Open Offer

R.E.A.Hldgs PLC
26 April 2002

Summary

R.E.A. Holdings plc ('the company') announces the acquisition of the ordinary
share capital of MPL and preference shares in the capital of MPL (and thereby
further shares in the capital of Makassar), resulting in the company owning
(directly and indirectly) some 51 per cent of the current issued ordinary share
capital of Makassar and some 73 per cent of the voting share capital of
Makassar. The company further announces proposals involving:

  • the subscription by the company and MPL of further Makassar ordinary
    shares which REA proposes be issued pursuant to a rights issue to be
    undertaken by Makassar;
  • the raising of $5.5 million of the funding that the subscription referred
    to above would require by way of an underwritten open offer of £3.8 million
    nominal 4 per cent convertible loan stock 2012 of the company to be issued
    at par;
  • the proposed sale by the company of its remaining 25 per cent equity
    interest in DTC, which was previously announced on 26 June 2001 but which
    remains conditional upon shareholder approval; and
  • a proposed share option for John Oakley.

Successful completion of the proposals will further REA's strategy of basing the
future of the group on the East Kalimantan project and is expected to increase
the potential for the project to go forward on a sound financial footing.

As implementation of the above will require various shareholder approvals, a
notice is set out at the end of an explanatory circular (expected to be
despatched to shareholders and warrant holders today) (the 'circular') convening
an extraordinary general meeting of the company for 10.00 am on 22 May 2002 for
the purpose of considering, inter alia, the resolutions necessary to provide
such shareholder approvals.

Background

The East Kalimantan project has, over recent years, come to represent an ever
increasing proportion of the group's assets, to the extent that the project is,
today, the only significant remaining operating component of the group.

Initiated in 1989, the East Kalimantan project has been developed under the
direct ownership of REA Kaltim, which is 95 per cent owned by Makassar. The
early finance for the project was derived from the issue to REA and the MEZ
group (split, as nearly as possible, equally between the two) of ordinary and
founder shares in Makassar and the issue to third party investors of preferred
shares in Makassar (coupled with detachable warrants to subscribe ordinary
shares, which have now expired). This early finance was later augmented by
further issues of ordinary shares of Makassar to existing shareholders (equally
between REA and the MEZ group) and by bank loans of $29.5 million (£20.4
million) sourced by REA Kaltim from within Indonesia.

In mid 1997, economic destabilisation in many parts of South East Asia was
followed by political destabilisation in Indonesia. As a result, much of the
Indonesian banking industry became insolvent and, for a while, it became
virtually impossible to raise debt finance for investment in Indonesia from
conventional financing sources. Faced with this problem, the directors of REA
Kaltim agreed that the then planned further expansion of the East Kalimantan
project should be postponed until such time as cash flow from development
already in hand permitted its resumption and that, in the meanwhile, efforts
should be made to complete development works that had already been started.

In support of this decision, REA and the MEZ group agreed to provide further
financial assistance to the project (but on terms that the provision of such
assistance would be subject to regular review in the light of political and
economic developments in Indonesia and progress of the project). This led, over
the period from 1998 to the end of 2000, to REA and the MEZ group providing
substantial support to the project, both directly and indirectly. The direct
support comprised $13.25 million (£9.14 million) of loans to REA Kaltim with
half provided by REA and half by the MEZ group. The indirect support comprised
backing for the Commerzbank loan, with REA taking a $5.5 million cash
participation in tranche B and the MEZ group providing a $5.5 million guarantee
in respect of tranche A.

Also over the period from 1998 until the end of 2000, REA Kaltim sought the
support of its local bankers for a rescheduling of its local bank indebtedness
and was successful in negotiating a two year postponement of the capital
repayments on the local bank loans that had originally been due in 2000 and
2001. Whilst this considerably assisted REA Kaltim's cash flow, the benefit of
the postponement was offset by two negative factors: a slower than expected
build up in crops following the effects of the El Nino weather phenomenon in
late 1997 and 1998 and thereafter a fall in crude palm oil prices over the
remainder of the period.

Against this background and with the decline in crude palm oil prices continuing
into the early months of 2001, in February 2001 REA Kaltim approached its local
bankers for a second rescheduling of its local bank indebtedness, now involving
not only a further postponement of capital repayments but also a reduction in
interest payable. At the same time, with the concurrence of REA and the MEZ
group and pending a debt rescheduling agreement, REA Kaltim ceased paying
interest on its local bank indebtedness, on the Commerzbank loan and on the
direct loans owed by it to REA and the MEZ group. REA Kaltim appointed the
Jakarta office of PricewaterhouseCoopers to act as its financial adviser for the
purposes of the debt rescheduling negotiations.

