Circ re. cnv loan stk

R.E.A.Hldgs PLC
18 August 2005


Summary
-------
R.E.A. Holdings plc announces that it has despatched a circular (the 'circular')
to holders of ordinary shares, preference shares, warrants and convertible loan
stock containing proposals for (i) the conversion of the outstanding £3,050,497
nominal of convertible loan stock into new ordinary shares and dollar notes on
terms that the holders of the new ordinary shares arising on conversion of the
convertible loan stock will be entitled to a capitalisation issue of further new
ordinary shares so as to result in every £100 nominal of convertible loan stock
being exchanged for 164 new ordinary shares and $163 nominal of dollar notes and
(ii) the creation of additional dollar notes (so as to increase the prospective
issue size to $30,000,000) to be issued for cash or other appropriate
consideration, as required and as markets permit, over a period of up to four
years. The circular is accompanied by a prospectus (the 'dollar note
prospectus').

Introduction
------------
It was announced on 23 May 2005 that the company was considering proposals for
the conversion of the convertible loan stock into a combination of new ordinary
shares and new dollar denominated loan notes. A further announcement was made on
3 August 2005 giving the principal terms on which it would be proposed that the
conversion be effected and stating the directors' intention to build on the
issue of new listed dollar denominated loan notes that would result from the
conversion of the convertible loan stock by creating additional dollar notes,
ranking pari passu with the dollar notes to be issued on conversion, to be
available for issue for cash or other appropriate consideration, as required and
as markets permit, over a period of up to four years. Detailed proposals
regarding the proposed conversion and creation of additional dollar notes have
now been formulated and the purpose of the circular is to provide information
regarding such proposals.

Since implementation of the proposals will require certain approvals from
holders of listed securities of the company, notices are set out at the end of
the circular convening a meeting of warrant holders, a meeting of convertible
loan stock holders, a class meeting of the holders of ordinary shares and an
extraordinary general meeting of the company, all to be held on 12 September
2005, for the purposes of considering and, if thought fit, passing the
resolutions necessary to implement the proposals.

Background
----------
The entire business of the group is represented by oil palm operations in the
province of East Kalimantan in Indonesia. Whilst those operations are now
producing profits and positive operational cash flow, this has been achieved
only after a testing period of several years. That period started with the
economic destabilisation that occurred in Indonesia in late 1997 and was
followed, in 1998, by political destabilisation accompanied by the collapse of
many Indonesian companies and banks. After several years, the Indonesian economy
is now recovering but, in the interim, the problems faced were compounded by a
fall in the price of crude palm oil from May 1998 to May 2001 when the price
moved from a high of $705 per tonne to a low of $234 per tonne (in both cases
CIF Rotterdam, as published by Oil World).

Against this background, the group has been forced in recent years to raise
substantial capital to support the East Kalimantan operations and to finance the
withdrawal of capital provided by other investors in those operations. That
capital has been found from issues of listed securities and from new borrowings
in Indonesia but the nature and terms of the finance raised have, to a
considerable extent, been dictated by availability rather than choice. As a
result, the present financial structure of the group is not, in the opinion of
the directors, ideally matched with the directors' plans for the group's future
development.

Reasons for the proposals
-------------------------
A fundamental financing problem that the group faces is that, in order to
maximise the equity returns from its oil palm development programme, it needs to
finance a prudent proportion of development costs with debt. The group is able
to, and does, borrow from banks in Indonesia but borrowings are currently
available to the group only for average terms of less than three years. Such
maturities do not fit well with the growth cycle of an oil palm which takes
nearly four years to maturity from nursery planting and then a further period of
three to four years to full yield. Moreover, if the group is to maintain a
sensible proportion of debt, it must, as its equity base grows, seek to add
rather than repay debt. Continuing reliance on Indonesian borrowings therefore
commits the group to a cycle of regular refinancings. This is expensive and
inefficient and the uncertainty that it creates limits the group's financial
flexibility in a manner that is likely to become increasingly burdensome as cash
flow builds and the directors have to decide whether to allocate cash resources
to establishing a cash reserve to meet debt repayments or to development
expenditure and paying dividends.

The directors believe that one answer to this problem is to seek longer term
debt from markets external to Indonesia. Given the company's size, it cannot
readily make a new issue of debt securities for cash in a manner that would meet
the requirements of the conventional markets for such securities. However, the
directors believe that if an issue of listed debt securities can be established,
it should be possible, over an extended period, progressively to increase the
level of the debt securities in issue by a series of small offerings. Such a
process would dovetail well with the group's requirement for an alternative
source of debt finance since that requirement is primarily for new funding to
meet maturing obligations as these arise rather than to refinance existing debt.
Because crude palm oil is priced in dollars, it is prudent for the group to
borrow in dollars. Moreover, the South East Asian markets that are obvious
markets for debt securities of the company are principally dollar markets.
Accordingly, the directors would prefer any new issue of debt securities by the
company to be denominated in dollars.

