6th Mar 2020 11:39
(Alliance News) - REA Holdings PLC on Friday said it will ask holders of its sterling notes, which are due in August, to agree a five-year extension, due to a "dramatic decline" in crude palm oil prices until last November.
REA added that prices of the commodity, which can be used in consumer products and cosmetics, have since recovered.
The outstanding balance of the 8.75% sterling notes is GBP30.9 million and is due to be redeemed in full on August 31.
REA on Friday said it will send a request to noteholders proposing a five-year extension to redemption date to August 31, 2025.
REA in exchange will also issue the holders warrants to subscribe to new shares. For each GBP1,000 nominal sterling note held, 130 warrants will be issued.
Shares in the company were down 3.7% in London on Friday morning, at 118.00 pence each.
REA explained: "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.
"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."
REA added that the crude palm oil price slipped to a low of USD439 a tonne in November 2018. In May the year before, it was as high as USD770 per tonne.
In January this year, it recovered to USD870 per tonne, but as of Thursday, crude palm oil price stood at USD668 per tonne.
"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."
REA added that it has reduced its cost base and predicts a fall in capital expenditure in the future as most of its land development schemes have been completed.
The company added: "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."
REA will meet with noteholders on March 31, and if passed, the proposals will become effective on April 1.
In February, REA said: "Provided that substantially all the sterling notes are successfully refinanced, crops continue to achieve budgeted levels and the CPO price is at least maintained around current levels, the directors intend to resume payment of cash dividends on the group's preference shares in 2020. The directors also plan progressively to catch up the arrears of dividend on the preference shares, commencing in 2020 with a payment of 1% per share at the end of March 2020.
The company added on Friday that if noteholders approve the extension proposal, the notes will be considered "successfully refinanced".
REA said that it plans to declare a dividend of 1% per preference share once the note refinancing becomes effective. The payment will be made on or around April 29.
By Eric Cunha; [email protected]
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