REG-R.E.A. Holdings plc R.E.A. Holdings plc: Proposals re 8.75 per cent guaranteed sterling notes

R E A HoldingsAnnouncement

06/03/2020 07:05

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   R.E.A. Holdings plc (RE.)
   R.E.A. Holdings plc: Proposals re 8.75 per cent guaranteed sterling notes

   06-March-2020 / 07:00 GMT/BST
   Dissemination of a Regulatory Announcement that contains inside
   information according to REGULATION (EU) No 596/2014 (MAR), transmitted by
   EQS Group.
   The issuer is solely responsible for the content of this announcement.

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   R.E.A. Holdings plc ("REA Holdings" or the "company")

   REA Finance B.V. ("REA Finance")

   Proposals to extend the date for repayment of the 8.75 per cent guaranteed
   sterling notes 2020

    

   Introduction

    

   The company announced in its trading update published on 7 February 2020
   that it was working on arrangements regarding refinancing of the £30.9
   million nominal of 8.75 per cent sterling notes 2020 issued by REA Finance
   and guaranteed by the company (the "sterling notes") that fall due for
   repayment in August 2020. 

    

   The company now announces that it is today despatching a circular (the
   "circular") to holders of the sterling notes containing proposals to
   extend the date for repayment of the sterling notes from 31 August 2020 to
   31 August 2025 in consideration of the issue by REA Holdings to holders of
   the sterling notes of warrants to subscribe new ordinary shares of 25p
   each in the capital of REA Holdings (the "proposals").

    

   Background

    

   The outstanding balance of the sterling notes is £30,852,000.  The
   outstanding balance is due to be redeemed in full on 31 August 2020. 

    

   In accordance with the structure set out in the trust deed, REA Finance
   has lent substantially all of the subscription monies received by it for
   the sterling notes, and for the now historic 9.5 per cent guaranteed
   sterling notes 2015/2017 of REA Finance (in exchange for which most of the
   existing sterling notes were issued), to REA Holdings for on-lending to
   qualifying subsidiaries.  REA Finance is thus dependent upon repayment of
   the loans made by it to enable it to meet its redemption obligations in
   respect of the sterling notes. 

    

   When the sterling notes were issued in 2015, the directors of REA Holdings
   were confident that the internal cash flows of the group from its
   operations in Indonesia would, by August 2020, be sufficient to fund the
   repayment of the borrowings by REA Holdings from REA Finance and thus to
   fund the redemption of the sterling notes.  That has unfortunately proved
   not to be the case for reasons detailed in the reports and trading
   statements published by REA Holdings over the last few years.  Such
   reasons include, in particular, the inability of REA Kaltim and its
   subsidiaries to achieve expected levels of crops over the period 2015 to
   2017 and the dramatic decline in CPO prices over the period from May 2017
   to November 2019 with the CPO price (CIF Rotterdam) falling from a high of
   $770 per tonne in May 2017 to a low of $439 in November 2018 and then
   remaining below $550 per tonne for most of 2019, only reaching $600 per
   tonne again at the end of October 2019 and rising to $870 per tonne in
   January 2020.

    

   The rally in CPO prices of recent months has reflected continuing growth
   in demand for vegetable oils with a fall-off in the rate of growth in
   supply.  Since January 2020, the CPO price has weakened to an extent in
   the wake of the coronavirus but the fundamentals of supply and demand
   should, over time, outweigh the negative impact of the virus (should this
   continue).  CPO stock levels are expected to fall to a four year low in
   2019/20.  The impact of reduced fertiliser applications by some producers
   in response to the CPO price weakness has yet to be felt.  Also, many oil
   palm producers are reporting rainfall deficits in the second half of 2019
   which may impact 2020 and 2021 production.  Furthermore, much tighter
   restrictions worldwide on clearing new land for oil palm plantings are
   likely to result in palm oil production growing for the foreseeable future
   at a much slower rate than in the last decade.

    

   Reasons for the proposed extension of the date for repayment of the
   sterling notes

    

   The group is now achieving crops at levels that accord with standard age
   related crop profiles and CPO prices remain at remunerative levels.  As at
   5 March 2020 (being the latest practicable date prior to the issue of the
   circular), the CPO price was $668 per tonne. 

    

   Moreover, the group has reduced costs and the directors of REA Holdings
   believe that the group can achieve yet further efficiencies.  Future cash
   flows will also benefit from lower levels of capital expenditure going
   forward because most of the group's developable land has now been planted
   with oil palms which are mature or close to maturity and the group will,
   on completion of current mill upgrading work, have the milling capacity
   that it needs for the foreseeable future.

