Palm oil giant REA Holdings selling stake in Borneo operation

The company’s board described DSN as an Indonesian natural resources company listed on the Indonesian Stock Exchange in Jakarta, and engaged in the business of oil palm plantations and wood products.

DSN’s plantation estates are based in East, Central and West Kalimantan in the Indonesian part of the island of Borneo, with the majority of the estates in East Kalimantan located close to REA Kaltim’s own estates.

In its 2015 annual report,published in April, REA said it was in active discussions with a limited shortlist of interested parties primarily directed at securing a strategic third-party investment in REA Kaltim.

“The directors believe that the proposed investment by, and joint venture with, SEA will bring significant mutual benefits in terms of opportunities for more efficient sourcing of supplies, for marketing and through exchanges of information on agronomic practices,” the board said in a statement.

“Further, the proposal is in line with the directors’ long-held intention to increase Indonesian participation in the ownership of the group’s agricultural operations, and will also serve to secure more permanent capital in the local operations of the REA group.”

Under the specific terms of the conditional agreement, SWA will acquire 650 outstanding class B shares in REA Kaltim, representing 5% of the current issued share capital, and subscribe a further 1,530 class B shares, bringing its total shareholding to 15% of the enlarged share capital.

SWA will also provide loans to REA Kaltim and its subsidiaries in amounts equal to 17.6% of the aggregate principal amounts borrowed by REA Kaltim and its subsidiaries from REA and its wholly-owned subsidiary REA Services.

“The consideration for the shares to be purchased, and the subscription price per share, will depend on the aggregate number of hectares planted by REA Kaltim and its subsidiaries, as well as on REA Kaltim’s net current assets and total borrowings from REA and REAS as at the close of business on 30 June 2016 and is expected to amount to some $16.8m,” the board confirmed.

“The aggregate amount to be lent by SWA to REA Kaltim and its subsidiaries is expected to amount to the equivalent of some $33m.”

REA expects the deal to be complete by the end of October.

On top of the arrangement, DSN has also agreed to loan $10m to REA Kaltim before 10 June by way of a pre-completion advance, which will be repayable once the deal is finalised.