
Proceeds of share subscription 52.0
Additional loan by AP to REA Kaltim (to be repaid by REA Kaltim to 4.6
the company)
Subtotal 56.6
Potential sale of CDM $’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 $185 million as at 31 August
2023 would be reduced on a pro forma basis to $135 million by the DSN
subscription and further to $110 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 $26
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
£30.9 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 "$" 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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