    

   Against this background, the directors of REA Holdings remain confident
   that the group can, over time, meet all of its obligations in full.  REA
   Holdings is seeking the assistance of the holders of the sterling notes in
   allowing the group to do this in an orderly and constructive fashion.

    

   The proposed extension to the repayment date for the sterling notes, from
   31 August this year to 31 August 2025, with the issue of the warrants in
   consideration thereof, has been formulated to that end.

    

   Proposed amendment to the prescribed loan agreement between R.E.A.
   Services Limited and PT Cipta Davia Mandiri

    

   In accordance with the structure set out in the trust deed, REA Finance
   has lent substantially all of the subscription monies received by it for
   the sterling notes, and for the now historic 9.5 per cent guaranteed
   sterling notes 2015/2017 of REA Finance (in exchange for which most of the
   existing sterling notes were issued), to REA Holdings for on-lending to
   qualifying subsidiaries.  Such on-lending is effected through R.E.A.
   Services Limited ("REA Services"), the co-guarantor of the sterling notes,
   pursuant to loan agreements which are "prescribed" pursuant to the terms
   of the sterling notes and the rights of REA Services in respect of such
   loans have been charged by REA Services as security for its guarantee
   obligations in respect of the sterling notes.  Each of REA Holdings and
   REA Services have covenanted not to make any amendments to the terms of
   the prescribed loan agreements.

    

   REA Services currently has outstanding loans to just one qualifying
   subsidiary, namely PT Cipta Davia Mandiri, pursuant to a loan agreement
   dated 20 August 2018.  Previous loans by REA Services to PT Sasana Yudha
   Bhakti and PT Kutai Mitra Sejahtera have now been repaid in full.

    

   The repayment date specified in the prescribed loan agreement between REA
   Services and PT Cipta Davia Mandiri were agreed in anticipation of the
   sterling notes being repaid on 31 August 2020 and thus currently provide
   that the loans made pursuant to the prescribed loan agreement are
   repayable on 15 August 2020 (or earlier in the event of default). 
   Accordingly, it is proposed that, conditional upon the date for repayment
   of the sterling notes being extended to 31 August 2025 and subject to the
   sanction of noteholders being obtained, the repayment date specified in
   the prescribed loan agreement between REA Services and PT Cipta Davia
   Mandiri also be extended by five years, to 15 August 2025 (or earlier in
   the event of default). 

    

   The extraordinary resolution to be proposed at the meeting of the holders
   of the sterling notes on 31 March 2020 includes provisions sanctioning
   such extension.

    

   The terms of any future prescribed loan agreements between REA Services
   and qualifying subsidiaries (as set out in the trust deed) permit the
   repayment date for any such loans to be agreed at the time that the
   relevant new prescribed loan agreement is made, subject always to the
   covenant on the part of REA Services that it will not agree repayment
   amounts as regards the loans due to it by qualifying subsidiaries which
   would result in the aggregate amount being due to it by qualifying
   subsidiaries on any repayment date, when aggregated by the cash amounts
   then held by REA Services and/or REA Finance in a bank account charged in
   favour of Apex Corporate Trustees (UK) Limited as trustee for the holders
   of the sterling notes, being less than the aggregate amount then due to
   holders of sterling notes by REA Finance on the redemption date for the
   sterling notes.

    

   Proposed amendments to the trust deed

    

   In addition to sanctioning the proposed extension to the repayment date
   for the sterling notes and the amendment to the repayment date set out in
   the prescribed loan agreement made between REA Services and PT Cipta Davia
   Mandiri, the extraordinary resolution to be proposed at the meeting of the
   holders of the sterling notes on 31 March 2020 includes provisions
   sanctioning amendments to the trust deed being made as follows:

    

     • to reflect both (x) the extension of the repayment date for the
       sterling notes and (y) the sanctioning of the proposed amendment to
       the repayment date set out in the prescribed loan agreement between
       REA Services and PT Cipta Davia Mandiri;

    

     • to permit the early redemption of sterling notes in satisfaction of
       the subscription price payable by a holder of sterling notes and
       warrants on exercise of those warrants where the holder of the
       sterling notes validly elects to satisfy that subscription price, in
       whole or in part, by the surrender of sterling notes;

    

     • to delete references to the historic 9.5 per cent guaranteed sterling
       notes 2015/2017 of REA Finance, all of which have now been cancelled
       and/or redeemed in full;
        
     • to effect further changes consequential to the extension of the
       repayment date for the sterling notes and otherwise:
        

   i. to update various provisions and details and delete certain now
      historic definitions and provisions;
       
   ii. to ensure consistencies as regards language and correct certain
       typographical errors; and
        
   iii. at the request of the trustee, (x) to clarify what would be included
        within the scope of "exceptional" duties to be performed by the
        trustee for the noteholders, for which the trustee should be entitled
        to additional remuneration from REA Finance and (y) to require
        notices to the trustee to be copied to the trustee by email.
         

   and the re-statement of the trust deed as so amended.