A second deficiency of the group's present financial structure is the
convertible loan stock. That stock was issued in May 2002 at a low point in the
group's fortunes and is now traded on the London Stock Exchange at a large
premium to its par value. The directors take this premium to mean that the
convertible loan stock is essentially viewed as an indirect investment in the
company's equity as, whilst the stock does provide some income to holders, that
income is not substantial in relation to the current capital value of the stock.
Moreover, the stock is relatively illiquid to the extent that certain holders
have elected to exercise the conversion rights attaching to their holdings so as
to convert all or part of those holdings into more marketable ordinary shares.
From the company's viewpoint, the presence of the convertible loan stock as debt
on its balance sheet, when the stock is in substance equity, is unsatisfactory
because it complicates dealings with some counterparties.

The current proposals have been formulated to address the establishment of a new
issue of listed debt securities and the elimination of the convertible loan
stock. If approved, the proposals will achieve this by converting a proportion
of the convertible loan stock into new dollar notes (with the balance of the
stock being converted into equity). The benefit to the company of establishing
the dollar note issue and eliminating the convertible loan stock permits the
provision to convertible loan stockholders, as a term of the proposals, of a
premium over the value of the ordinary shares that they would receive were they
to convert their stock on the basis of the existing conversion terms.

Conversion and capitalisation issue
-----------------------------------
Upon and subject to the terms and conditions described below, it is proposed
that holders of convertible loan stock on the register of stockholders at the
close of business on 12 September 2005 should exchange their stock for new
ordinary shares and dollar notes on the basis of:

164 ordinary shares and $163 nominal of dollar notes
for every £100 nominal of convertible loan stock held

and so in proportion for any other nominal amount of convertible loan stock
held. Fractional entitlements to ordinary shares and dollar notes will not be
allotted and entitlements to ordinary shares and dollar notes will be rounded
down to the nearest integral number or amount.

For legal reasons, this exchange will be effected in stages. First, £10 nominal
of each holding of £100 nominal of convertible loan stock will be converted into
20 fully paid new ordinary shares (and so in proportion for any other amount of
convertible loan stock held). Secondly, the balance of the convertible loan
stock will be converted into fully paid dollar notes on the basis of $163
nominal of dollar notes for every £100 nominal of convertible loan stock held
immediately prior to the conversion of £10 nominal per £100 nominal of stock
into new ordinary shares as just described (and so in proportion for any other
amount of convertible loan stock held). Simultaneously with the conversion of
the balance of the convertible loan stock, stockholders (in their capacity as
the holders of the new ordinary shares arising pursuant to the conversion) will
be allotted, by way of capitalisation of up to £1,098,178.75 standing to the
credit of share premium account, a further 144 new ordinary shares, credited as
fully paid, for every 20 new ordinary shares issued pursuant to the conversion
(and so in proportion for any other number of new ordinary shares so issued).

The proposal to effect the overall exchange of convertible loan stock for
ordinary shares and dollar notes by way of a conversion and a capitalisation
issue reflects the fact that, after allowing for the nominal amount of
convertible loan stock to be converted into dollar notes (issued at par), the
nominal amount of convertible loan stock available to be converted into ordinary
shares would be insufficient to pay up in full, at their par value of 25p each,
the number of ordinary shares that the terms of the overall exchange propose be
issued. By law, ordinary shares cannot be issued fully paid at a discount to
their par value. The split of the exchange of the convertible loan stock for the
full 164 new ordinary shares and $163 nominal of dollar notes for every £100
nominal of convertible loan stock held into two stages is necessary as, by law,
ordinary shares issued by way of capitalisation of share premium account can
only be issued to persons who are shareholders.

In the most unlikely event that the first conversion (of £10 nominal per £100
nominal of each holding of convertible loan stock into 20 new ordinary shares)
became unconditional but the conversion of the balance of the convertible loan
stock into dollar notes and the capitalisation issue did not become
unconditional, holders of convertible loan stock would be left with 20 new
ordinary shares and £90 nominal of convertible loan stock per £100 nominal of
stock originally held. This situation could only occur if, after the first
conversion became unconditional, the admission of the dollar notes arising from
conversion, and of the new ordinary shares arising from the capitalisation
issue, to the Official List and to trading on the London Stock Exchange's market
for listed securities failed to become effective. The conversion of the balance
of the convertible loan stock into dollar notes cannot, under the terms of the
proposals, become unconditional unless the capitalisation issue also becomes
unconditional.

Particulars of the dollar notes
-------------------------------
The dollar notes will be created pursuant to resolutions of the board and will
be constituted by a trust deed to be executed between the company and The Law
Debenture Trust Corporation p.l.c. as trustee. Holders of the dollar notes will
be bound by, and be deemed to have notice of, all of the provisions of the trust
deed.

The dollar notes will be issued in registered form in amounts and integral
multiples of $1 and will be listed on the Official List and traded on the London
Stock Exchange's market for listed securities. The dollar notes will bear
interest at the rate of 7.5 per cent per annum, payable half yearly in arrear on
30 June and 31 December of each year save that interest payable on 31 December
2005 will be calculated as if it accrued with effect from 1 July 2005 (and that,
as respects further issues of dollar notes as described below, the interest rate
for the first period following the date of issue of such notes will be
calculated as if interest had accrued from the most recent interest payment
date).

