REA Finance B.V. (RE20)
REA Finance B.V.: Proposals re 8.75 per cent guaranteed sterling notes 2020
06-March-2020 / 09:08 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.
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 GBP30.9
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 GBP30,852,000 . 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
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March 06, 2020 04:08 ET (09:08 GMT)
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