    

   The extraordinary resolution to be proposed at the meeting of the holders
   of the sterling notes on 31 March 2020 includes an authority and request
   to the trustee for the holders of the sterling notes to enter into a
   supplemental trust deed for the purposes of effecting such amendments and
   re-stating the trust deed as so amended.

    

   Conditions to the proposals

    

   The proposals are conditional upon:
    

   i. the passing of the extraordinary resolution sanctioning the proposals
      set out in the notice of meeting of the holders of the sterling notes
      set out in the circular, which sanction is itself conditional upon the
      issue by REA Holdings of the warrants as described under "Warrants"
      below; and
       
   ii. the execution of the supplemental trust deed referred to in such
       resolution

    

   in each case by 31 May 2020.

    

   Warrants

    

   In consideration of and subject to noteholders sanctioning the proposals,
   REA Holdings will issue all noteholders on the register of noteholders at
   6.00 p.m. (London time) on 24 March 2020 (whether or not such noteholders
   vote in favour of the extraordinary resolution sanctioning the proposals
   but only if the extraordinary resolution is duly passed) with warrants to
   subscribe new ordinary shares in the capital of REA Holdings on the
   following basis:

    

   for each £1,000 nominal of sterling notes held at 6.00 p.m.   130 warrants
   (London time) on 24 March 2020

    

   and so in proportion for any greater amount of sterling notes held. 
   Fractional entitlements to a warrant would be rounded down and would not
   be issued.

    

   It is proposed that each warrant would be exercisable quarterly on 15
   January, 15 April, 15 July and 15 October in each year up to 15 July 2025
   on not less than 14 days' notice of the exercise.  The first exercise date
   would be 15 January 2021.  Each warrant would entitle the holder to
   subscribe one new ordinary share at a price equal to 20 per cent above the
   average of the middle market quotations for the ordinary shares on each of
   the dealing days between 26 February 2020 and 26 March 2020 (inclusive)
   (as derived from the Daily Official List), payable in full on
   subscription.  Holders of the warrants would be entitled to satisfy the
   subscription price in cash or by the surrender of sterling notes at their
   nominal value, or by a mixture of cash and the surrender of sterling notes
   at their nominal value  provided always that any such surrender of
   sterling notes must be in integral multiples of £1,000 nominal of sterling
   notes and must not result in a noteholder retaining a balance of less than
   £100,000 nominal of sterling notes (unless that balance is nil).  On
   surrender of any sterling notes in satisfaction of all or any part of the
   subscription price, the sterling notes surrendered would be redeemed by
   REA Finance at their principal amount, with the redemption monies thus due
   to the noteholder being paid by REA Finance, on behalf of the noteholder,
   to REA Holdings (rather than to the noteholder) save that, rather than
   being paid in cash, the redemption monies would be set-off against the
   loan due by REA Holdings to REA Finance.

    

   It is intended that the new ordinary shares issued on exercise of the
   warrants would rank pari passu in all respects with the then existing
   issued ordinary shares, and would be admitted to the Official List and to
   trading on the regulated market of the London Stock Exchange.  Ordinary
   shares rank behind the preference shares on a return of capital by REA
   Holdings and as regards dividends.

    

   The warrants would be transferable but would not be listed on the Official
   List or admitted to trading on the London Stock Exchange or any other
   stock exchange. 

   Any sale of warrants would be by private treaty negotiated by the holder. 
   Guy Butler Limited has agreed with REA Holdings that Guy Butler Limited
   will, until 31 May 2025, endeavour to match buyers and sellers of the
   warrants.  Notwithstanding the foregoing, no warrant may be transferred to
   any person who does not have a registered address in the United Kingdom or
   within the European Economic Area.

    

   The warrants will be able to be held in certificated or in uncertificated
   form.  However, where a warrant holder wishes to elect to satisfy all or
   part of the subscription price payable on exercise of its warrants by way
   of the surrender of sterling notes, both the warrants being exercised and
   the sterling notes being surrendered must be in certificated form; the
   surrender of sterling notes on exercise of the warrant rights cannot be
   effected through CREST.