Unless previously redeemed or purchased and cancelled by the company, the dollar
notes will be redeemed at par by three equal annual instalments commencing 31
December 2012. If dollar notes have been purchased by the company and cancelled,
the amount of dollar notes that the company will be obliged to redeem on any
given redemption date will be reduced by the nominal amount of dollar notes
purchased and cancelled prior to that redemption date (save in so far as such
notes were purchased and cancelled prior to a previous redemption date and taken
into account in reducing the dollar note redemption requirement in relation to
that previous redemption date).

Holders of dollar notes will be entitled to elect (and all holders of
convertible loan stock will, as detailed under 'Further terms' below, be deemed
to have elected) to receive payments of interest and redemption monies due in
respect of their holdings of dollar notes in pounds sterling. Where any such
election has been made (or deemed made) and remains in force, the amount of each
dollar payment that, absent the election, would be due to the electing holder in
respect of the dollar notes held by that holder will be converted to pounds
sterling by the company shortly ahead of the due date of the payment and the
resultant conversion proceeds will be paid to the holder in lieu of the dollar
amount that would otherwise be payable. Any election (or deemed election) to
receive payments in respect of the dollar notes in pounds sterling may be
revoked by not less than 30 days' notice in writing to the company's registrars
ahead of any date upon which a payment of interest or redemption monies will
fall due.

The dollar notes will be unsecured obligations of the company. The trust deed
constituting the dollar notes will contain no restrictions on further borrowings
by the company ranking in priority to or pari passu with the dollar notes save
that the company will covenant to procure that the overall borrowings of the
group do not exceed an amount equal to 11/2 times the share capital and reserves
of the group (as defined in the conditions to the dollar notes).

The trust deed constituting the dollar notes will contain provisions pursuant to
which the trustee, on behalf of itself and the holders of the dollar notes, will
irrevocably consent to one or more reductions of share capital and/or amounts
standing to the credit of the company's share premium account and/or capital
redemption reserve, up to a maximum aggregate amount of £6 million, and to the
release of the reserves thereby created to the distributable reserves of the
company, subject only to the necessary consent of the court and provided always
that such reduction(s) would not result in the company being in breach of the
borrowing restriction set out in the conditions to the dollar notes.

The directors have no immediate plans to propose a reduction in the capital of
the company but they are concerned that, as the company's profits derive almost
exclusively from the group's East Kalimantan operations, the future funding
requirements of those operations may, at least for a period, restrict the
ability of, or make it fiscally inefficient for, the company's Indonesian
subsidiaries to pay dividends. In those circumstances, the directors would not
wish constraints posed by the availability of distributable reserves in the
company to inhibit the payment of dividends that the directors would, from a
commercial viewpoint, feel able to recommend. This might mean that the directors
would wish to put forward proposals to increase the distributable reserves of
the company.

Further terms
-------------
As a further term of the conversion and capitalisation issue, interest on the
convertible loan stock will cease to accrue after 30 June 2005 (being the last
date upon which interest was paid on the stock) but interest on dollar notes
issued pursuant to the conversion will bear interest calculated as if accruing
from 1 July 2005. As noted under 'Particulars of the dollar notes' above, all
holders of convertible loan stock will be deemed to have elected, in accordance
with conditions 4 and 5(D) endorsed on certificates issued in respect of the
dollar notes, to receive interest and redemption monies payable in respect of
the dollar notes to be issued pursuant to the conversion in pounds sterling
rather than in dollars.  Any such election may be revoked by notice in writing
to the company as set out in such condition 4.

The new ordinary shares to be issued pursuant to the conversion and
capitalisation issue will upon issue rank pari passu in all respects with the
existing issued ordinary shares, save that the new ordinary shares issued
pursuant to the conversion will entitle the holders thereof to receive the new
ordinary shares to be issued pursuant to the capitalisation issue. The existing
ordinary shares are already admitted to trading on the London Stock Exchange's
market for listed securities.

No expenses of or incidental to the conversion or the capitalisation issue will
be charged to allottees of new ordinary shares and dollar notes. It is not
considered that any UK stamp duty or stamp duty reserve tax should arise on
issue of the new ordinary shares and/or dollar notes but should any such duty or
tax be payable by any allottee on such issue, the company will refund the amount
so payable to the relevant allottee.

Conditions
----------
The proposals are conditional upon:

  • the passing of the extraordinary resolutions set out in the notices of
    the meetings of warrant holders, convertible loan stock holders and holders
    of ordinary shares, all convened for 12 September 2005;
  • the passing of the three resolutions set out in the notice of the
    extraordinary general meeting of the company convened for 12 September 2005;
  • as respects the first stage of the conversion as described under
    'Conversion and capitalisation issue' above (whereby £10 nominal per £100
    nominal of each holding of convertible loan stock will be converted into 20
    new ordinary shares), admission of the new ordinary shares arising to the
    Official List and to trading on the London Stock Exchange's market for
    listed securities and such admissions becoming effective; and
  • as respects the balance of the proposals, the first stage of the
    conversion becoming unconditional and admission of the dollar notes arising
    from the conversion and the further new ordinary shares arising from the
    capitalisation issue to the Official List and to trading on the London Stock
    Exchange's market for listed securities and such admissions becoming
    effective.