Regrettably, the foregoing developments were accompanied by difficulties in the
relationship between REA and the MEZ group. REA had understood that the MEZ
group would join REA in committing a further $3 million (£2.1 million) of loan
funding to REA Kaltim during 2001 (to be provided as to half each by REA and the
MEZ group). However, in January 2001 the MEZ group did not meet a request from
REA Kaltim for funds. Following discussions in February 2001, the MEZ group
agreed to reconsider its position and resumed funding of one half of REA
Kaltim's cash requirements on an ad hoc basis (with REA remaining committed to
meet the other half of such requirements). This was unsatisfactory because it
left REA and REA Kaltim at all times uncertain as to whether further calls for
funding from the MEZ group would be met. REA accepted the situation in the
anticipation that a reconciliation of views would prove possible.

Then, in May 2001, on the basis of REA Kaltim's cessation of interest payments
on tranche B of the Commerzbank loan, Commerzbank declared tranche A of the
Commerzbank loan as due and payable. When REA Kaltim failed to repay the
principal demanded, Commerzbank called on the guarantee issued by the MEZ group.
(Pursuant to the agreement under which REA took a full cash participation in
tranche B of the Commerzbank loan, Commerzbank could not call tranche B without
REA's agreement.) Following the call on the guarantee, the MEZ group commenced
proceedings in New York against Commerzbank seeking a declaratory judgement that
Commerzbank had no right, on the basis of the default on tranche B of the
Commerzbank loan, to accelerate the MEZ group guarantee of tranche A of the
Commerzbank loan, tranche A then being fully current as to principal and
interest.

In late May 2001, the MEZ group again did not meet requests from REA Kaltim for
further loan funds and for a short while the funding requirements of REA Kaltim
were met by advances from REA without matching advances being made by the MEZ
group. In July 2001, REA wrote to Makassar indicating that it was unwilling to
continue to provide loans on a unilateral basis to meet the entire funding needs
of REA Kaltim. It proposed a rights issue by Makassar (to be underwritten by REA
and, if the MEZ group should so wish, the MEZ group on an equal basis) to meet
these needs. This proposal was not followed through due to the fact that the MEZ
group resumed its funding of REA Kaltim. Such resumption of funding continued
until September 2001. Thereafter, further requests for funding from REA Kaltim
were accepted by REA but declined by the MEZ group. As a result, the further
loans made to REA Kaltim in 2001 by REA amount to $1.95 million (£1.35 million)
and those made by the MEZ group to $1.55 million (£1.07 million).

Against the backdrop of the above circumstances, REA Kaltim continued to
formulate proposals for the restructuring of its indebtedness. In May 2001,
following discussions with REA, the MEZ group and REA Kaltim's principal bankers
and a review of REA Kaltim's financial position and prospects,
PricewaterhouseCoopers suggested that REA Kaltim's indebtedness might be
rescheduled on a basis that would result in the interest payable on REA Kaltim's
local bank borrowings being reduced and capital repayments on those borrowings
being further postponed but with all servicing of indebtedness to REA and the
MEZ group ceasing until the local indebtedness had been discharged.

REA broadly accepted PricewaterhouseCoopers' suggestions as these related to REA
 Kaltim's local bank indebtedness but proposed that all indebtedness of REA
Kaltim should be treated on an equal basis so that whatever terms were agreed
between REA Kaltim and its local bankers, substantially the same terms (as to
current interest and capital repayments) would apply to indebtedness to
Commerzbank and to REA and the MEZ group. On that basis, REA indicated that it
would support the REA Kaltim debt rescheduling proposals and, subject to
appropriate conditions, would assist in providing or procuring the additional
funding that REA Kaltim would require for implementation of those proposals.

The MEZ group expressed reservations about the possibility of a significant
increase in debt as a consequence of these funding proposals and proposed that
REA Kaltim should instead explore the sale of part of its assets to attempt to
pay down the existing debt and / or to negotiate an exchange of part of the bank
debt for notes with minimal or nil current debt service requirements and a five
year maturity. The MEZ group also sought a commitment from REA Kaltim to
increase the rate of deferred interest payable on the loans to REA Kaltim made
by REA and the MEZ group and of deferred consideration payable in respect of the
support for the Commerzbank loan given by REA and the MEZ group, so as to
increase the current and deferred cost to REA Kaltim of its loans from REA, the
MEZ group and Commerzbank from 15 per cent to 30 per cent per annum.