   The warrants would be created pursuant to a resolution of the board of
   directors of REA Holdings and would be constituted pursuant to a warrant
   instrument executed by REA Holdings.

    

   The full terms and conditions to be attached to the warrants are set out
   in Part II of the circular. 

    

   No consent fee

    

   None of REA Finance, REA Holdings or REA Services is paying any consent
   fee in cash to any noteholder in connection with the proposals.  The sole
   consideration payable by REA Finance, REA Holdings and REA Services in
   connection with the proposals is the issue by REA Holdings of the warrants
   as detailed under "Warrants" above.

    

   Possible cash placing of further sterling notes and issue of further
   warrants

    

   If, subject to and following the proposals becoming unconditional, it is
   established that there are potential subscribers for additional 8.75 per
   cent guaranteed sterling notes 2025 of REA Finance (that is, the sterling
   notes as they will then be following the extension of the repayment date),
   REA Finance may seek to place a limited further nominal amount of such
   sterling notes at their nominal value, payable in cash in full on
   allotment.  In consideration of placees subscribing such new sterling
   notes at their nominal value, contemporaneously with the issue of those
   new sterling notes, REA Holdings may issue the placees with warrants on
   the basis of not more than 130 warrants for every £1,000 nominal of new
   sterling notes subscribed. 

    

   Recommendation

    

   The board of directors of REA Holdings is of the opinion that the
   proposals are in the best interests of REA Holdings, its shareholders and
   the holders of the group's debt securities (including the sterling notes)
   as a whole.

    

   However, none of the directors of REA Holdings nor the sole director of
   REA Finance consider it appropriate to make a recommendation to
   noteholders as to whether or not they should vote in favour of the
   resolution set out in the notice of meeting of the holders of the sterling
   notes convened for 31 March 2020.  A decision as to whether or not to vote
   in favour of the resolution will depend on the personal circumstances of
   each holder of sterling notes.  Holders of sterling notes who are in any
   doubt as to what action they should take are recommended to consult their
   appropriate independent financial adviser duly authorised, if the holder
   is resident in the United Kingdom, under the  1 Financial Services and
   Markets Act 2000 or, if the holder is not so resident, under the relevant
   applicable local law.

    

   It is further recommended that, before making any decision as whether or
   not to vote in favour of the resolution, holders of sterling notes take
   into consideration all information made available by REA Holdings via the
   Regulatory News Service of the London Stock Exchange.

   Informal indication as regards intentions

    

   The directors of REA Holdings have received informal and non-binding
   indications that holders of in excess of £25,732,000 nominal of the
   sterling notes (representing some 83.4 per cent of the outstanding
   sterling notes) are likely to vote in favour of the extraordinary
   resolution set out in the notice of meeting of the holders of the sterling
   notes set out in the circular.

    

   The directors of REA Holdings have also been informed by one holder of
   sterling notes, holding £1,600,000 nominal of the sterling notes
   (representing some 5.2 per cent of the outstanding sterling notes) that
   such holder is likely to vote against the extraordinary resolution.

    

   Further information

    

   Copies of the circular will shortly be submitted to the Financial Conduct
   Authority (the " FCA") and will be available for inspection at FCA's
    2 Electronic Submission System (ESS).  Copies of the circular may also be
   obtained free of charge from the company at its registered office: First
   Floor, 32-36 Great Portland Street, London W1W 8QX and are also available
   to download from the company's website at  3 www.rea.co.uk.

    

   Expected timetable

    

   A meeting of the holders of sterling notes has been convened for 31 March
   2020 to consider a resolution to sanction the proposed extension to the
   repayment date for the sterling notes from 31 August 2020 to 31 August
   2025 and other matters as detailed in the notice of meeting and to
   authorise and request the trustee for the holders of the sterling notes to
   enter into a supplemental trust deed for the purposes of effecting the
   proposed amendments to and re-statement of the trust deed constituting the
   sterling notes, all as set out in the circular.

    

   It is expected that the results of the meeting will be announced on 31
   March 2020 and that the proposals will become effective on 1 April 2020.

    

   Enquiries:

   R.E.A Holdings plc

   Tel: 020 7436 7877

    

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   ISIN:          GB0002349065
   Category Code: CIR
   TIDM:          RE.
   LEI Code:      213800YXL94R94RYG150
   Sequence No.:  50648
   EQS News ID:   990677


    
   End of Announcement EQS News Service

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