Financial implications of the conversion and capitalisation issue
-----------------------------------------------------------------
Implementation of the conversion and capitalisation issue would result in the
issue of up to 5,002,815 new ordinary shares and $4,972,310 nominal of dollar
notes. That compares with the 5,755,654 new ordinary shares (ignoring fractional
entitlements) that would fall to be issued on full conversion of the convertible
loan stock in accordance with its existing conversion terms. An effect of the
conversion and capitalisation issue will therefore be to reduce by 752,839 the
number of new ordinary shares that would otherwise fall to be issued as a result
of conversion of the convertible loan stock and to substitute therefor
$4,972,310 (equivalent at the latest dollar sterling rate to £2,747,133) of
debt.

The annual interest payable by the company on the dollar notes to be issued
pursuant to the conversion will amount to some $372,923 (equivalent at the
latest dollar sterling rate to £206,035). That compares with the annual interest
currently payable on the convertible loan stock of some £122,020 (equivalent at
the latest dollar sterling exchange rate to $220,856).

On the basis of the latest dollar sterling exchange rate and of the mid market
quotations (as derived from the Daily Official List of the London Stock
Exchange) as at the close of business on 2 August 2005 (the dealing day last
preceding the date upon which the principal terms of the proposals were
announced) of an ordinary share and £1 nominal of the convertible loan stock of,
respectively, 233.5p and 450p, and assuming that the dollar notes will have a
market value equal to their par value, holders of convertible loan stock will
obtain a 5 per cent increase in capital value as a result of exchange of their
holdings of convertible loan stock for new ordinary shares and dollar notes
pursuant to the conversion and capitalisation issue.

No dividends have been paid on the ordinary shares in recent years. While that
situation continues, the annual income receivable by holders of convertible loan
stock in respect of the new ordinary shares and dollar notes that they would
receive on implementation of the conversion and capitalisation issue would, on
the basis of the latest dollar sterling exchange rate, represent an increase of
69 per cent over the annual income receivable in respect of their existing
holdings of convertible loan stock.

Release of security for the convertible loan stock
--------------------------------------------------
The company, certain of its directors and MP are the object of actual and
threatened claims from the MEZ group (which owns 12.3 per cent of the issued
ordinary shares of Makassar, a subsidiary of the company that serves as a
sub-holding company for the East Kalimantan operations of the group). The terms
of the convertible loan stock contain provisions whereby, in the event that the
company were to be placed in insolvent liquidation as a result of those claims,
holders of the convertible loan stock would automatically convert their holdings
into 98 per cent of the issued ordinary share capital of MP (a sub-holding
company within the group) as enlarged by such conversion. MP holds 68 per cent
of the issued ordinary share capital of Makassar.

No similar conversion provisions have been included in the terms of the dollar
notes. In the opinion of the directors, the increases in the profitability of
the group and in the market capitalisation of the company that have occurred
since May 2002 (when the convertible loan stock was issued) have been such that
the theoretical possibility that the MEZ group claims could, if successful,
cause the insolvency of the company is now sufficiently remote that the
conversion rights referred to in the preceding paragraph no longer confer a
material benefit on holders of the stock. Additionally, while the directors have
always considered the MEZ group claims to be without merit, they believe that
the evolution of events since 2002 should provide additional support in proving
that such claims are baseless.

Further issues of dollar notes and use of resultant proceeds
------------------------------------------------------------
Pursuant to the proposals, $30,000,000 nominal of dollar notes will be created
of which up to $4,972,310 will be issued pursuant to the conversion. The
directors propose to seek to issue the balance of the dollar notes by way of
multiple placings, principally with substantial investors, over a period of up
to four years so as to maintain an appropriate level of group indebtedness and
to match (insofar as reasonably practicable) and meet the maturing obligations
and other funding requirements of the group, namely:

  • the maintenance of a cash buffer designed to ensure that, in the event
    of a material downturn in the price of crude palm oil, the group remains
    able, on realistic assumptions, to carry to maturity all immature oil palm
    plantings and to expand established milling capacity to an extent sufficient
    to process all crop from such immature areas as these come into production
  • the funding (in part) of debt repayments in respect of existing
    borrowings of the group that fall due over the next four years
  • the funding (in whole or part) of any monies that may become payable to
    the MEZ group pursuant to an acquisition of the minority shareholding held
    by the MEZ group in Makassar or otherwise as a result of settlement of the
    MEZ group claims.

The directors currently envisage that, subject as provided below, not more than
$10 million of dollar notes will be issued over the twelve months following the
publication of the circular (in addition to the $5 million of dollar notes to be
issued pursuant to the conversion) and that the balance of the dollar notes
would, if market conditions permit, then be issued in stages over the succeeding
three years.

Agreement has been reached between the company and the MEZ group that there
should be an attempt to resolve the MEZ group claims by way of mediated
discussions commencing in late September 2005. The directors are unable to judge
the likelihood of such discussions producing a settlement of the MEZ group
claims but should they do so or should a settlement otherwise be agreed, the
planned timing of dollar note issues may be brought forward to assist in funding
such settlement.