With a divergence of views between REA and the MEZ group, attempts were made by
the directors of Makassar, between August and early October 2001, to agree board
resolutions to provide a way forward for Makassar and REA Kaltim. At that time,
the directors of Makassar comprised Richard Robinow, the chairman of REA, Morris
 Zukerman, of the MEZ group, and David Killick, an independent director. As the
discussions between the Makassar directors progressed, REA became increasingly
concerned that the Makassar board resolutions that were being contemplated would
serve only to paper over fundamental differences of view, would not ensure the
continued solvency of Makassar and REA Kaltim and might if anything lead to a
greater paralysis of decision making in relation to the affairs of Makassar and
REA Kaltim.

Accordingly, REA exercised its right as a substantial shareholder in Makassar to
require that an extraordinary general meeting of Makassar shareholders be
convened for the purposes of considering the appointment of two REA directors,
Charles Letts and John Oakley, as additional directors of Makassar. The Makassar
meeting was held on 20 November 2001. REA was supported by all non-founder
Makassar shareholders with the result that Charles Letts and John Oakley were
duly appointed as directors of Makassar.

On the day of the Makassar meeting of 20 November 2001, the MEZ group served
notice of the commencement of legal proceedings in New York against REA and
Richard Robinow and John Oakley personally on various grounds based on an
alleged breach of a purported oral contract between REA and members of the MEZ
group that REA would cause Makassar and / or REA Kaltim to pay a return of 30
per cent per annum on monies lent to REA Kaltim by, or with the support of, the
MEZ group. As REA entered into no such agreement, the directors of REA consider
that the proceedings are without foundation and, on the basis of legal advice
received, REA, Richard Robinow and John Oakley have filed a motion to have the
claims by the MEZ group dismissed in their entirety. Further information
regarding the claims is set out in the circular.

The difficulties in the relationship between REA and the MEZ group proved a
complication in the debt rescheduling discussions being conducted by REA Kaltim,
as there was disagreement on the form and terms of the rescheduling proposed.
The discussions nevertheless continued throughout 2001. A memorandum of
understanding dated as of 31 December 2001 was signed by REA Kaltim and all
except one of its local bankers, and subsequent negotiations to date have
progressed formalisation of the proposed rescheduling arrangements contemplated
by the memorandum of understanding. Further details of the proposed rescheduling
arrangements are provided under 'Funding of Makassar and refinancing of REA
Kaltim' below.

Necessary pre-requisites to completion of the proposed REA Kaltim rescheduling
arrangements are the provision to REA Kaltim of new funding sufficient to
finance its business following implementation of the rescheduling arrangements
and satisfaction of certain other conditions as described under 'Funding of
Makassar and refinancing of REA Kaltim' below. The open offer and the Makassar
rights issue are intended to assist REA Kaltim to meet these pre-requistes.

Acquisition of MPL

The issued share capital of Makassar currently comprises 6,881 preferred shares,
8,663 ordinary shares and four founder shares. 8,485 of the ordinary shares and
all of the founder shares are owned by REA and the MEZ group (split, as nearly
as possible, equally between them). The balance of 178 ordinary shares and all
of the preferred shares were, until earlier today, held by the non-founder
Makassar shareholders.

Pursuant to the MPL formation agreement, signed and completed earlier today, MPL
acquired all of the Makassar shareholdings of the non-founder Makassar
shareholders. The consideration for the acquisition of the 178 Makassar ordinary
shares was, in effect, the issue by MPL, credited as fully paid, of the same
number of ordinary shares in the capital of MPL. The consideration for the
acquisition of the 6,881 Makassar preferred shares was the issue by MPL,
credited as fully paid, of the same number of preference shares in the share
capital of MPL.

In effect, the foregoing means that the non-founder Makassar shareholders
exchanged their ordinary and preferred shares in the capital of Makassar for
ordinary and preference shares in the capital of MPL on a one for one basis. The
assets of MPL comprise the 178 Makassar ordinary shares and 6,881 Makassar
preferred shares acquired from the non-founder Makassar shareholders and the
issued share capital of MPL comprises 178 ordinary shares and 6,881 preference
shares. The rights, in economic terms, of the MPL preference shares mirror, in
all material respects, the rights, in economic terms, of the Makassar preferred
shares but the MPL preference shares do not, in normal circumstances, carry any
right to vote at general meetings of MPL shareholders.

Pursuant to the MPL acquisition agreement, also completed earlier today
immediately following completion of the MPL formation agreement, REA acquired
all of the issued ordinary shares and 2,753 of the issued preference shares in
the capital of MPL. The consideration for the acquisition of the ordinary shares
was the issue of $85,440 nominal REA loan notes in aggregate (equivalent to $480
nominal of REA loan notes per MPL ordinary share). The consideration for the
preference shares was satisfied by the issue, credited as fully paid, of 300,077
REA ordinary shares in aggregate (equivalent to 109 REA ordinary shares per MPL
preference share), conditional upon such shares being admitted to the Official
List and to trading on the London Stock Exchange market for listed securities.
If such conditions are not satisfied by 30 April 2002, the consideration will be
satisfied by an aggregate cash payment of £151,415.

MPL is thus now a subsidiary of REA, and REA and MPL now own some 51 per cent of
the issued ordinary share capital and all of the issued preferred share capital
of Makassar (together representing some 73 per cent of the voting share capital
of Makassar).

With a view to treating all Makassar shareholders fairly and equally, REA
intends to inform Makassar that REA would be willing, if the MEZ group should so
wish, to acquire all of the Makassar shares owned by the MEZ group (including
any new Makassar ordinary shares subscribed by the MEZ group pursuant to the
Makassar rights issue referred to under 'Funding of Makassar and refinancing of
REA Kaltim' below) for a consideration per share equivalent to that paid to the
non-founder Makassar shareholders as respects each Makassar ordinary share held
by them pursuant to the MPL formation agreement and the MPL acquisition
agreement taken together. Any such acquisition would be subject to the receipt
by REA of shareholder approval as required by the Listing Rules. Should the MEZ
group enter into an agreement with REA for such sale and purchase, REA will
write again to shareholders to advise them of such agreement and to convene an
extraordinary general meeting to consider a resolution to approve the agreement.
Upon completion of any such agreement REA and MPL would together own the whole
of the issued share capital of Makassar.

Funding of Makassar and refinancing of REA Kaltim

As explained under 'Background' above, in February 2001 REA Kaltim stopped
paying interest on all of its indebtedness and commenced debt rescheduling
negotiations. REA Kaltim signed a memorandum of understanding dated as of 31
December 2001 with all but one of its local bankers, and subsequent negotiations
to date have progressed formalisation of the rescheduling arrangements
contemplated by the memorandum of understanding, to the extent that a term sheet
to give effect to and succeed the memorandum of understanding was issued on 18
April 2002 by the steering committee representing all the local bankers to those
local bankers for agreement by them.

The following table (of which the component figures have been extracted without
material adjustment from the consolidation schedules used to prepare the audited
consolidated accounts of the company for the year ended 31 December 2001)
provides an analysis of the indebtedness of REA Kaltim (excluding accrued
interest and guarantee fees) as at 31 December 2001
                                                                              $'m           £'m
Local Indonesian bank loans                                                  29.5          20.4
Commerzbank loan                                                             11.0           7.6
Shareholder loans                                                            16.8          11.6
                                                                            _____         _____
                                                                             57.3          39.6
                                                                            _____         _____

The Commerzbank loan is supported as to $5.5 million by a cash participation
provided by REA and as to $5.5 million by a guarantee from the MEZ group.
Shareholder loans have been provided as to $8,575,000 (£5,917,000) by REA and as
to $8,175,000 (£5,641,000) by the MEZ group.

The proposed rescheduling agreement between REA Kaltim and its local bankers
envisages a general rearrangement of REA Kaltim's indebtedness under which all
existing lenders to REA Kaltim will reduce (with retrospective effect from April
 2001) the current interest payable on their loans to SIBOR plus 2.75 per cent
(capped until at least 31 December 2001 at 5 per cent) and will grant a
moratorium on capital repayments until June 2004.

As a first condition of the proposed rescheduling agreement, REA Kaltim must
source a minimum of $4.25 million of new funding, which is projected to be
needed to finance REA Kaltim's servicing of its rescheduled debt and continuing
operational requirements. In the case of the operational requirements, this
includes provision for extension of the capacity of the existing oil mill from a
present 30 tonnes per hour to a level of 80 tonnes per hour by 30 June 2003.

As further conditions of the proposed rescheduling agreement, REA Kaltim must
secure support for the contemplated rearrangement of its indebtedness from
Commerzbank and from lenders to REA Kaltim (including REA Kaltim's local bankers
and Commerzbank) holding not less than two thirds by value of outstanding REA
Kaltim loans.