Whilst the directors believe that it is important that the group retains
flexibility as to the percentage of the group's overall funding that is
represented by net debt (meaning the aggregate amount of borrowings and other
indebtedness of the group (other than intra-group indebtedness), less cash, bank
deposits and similar balances), as a general indication they believe that a
target level not exceeding 50 per cent of the aggregate of capital employed
(meaning the aggregate amount of share capital, consolidated reserves (taking
the oil palm plantations at estimated fair value) and minority interests) and
net debt is appropriate to the group at its present stage of development.

Applications will be made to the Financial Services Authority and to the London
Stock Exchange for such of the created but unissued dollar notes as may be
issued within the twelve months following the date of publication of the dollar
note prospectus to be admitted upon issue to the Official List and to the London
Stock Exchange's market for listed securities, subject to due compliance with
the rules applicable to offering programmes.

Additional conversion period
----------------------------
The company has agreed with The Law Debenture Trust Corporation p.l.c., as
trustee for the holders of the convertible loan stock, that in the event that
the conversion should fail to become fully unconditional, the terms of the
convertible loan stock will be amended so as to provide for an additional
conversion period during the month of November 2005.

Interim results in respect of the six months ended 30 June 2005
---------------------------------------------------------------
Were it not for the recent changes to the accounting principles which a listed
company is obliged to apply in preparing its accounts (being the change from UK
Generally Accepted Accounting Principles to International Financial Reporting
Standards), the company would have expected to issue its interim results in
respect of the six months ended 30 June 2005 during September 2005. However, as
a result of the changes, and the additional work that this will cause, the issue
of the interim results will be delayed. The interim results will be issued by 28
October 2005.

Current trading
---------------
Although a drier period experienced during the second half of 2004 could have
caused some moisture stress, the directors are optimistic that the good rainfall
received over 2004 as a whole will means that the East Kalimantan operations
will yield normally during 2005. On that basis, the FFB crop for 2005 has been
budgeted at 331,000 tonnes.

Some disruption to operations occurred in April and May 2005 as a result of
severe flooding from the Belayan and Mahakam rivers following exceptionally
heavy rainfall during that period but the directors do not expect this to result
in a material shortfall against budget in terms of FFB harvested. Delays to
harvesting caused by the disruption did, however, have some negative impact for
a few weeks both on the quality of CPO output and on the CPO extraction rate
achieved resulting in an estimated overall loss of potential sales revenues for
the period in question of 5 per cent.

Following delays to the 2004 extension planting programme caused by disputes
over land compensation payments with certain individuals from local villages,
compensation relating to the 2005 extension planting area was negotiated and
settled with a single village head appointed by all of the affected individuals
to negotiate on their behalf. It had been hoped that this methodology for
settlement would ensure that the 2005 land clearing programme could be completed
without any delays. Regrettably, however, this has not proved the case and some
delays to the clearing programme are again being experienced following
representations by certain of the affected individuals that the compensation
arrangements to which they had agreed should be renegotiated. Given that a
limited delay in the transfer of oil palm seedlings from nursery to field should
have no effect on the maturing of 2005 plantings, the directors do not currently
expect that the delays in question will have a material adverse impact on future
crops expected from the 2005 extension planting programme.

Higher world freight rates have in the past twelve months increased the
differential between CPO prices CIF and FOB but CPO prices at present levels
still provide the group with more than acceptable margins. Accordingly, the
directors expect that 2005 will prove to be another good year.

The City Code on Takeovers and Mergers
--------------------------------------
The company's largest shareholder, Emba, currently owns 7,203,983 ordinary
shares, representing 35.8 per cent of the issued ordinary share capital of the
company, and £1,380,980 nominal of convertible loan stock, representing 45.3 per
cent of the outstanding convertible loan stock. That holding of convertible loan
stock includes £10,000 nominal of convertible loan stock acquired on 17 August
2005 in connection with the proposals by Emba from Emba Services Limited Pension
Scheme (which is acting in concert with Emba) at a price of 450p per £1 nominal
of convertible loan stock.

Implementation of the conversion and capitalisation issue would result in the
exchange by Emba of its existing holding of convertible loan stock for 2,264,807
new ordinary shares and $2,250,997 nominal of dollar notes. The aggregation of
the new ordinary shares so received by Emba with Emba's existing holding of
ordinary shares would result in Emba owning a total of 9,468,790 ordinary
shares, representing 37.7 per cent of the issued ordinary share capital of the
company as enlarged by the new ordinary shares issued pursuant to the conversion
and capitalisation issue. An effect of the conversion and capitalisation issue
would therefore be to increase the percentage of the voting rights attaching to
the company's share capital held by Emba.

Under Rule 9 of the City Code on Takeovers and Mergers, except with the consent
of the Panel on Takeovers and Mergers, any person who, together with persons
acting in concert with him, holds not less than 30 per cent nor more than 50 per
cent of the voting rights of a public company and increases the percentage of
the voting rights held by him is required to extend a general offer in cash to
all remaining shareholders enabling, inter alia, such remaining shareholders to
exit from their investment in the company concerned. Although implementation of
the conversion and capitalisation issue would result in an increase in the
percentage of the voting rights attaching to the company's share capital held by
Emba, the Panel on Takeovers and Mergers has agreed to waive the requirement for
a general offer provided that Emba's increased percentage holding is approved by
independent shareholders of the company by way of an ordinary resolution taken
on a poll. Therefore, the second resolution set out in the notice of
extraordinary general meeting convened for 12 September 2005 (which provides for
approval of Emba's increased percentage ownership of voting shares of the
company) will be put to a poll on which Emba will not vote.