To provide REA Kaltim with the $4.25 million of new funding that the proposed
rescheduling agreement demands, facilitate arrangements to secure support from
Commerzbank and other lenders for the proposed restructuring and place the
finances of Makassar and REA Kaltim on a more secure footing, REA intends to
requisition, as soon as reasonably practicable following the posting of this
document, an extraordinary general meeting of Makassar to put to Makassar
shareholders the special resolutions necessary to effect a rights issue by
Makassar to raise up to $11 million, on the basis of 2.6454 new Makassar
ordinary shares for each existing Makassar ordinary share at $480 per share.
Under Jersey law, such special resolutions require a two thirds majority.

REA proposes that the Makassar rights issue would not be underwritten but REA
and MPL intend, conditional upon the receipt of the necessary REA shareholders'
approvals and upon the open offer becoming unconditional, to take up their
entitlements, thereby ensuring Makassar proceeds of at least $5.6 million. Such
amount is, in the opinion of the directors, the minimum amount required by
Makassar to provide a reasonable expectation that the proposed rescheduling
agreement can be successfully finalised. Subscription by the MEZ group of some
or all of its entitlements pursuant to the Makassar rights issue would
strengthen such expectation and would also further the objective of placing the
finances of Makassar and REA Kaltim on a more secure footing. As explained under
'Use of proceeds' below, REA would fund the subscription by it and MPL of new
Makassar ordinary shares, together with the costs of the open offer, from a
combination of the proceeds of the open offer and its existing cash resources.

REA also intends that the extraordinary general meeting of Makassar shareholders
requisitioned by it should consider a special resolution which, if passed, would
confer authority on the directors of Makassar to allot in the future, at their
discretion, for cash or assets any Makassar ordinary shares not taken up by
holders of Makassar ordinary shares pursuant to the Makassar rights issue,
without the need to re-offer such shares to holders of Makassar ordinary shares.
REA's intention in so requiring is to provide Makassar with flexibility to
secure that, if the Makassar rights issue is not fully subscribed, any shortfall
on the increase in the equity base of Makassar that full subscription would have
achieved may, in due course, be made up by other means.

The open offer

The company is seeking to raise £3.8 million by inviting subscription of an
aggregate of £3.8 million nominal convertible stock. Pursuant to the open offer,
qualifying holders are being invited to subscribe convertible stock at par
payable in full on application on the following basis:

27p nominal convertible stock for each ordinary share; and

27p nominal convertible stock for each warrant;

held at the close of business on 24 April 2002 and so in proportion for any
other number of ordinary shares and warrants then held. Entitlements to
convertible stock will be rounded down to the nearest whole £1.00.

Qualifying holders may also apply for convertible stock in excess of their pro
rata entitlements up to the maximum aggregate amount of £3.8 million.
Applications for additional convertible stock will be accepted only to the
extent that pro rata entitlements are not taken up in full by qualifying holders
and will be subject to scaling back.

The open offer is conditional, inter alia, upon the passing of the necessary
resolutions in general meeting, upon the admission of the convertible stock to
the Official List and upon the convertible stock being admitted to trading on
the London Stock Exchange market for listed securities becoming effective, in
each case by not later than 8.00 a.m. on 30 November 2002. Further details of
the open offer, including the conditions thereof, are set out in the circular
and in the application forms which accompany it.

Subscription monies received from qualifying holders will be paid into a
separate interest bearing bank account maintained by the company with The Royal
Bank of Scotland plc. If the open offer is not unconditional by 31 May 2002, REA
will account to qualifying holders for the interest earned on such account, at
the same time as it either despatches definitive certificates in respect of the
convertible stock or returns the application monies.

Conversion of the convertible stock into ordinary shares would result in the
issue of 7,169,811 new ordinary shares (representing approximately 37 per cent
of the issued ordinary share capital of REA as enlarged by such conversion).

Application will be made to the UK Listing Authority for the 4 per cent
convertible loan stock 2012 of REA proposed to be issued pursuant to the open
offer to be admitted to the Official List. Application will also be made to the
London Stock Exchange for the convertible stock to be admitted to trading on its
market for listed securities.

Particulars of the convertible stock

The convertible stock will be created by a resolution of the board and
constituted by a trust deed to be executed by (1) REA, (2) MPL and (3) The Law
Debenture Trust Corporation p.l.c. as trustee. Holders of the convertible stock
will be entitled to the benefit of, and be bound by and be deemed to have notice
of, all of the provisions of the trust deed.

The convertible stock will be issued in registered form in amounts and integral
multiples of £1.00, and will bear interest at the rate of 4 per cent per annum,
payable half yearly in arrears on 30 June and 31 December. The convertible stock
will be convertible, at the option of stockholders, into ordinary shares on the
basis of one such share for every 53p nominal of convertible stock.

In the unlikely event that REA is placed into insolvent liquidation as a result
of the claims made by the MEZ group against REA, then the convertible stock
will, after payment of any outstanding fees due to and any liabilities of the
trustee, convert into ordinary shares in the capital of MPL, on the basis of one
such share for every £331 nominal of convertible stock, resulting in the issue
of up to an aggregate of 11,480 ordinary shares in the capital of MPL. To
protect such conversion rights, the convertible stock will be secured, until
such time as the claims by the MEZ group are settled or finally determined,
inter alia by way of a first fixed charge in favour of the trustee (on behalf of
the stockholders) over the debt owed by MPL to REA arising as a result of the
£3.8 million loan to be made by REA to MPL as described under 'Use of proceeds'
below.

Unless previously redeemed or converted or purchased by REA, the convertible
stock will be redeemed at par on 31 December 2012 together with accrued interest
to the date of redemption.

Your attention is drawn to the further details of the terms of the convertible
stock set out in the circular.

Commitments in respect of the open offer

The directors (together with persons connected with them within the meaning of
section 346 of the Companies Act 1985) intend to take up their entitlements to
convertible stock under the open offer to the extent of not less than £140,000
nominal of convertible stock in aggregate (representing 3.7 per cent of the
convertible stock).

Pursuant to the underwriting agreement, the company has concluded arrangements
with Emba, the company's largest shareholder, and Agusan to provide assurance
that, subject to satisfaction of the conditions of the open offer, all
convertible stock will be subscribed at the open offer subscription price. Under
the arrangements, Emba has undertaken that it will take up its pro rata
entitlement to £1,534,959 nominal convertible stock under the open offer in
full, and Emba and Agusan have committed to subscribe for all convertible stock
not taken up by qualifying holders. The arrangements are structured in such a
manner as to ensure that at least $2 million (£1.4 million) nominal of the
convertible stock will be acquired by Agusan (this being a condition of Agusan's
willingness to participate in the underwriting of the open offer), and that the
overall obligations of Emba and Agusan will not exceed respectively $3 million
(£2.1 million) and $2.5 million (£1.7 million). Agusan may sub-underwrite a
proportion of its obligations pursuant to the underwriting agreement.

The company has also concluded arrangements with Emba whereby the sterling
proceeds of the subscription by Emba for its pro rata entitlement to convertible
stock, namely £1,534,959, will be converted into $2,224,462, and with Emba and
Agusan whereby the sterling proceeds of between a further £3.0 million and £3.4
million of the proceeds of the open offer (the exact amount being dependent upon
the level of subscriptions by qualifying holders under the open offer) will be
converted into between $4.4 million and $4.9 million. The exchange rate agreed
between the company, Emba and Agusan for these arrangements is £l =$1.4492,
being the closing rate on 24 April 2002, the latest practicable date before the
publication of this document, and the rate by reference to which the company's
US dollar funding requirement was converted for the purposes of determining the
amount to be raised under the open offer. The company already holds $600,000.
Accordingly, most if not all of any exchange risk in securing the monies that
the company and MPL expect to require as described under 'Use of proceeds' below
is covered.

Agusan is a private company incorporated in the Philippines. The principal
activity of Agusan is that of cultivation of oil palm in Agusan Del Sur,
Mindanao, Philippines. Currently, the planted area of the plantation is about
1,850 hectares of fully matured oil palm trees. In addition, Agusan provides
agricultural and management services to other oil palm plantations and has a 60
per cent interest in Agumil Philippines Inc, which owns and operates a palm oil
mill in Trento, Agusan Del Sur. The total assets of Agusan, as extracted without
change, from the statutory accounts at 31 December 2000, was Philippine Pesos
96.6 million.

Use of proceeds

REA will lend the proceeds of the open offer of £3.8 million to MPL, with REA's
right to repayment of such monies constituting the security for the convertible
stock to the limited extent described under 'Particulars of the convertible
stock' above. REA will meet the expenses of the open offer (expected to amount
to £630,000) out of its own resources. MPL will agree to accept $5.5 million in
satisfaction of the £3.8 million to be lent to it by REA.

If the Makassar rights issue proceeds, MPL will apply $226,080 of the loan
monies in taking up its entitlement to Makassar ordinary shares under the
Makassar rights issue and will lend the balance of the loan $5,273,920 back to
REA, on terms that REA apply the same, together with $113,600 of its existing
cash balances, in subscribing in full its entitlement to Makassar ordinary
shares under the Makassar rights issue.