Emba also owns 41,420 warrants and persons acting in concert with Emba own a
further 116,900 warrants. As stated above, implementation of the conversion and
capitalisation issue would result in an increase in the percentage of the voting
rights attaching to the company's share capital held by Emba from 35.8 per cent
to 37.7 per cent. Were Emba and the persons acting in concert with it (together
the 'concert group') to exercise in full the warrants held by them and no other
warrants rights were exercised, the percentage of the voting rights attaching to
the company's share capital held by the concert group would be further increased
from 37.7 per cent to 38.1 per cent (or, if the conversion and capitalisation
issue did not become unconditional but the concert group were to exercise in
full the warrants held by it and no other warrant rights were exercised, such
percentage would increase from 35.8 per cent to 36.3 per cent).

Although the concert group has confirmed to the board that it has no current
intention of exercising any of the warrants held by it, the directors have
nevertheless decided that the extraordinary general meeting convened for 12
September 2005 will provide a suitable opportunity to obtain independent
shareholder approval for the possible further increase in the percentage of the
voting rights attaching to the company's share capital held by the concert group
were such warrants to be exercised. Thus the second resolution set out in the
notice of the extraordinary general meeting also provides for this approval. As
stated above, this resolution will be put to a poll on which Emba will not vote
(and no other member of the concert group is eligible to vote as Emba is the
only member of the concert group that owns voting shares of the company).

Meetings
--------
As already noted, the following meetings have been convened for 12 September
2005, all of which are to be held at the offices of the company's solicitors,
Ashurst, at Broadwalk House, 5 Appold Street, London EC2A 2HA:

  • a meeting of warrant holders to be held at 10.15 am
  • a meeting of convertible loan stock holders to be held at 10.20 am (or
    so soon thereafter as the meeting of warrant holders has been concluded or
    adjourned)
  • a class meeting of holders of ordinary shares to be held at 10.25 am (or
    so soon thereafter as the meeting of convertible loan stock holders has been
    concluded or adjourned)
  • an extraordinary general meeting of the company (at which only holders
    of ordinary shares may vote) to be held at 10.30 am (or so soon thereafter
    as the class meeting of holders of ordinary shares has been concluded or
    adjourned)

The rights attaching to the warrants include provision that, save with the
consent of an extraordinary resolution of the warrant holders, the company must
not (other than in certain limited circumstances) distribute capital profits or
reserves or otherwise capitalise profits or reserves or modify the rights
attaching to the ordinary shares. Accordingly, the resolution set out in the
notice of the meeting of warrant holders (which will be proposed as an
extraordinary resolution) provides for the warrant holders to sanction the
capitalisation issue and the modification of the rights attaching to the
ordinary shares that the passing of the third resolution set out in the notice
of extraordinary general meeting (which makes provision for implementation of
the capitalisation issue) would effect.

The resolution set out in the notice of meeting of convertible loan stock
holders (which will be proposed as an extraordinary resolution) makes provision
for implementation of the conversion and capitalisation issue.

The resolution set out in the notice of the class meeting of holders of ordinary
shares (which will be proposed as an extraordinary resolution) provides for
holders of ordinary shares to sanction the modification of class rights
attaching to the ordinary shares that the passing of the third resolution set
out in the notice of extraordinary general meeting (which makes provision for
implementation of the capitalisation issue) would effect.

In view of the fact that Emba is a substantial shareholder in the company and
owns £1,380,980 nominal of convertible loan stock, the Listing Rules require
that the conversion and capitalisation issue be treated as a related party
transaction and approved by an ordinary resolution of the company upon which
Emba does not vote. Accordingly, the first resolution set out in the notice of
extraordinary general meeting (which will be proposed as an ordinary resolution)
provides for approval of the participation by Emba in the conversion and
capitalisation issue. Emba has undertaken not to vote on this resolution. No
associate of Emba (as defined in appendix 1 to the Listing Rules) holds any
convertible loan stock or voting shares of the company.

The second resolution set out in the notice of extraordinary general meeting
(which will be proposed as an ordinary resolution upon which Emba has again
undertaken not to vote) provides for the approval required by the City Code on
Takeovers and Mergers of the increases in the percentage of the voting rights
attaching to the company's share capital held by Emba and persons acting in
concert with it that would result from the conversion and capitalisation issue
and could result from the exercise of warrants held by Emba and such persons as
detailed under 'The City Code on Takeovers and Mergers' above. As stated
thereunder, Emba has undertaken not to vote on this resolution (and no person
acting in concert with Emba owns any voting shares of the company).

The third resolution set out in the notice of extraordinary general meeting
(which will be proposed as a special resolution) makes provision for
implementation of the capitalisation issue by providing for:

  • the articles of association of the company to be amended to permit the
    capitalisation issue to be made to the holders of the new ordinary shares
    arising from the conversion by the allotment to such holders of unissued
    ordinary shares credited as fully paid by way of capitalisation of share
    premium account; and
  • the directors to be authorised to make the capitalisation issue and to
    allot, pursuant to such issue, up to £1,098,178.75 nominal of securities of
    the company (comprising 4,392,715 new ordinary shares and representing 21.8
    per cent of the issued ordinary share capital at the date of the circular)
    pursuant to such issue, such authorisation to expire on 21 October 2005.

Recommendation
--------------
By reason of his family's interest in Emba and the fact that he is to be treated
as acting in concert with Emba, Mr R M Robinow, the chairman of the company, has
taken no part in any decision of the directors concerning the recommendations to
be made by the board to shareholders concerning the first resolution set out in
the notice of the extraordinary general meeting convened for 12 September 2005
(which provides for approval of the participation by Emba in the conversion and
capitalisation issue) or the second resolution set out in such notice of meeting
(which provides for approval of (i) the increase in the percentage interest in
the voting rights attaching to the share capital of the company held by Emba
that would result from implementation of the conversion and capitalisation issue
and (ii) the increase in the percentage interest in such voting rights held by
Emba and persons acting in concert with it that could result from the exercise
of warrants held by Emba and such persons). As noted above, Emba will abstain
from voting on such first and second resolutions.

The independent directors (being all the directors other than Mr R M Robinow),
who have been so advised by Canaccord, consider the participation of Emba in the
proposals to be fair and reasonable so far as convertible loan stock holders,
warrant holders, holders of ordinary shares and holders of preference shares are
concerned.

The independent directors also consider, having been so advised by Canaccord,
that the terms of the proposals and of the waiver by the Panel on Takeovers and
Mergers of the bid requirements of Rule 9 of the City Code with regard to (i)
the increase in the percentage interest in the voting rights attaching to the
share capital of the company held by Emba that would result from implementation
of the conversion and capitalisation issue and (ii) the increase in the
percentage of such voting rights held by Emba and persons acting in concert with
it that could result from the exercise of warrants held by Emba and such persons
to be fair and reasonable and in the best interests of convertible loan stock
holders, warrant holders, holders of ordinary shares and holders of preference
shares.

In providing their advice as referred to above, Canaccord has taken into account
the commercial assessments of the directors.

All the directors are of the opinion that the proposals are in the best
interests of convertible loan stock holders, warrant holders, holders of
ordinary shares and holders of preference shares as a whole.

Accordingly the board recommends that:

  • warrant holders vote in favour of the resolution set out in the notice
    of the meeting of warrant holders convened for 12 September 2005
  • convertible loan stock holders vote in favour of the resolution set out
    in the notice of the meeting of convertible loan stock holders convened for
    12 September 2005
  • holders of ordinary shares vote in favour of the resolution set out in
    the notice of the class meeting of holders of ordinary shares convened for
    12 September 2005
  • shareholders vote in favour of the three resolutions set out in the
    notice of the extraordinary general meeting.

The independent directors (and persons connected with them within the meaning of
section 346 of the Companies Act 1985) intend to vote in favour of the first and
second resolutions set out in the notice of the extraordinary general meeting in
respect of their own beneficial holdings which amount in aggregate to 714,810
ordinary shares (representing 3.5 per cent of the issued ordinary share capital
of the company). All directors (and persons so connected with them) intend to
vote in favour of all other resolutions referred to above in respect of their
own beneficial holdings which amount in aggregate to 137,900 warrants
(representing 8.9 per cent of the warrants in issue), £95,125 nominal of
convertible loan stock (representing 3.1 per cent of the outstanding convertible
loan stock) and 714,810 ordinary shares (representing 3.5 per cent of the issued
ordinary share capital of the company).

Emba has undertaken to vote in favour of the resolutions set out in the notices
of the meetings of warrant holders and convertible loan stock holders and of the
class meeting of ordinary shareholders, and in favour of the third resolution
set out in the notice of the extraordinary general meeting in respect of its
holdings of 41,420 warrants (representing 2.7 per cent of the warrants in
issue), £1,380,980 nominal of convertible loan stock (representing 45.3 per cent
of the outstanding convertible loan stock) and 7,203,983 ordinary shares
(representing 35.8 per cent of the issued ordinary share capital of the
company).

Trustee
-------
The Law Debenture Trust Corporation p.l.c. as trustee (the 'Trustee') for the
holders of the convertible loan stock has not been involved in the formulation
of the company's proposals outlined in the circular and, in accordance with
normal practice, expresses no opinion as to the merits of the passing of the
extraordinary resolution set out in the notice convening the meeting of
convertible loan stock holders. The Trustee has, however, authorised it to be
stated that on the basis of the information contained in the circular and the
terms of the extraordinary resolution set out in the notice convening the
meeting of convertible loan stock holders, it has given consent to the issue of
such notice, and of the circular of which the notice forms a part, to inter
alia, holders of the convertible loan stock, and has no objection to the
information contained therein being presented to the holders of the convertible
stock for their consideration.

Further information
-------------------
Copies of the circular and of the dollar note prospectus will be available for
inspection at the Document Viewing Facility of the UK Listing Authority up to
and including the date of the extraordinary general meeting convened for 12
September 2005 and may be obtained free of charge from the company at its
registered office, Third Floor, 40-42 Osnaburgh Street, London NW1 3ND. Copies
of the circular and of the dollar note prospectus are also being placed on the
company's website at www.rea.co.uk.