REA will then repay this $5,273,920 loan from MPL, as to $160, in cash, and as
to the balance, by transferring 10,987 Makassar ordinary shares, at $480 per
share, to MPL. REA will also sell to MPL, a further 237 Makassar ordinary
shares, at $480 per share, with the consideration of $113,760 to be settled as
to $160 in cash with the balance of $113,600 remaining outstanding by way of
intra-group loan. Emba and Agusan have informed the company that if these
arrangements had not been put in place, they would not have been willing to
accept the obligations assumed by them under the underwriting agreement.

The percentage of the ordinary share capital and of the voting share capital of
Makassar which REA and MPL would together own following completion of the
Makassar rights issue will depend upon the extent to which the MEZ group takes
up its entitlements pursuant to the Makassar rights issue. In the event that the
Makassar rights issue proceeds and the MEZ group chooses not to take up its
rights entitlements, REA and MPL would together own 79 per cent of the ordinary
share capital and 84 per cent of the voting share capital of Makassar (assuming
no redemption of the Makassar preferred shares in the interim period). To the
extent that the Makassar rights issue proceeds and the MEZ group chooses to take
up all or part of its rights entitlements, these percentages would be reduced.
If the MEZ group were to take up its rights entitlements in full, REA and MPL
would together own 51 per cent of the ordinary share capital and 60 per cent of
the voting share capital of Makassar (assuming no redemption of the Makassar
preferred shares in the interim period).

Should the Makassar rights issue not proceed, MPL will place the proceeds of the
open offer lent to it by REA, namely $5.5 million dollars, on deposit to provide
a contingency in relation to further investment in REA Kaltim and/or Makassar.

Sale of DTC

REA announced on 26 June 2001 that it had agreed to sell its remaining 50 per
cent holding in DTC, such sale to be effected pursuant to two agreements.

Pursuant to the first of such agreements, which was unconditional, REA sold half
of its then remaining 50 per cent interest in the share capital of DTC and a
loan balance owed by DTC to REA. In accordance with the revised terms of the
first agreement announced on 22 November 2001, the company has received £600,
000 of a total cash consideration of £850,000 due thereunder (the balance of
£250,000 being payable on revised terms). Following such sale, REA retained 25
per cent of the issued share capital of DTC.

Pursuant to the second agreement, REA agreed conditionally to sell such balance
of 25 per cent of the issued share capital of DTC for a consideration ('the earn
out consideration') equal to 2.5 times the average post tax profits as reported
in the audited accounts of DTC for the seven years ending 31 December 2007. A
payment on account of the earn out consideration is due to be made by the
purchaser on each occasion (on or prior to final settlement) upon which a cash
dividend is paid by DTC, such payment to be of an amount equal to 25 per cent of
such dividend. No payments on account have yet fallen due. Upon determination of
the amount of the earn out consideration (on signing by the auditors of the
audit report in respect of the accounts of DTC for the year ended 31 December
2007) any net under or overpayment of that amount is due to be settled within 28
 days.

The purchaser has the right to elect for early settlement of the earn out
consideration. If it were to make such an election, the method of calculating
the amount of the earn out consideration would be varied so as to base the
calculation on the average of the post tax profits of DTC for the seven calendar
years preceding the date of the election and the final settlement would become
due 28 days following the date of such election.

The directors consider that the value of the 25 per cent interest in DTC to the
company justifies the basis of the price receivable by REA from the purchaser
under the terms of the second agreement. It is proposed that the sale proceeds
be utilised in connection with the East Kalimantan project, save to the extent
of 20 per cent of such proceeds, which REA has agreed to pay to Nigel Newby and
another key member of the DTC management team as an incentive to them to
continue to manage DTC to best advantage following the disposal (and thereby to
increase the consideration payable to REA).

The second agreement is conditional upon satisfying any regulatory requirements
on or prior to 31 December 2007. Since the level of consideration is uncapped,
the Listing Rules require shareholder approval for such a transaction. The
directors have decided to take the opportunity of this circular to shareholders
to seek shareholder approval for the transaction now.

DTC is an English company the entire undertaking of which comprises three tea
estates in Bangladesh. DTC was for many years a wholly owned subsidiary of REA
but REA's interest in the issued share capital of DTC was reduced to 50 per cent
as a result of the divestment of a half interest in DTC in March 1998. Since
that date, DTC has been accounted for as an associated company in the
consolidated accounts of REA. DTC's contribution to the REA's consolidated
trading record (extracted from the audited consolidated accounts of REA) is
summarised below:
                                                                     Year Ended 31 December
                                                                   1999              2000              2001
                                                                   £000              £000              £000
Profit before taxation                                             (58)               (1)                35
Taxation                                                              -               (8)                 -
                                                                  _____             _____             _____
Profit after taxation                                              (58)               (9)                35
                                                                  _____             _____             _____

At 31 December 2001, the interest in DTC included in the consolidated balance
sheet of REA was £507, 000 shown as a trade investment. The interest is shown as
a trade investment and not an associated undertaking as the interest is
considered to be held for resale.