Expected timetable
------------------
Latest time and date for receipt of proxies for use in connection  10.15 am on
with the meeting of warrant holders                               10 September
                                                                          2005

Latest time and date for receipt of proxies for use in connection  10.20 am on
with the meeting of convertible loan stock holders                10 September
                                                                          2005

Latest time and date for receipt of proxies for use in connection  10.25 am on
with the class meeting of holders of ordinary shares              10 September
                                                                          2005

Latest time and date for receipt of proxies for use in connection  10.30 am on
with the extraordinary general meeting                            10 September
                                                                          2005

Meeting of warrant holders                                         10.15 am on
                                                                  12 September
                                                                          2005

Meeting of convertible loan stock holders                          10.20 am on
                                                                  12 September
                                                                          2005
Class meeting of holders of ordinary shares                        10.25 am on
                                                                  12 September
                                                                          2005

Extraordinary general meeting                                      10.30 am on
                                                                  12 September
                                                                          2005

Record date                                                       12 September
                                                                          2005

CREST accounts credited in respect of new ordinary shares issued  13 September
pursuant to the conversion                                                2005

Proposals fully unconditional                                     14 September
                                                                          2005

CREST accounts credited in respect of dollar notes issued         14 September
pursuant to the conversion and new ordinary shares issued                 2005
pursuant to the capitalisation issue

Definitive share certificates despatched in respect of new        21 September
ordinary shares and dollar notes issued pursuant to the conversion        2005
and capitalisation issue

Enquiries
---------
John Oakley
R.E.A. Holdings plc 020 7419 0100

Definitions
-----------
Unless the context otherwise requires, the following definitions apply
throughout this press release

'board' or         the directors of the company
'directors'

'Canaccord'        Canaccord Capital (Europe) Limited

'capitalisation    the proposed capitalisation issue of up to 4,392,715 new
issue'             ordinary shares to be allotted, credited as fully paid, to
                   the holders of the new ordinary shares arising pursuant to
                   the conversion on the effective proportionate basis of 144
                   new ordinary shares for every £100 nominal of convertible
                   loan stock held, such shares to be allotted credited as fully
                   paid by way of capitalisation of share premium account

'company' or       R.E.A. Holdings plc
'REA'

'conversion'       the proposed conversion of the outstanding convertible loan
                   stock on the proportionate basis of 20 new ordinary shares
                   and $163 nominal of dollar notes for every £100 nominal of
                   convertible loan stock held

'conversion and    the conversion and the capitalisation issue which would
capitalisation     together result in the exchange of the outstanding
issue'             convertible loan stock for new ordinary shares and dollar
                   notes on the proportionate basis of 164 new ordinary shares
                   and $163 nominal of dollar notes for every £100 nominal of
                   convertible loan stock held

'convertible loan  the £3,050,497 nominal of 4 per cent convertible loan stock
stock'             2012 of the company currently in issue

'dollar notes'     $30,000,000 nominal of 7.5 per cent dollar notes 2012/14 of
                   the company of which up to $4,972,310 nominal is proposed to
                   be issued pursuant to the conversion and the balance (ranking
                   pari passu and forming a single issue therewith) is proposed
                   to be issued for cash or other appropriate consideration, as
                   required and as markets permit, over a period of up to four
                   years

'Emba'             Emba Holdings Limited

'group'            the company and its subsidiaries

'latest dollar     the exchange rate of £1=$1.81 ruling on 15 August 2005, the
sterling rate'     latest practicable date prior to the publication of the
                   circular

'Listing Rules'    the listing rules of the Financial Services Authority

'London Stock      London Stock Exchange plc
Exchange'
'Makassar'         Makassar Investments Limited, a member of the group

'MEZ group'        Mr M E Zukerman and entities associated (or understood to be
                   associated) with him, including Bodley Investment Company, M.
                   E. Zukerman & Co. Incorporated, M. E. Zukerman Investments
                   Limited and The Zukerman Family Trust, or, where the context
                   so requires, any one or several of such individual and
                   entities

'MEZ group         actual and threatened claims by the MEZ group against the
claims'            company, certain of its directors and MP as described under
                   'MEZ group claims' in Part VIII of the dollar note prospectus
                   or, where the context so requires, any one or several of such
                   claims

'MP'               Makassar Participation plc, a member of the group

'new ordinary      up to 5,002,815 new ordinary shares proposed to be issued
shares'            pursuant to the conversion and capitalisation issue

'Official List'    the list maintained by the Financial Services Authority in
                   accordance with section 74(1) of the Financial Services and
                   Markets Act 2000
'ordinary          ordinary shares of 25p each in the capital of the company
shares'

'preference        9 per cent cumulative preference shares of £1 each in the
shares'            capital of the company

'proposals'        the proposals, details of which are set out in the circular,
                   for (i) the conversion and capitalisation issue, and (ii) the
                   creation of additional dollar notes

'shareholders'     holders of ordinary shares and/or preference shares

'warrants'         the 1,548,807 warrants of the company currently in issue,
                   each entitling the holder to subscribe for one ordinary share
                   at a price of 73.5p either in cash or by surrender of 0.735
                   preference shares




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