Share option

In recognition of his services to date in connection with the East Kalimantan
project, and as an incentive as regards the future of that project (which, as
stated above, represents the only significant operating component of the group),
the board proposes that John Oakley, a director of the company, be granted an
option to subscribe up to one million ordinary shares at a price equal to the
higher of (i) the market value of an ordinary share on the date of grant of the
option, and (ii) the average of 90 per cent of the market value of an ordinary
share for the 10 dealing days preceding the date of grant exercisable at any
time and from time to time during the period commencing on the second
anniversary of the date of grant and ending on the day preceding the tenth
anniversary thereof, save that in certain limited circumstances the option may
be exercised before the expiry of two years from the date of grant). The benefit
of such proposed option will not be pensionable.

The option will not be transferable, save that it may be exercised following the
death of Mr Oakley (but will lapse if not exercised within 12 months thereof).
The option will also lapse in the event that Mr Oakley should voluntarily resign
in the two years following the date of grant of the option or if he should be
declared bankrupt. In the event of another company acquiring control of the
company as a result of a takeover or reconstruction or in the event of the
voluntary winding up of the company, the option will lapse if not exercised
within a specified period not exceeding six months. In the event of any
variation in the issued ordinary share capital of the company, then the number
of ordinary shares the subject of the option and/or the exercise price may be
adjusted in such manner as the board may determine to be fair and reasonable.

The terms of the option deed may not be altered to the advantage of Mr Oakley
without the prior approval of the company in general meeting except to take
account of changes in legislation or applicable regulations.

A copy of a draft of the deed constituting the share option will be available
for inspection at the registered office of the company until the close of the
extraordinary general meeting of the company convened for 22 May 2002, and at
the place of such extraordinary general meeting for at least 15 minutes prior to
the meeting and during the meeting. The grant of the option is subject to
shareholder approval.

Change of accounting treatment of Makassar

Prior to 2001, REA accounted for Makassar as an associate company. However,
following the appointment on 20 November 2001 of two directors of REA as
additional directors of Makassar, the directors concluded, after discussions
with REA's auditors and having regard to the provisions of FRS 2 'Accounting for
Subsidiary Undertakings', that Makassar and its subsidiary, REA Kaltim, should,
with effect from 20 November 2001, be consolidated in the accounts of REA. The
consolidated accounts of REA for the year ended 31 December 2001 have been
prepared on that basis.

As a consequence of this, Makassar, and its subsidiary REA Kaltim, are included
within the group for the first time for the purposes of the working capital
statement below. The impact of this explains in part the change in the group's
working capital position, since the listing particulars dated 10 April 2001.

Prospects and dividends

The East Kalimantan project already represents almost the whole of the group's
business and implementation of the proposals may increase the group's share of
the project. Thus, the prospects for the group depend entirely on the success of
the East Kalimantan project.

The directors have previously stated their belief that the highly leveraged
relationship between the East Kalimantan project's future revenues and future
levels of crude palm oil prices provides the group with major upside potential
but with the achievement of that upside dependent upon, amongst other things,
surmounting the political risks of Indonesia and the continuing uncertainties
that face the East Kalimantan project. The directors remain of that view but
believe that with a substantial and rising level of crop now being harvested
from the project, the uncertainties inherent in the project are reducing.

Nevertheless, the remaining uncertainties should not be underestimated. Average
palm oil prices may fall below the levels assumed for the purposes of the
proposed REA Kaltim debt rescheduling agreement so that the funding available to
the project may become insufficient to meet REA Kaltim's rescheduled debt
servicing obligations and operational requirements. Notwithstanding the
commitments in principle received, the proposed REA Kaltim debt rescheduling
arrangements may have to be completed on more onerous terms than currently
envisaged or may not be completed at all. The difficulties that have developed
in the relationship between REA and the MEZ group, culminating in the legal
action brought by the MEZ group against REA, may adversely impact on REA Kaltim
with unforeseen consequences.

Any of the eventualities referred to in the preceding paragraph could result in
REA Kaltim requiring more funding than at present available if it is to meet its
obligations as these fall due. Absent alternative arrangements that are not
currently in place, it may be necessary for REA to seek additional funds (equity
or debt) to provide further support to REA Kaltim. Should REA prove unable to
raise sufficient funds to provide such support, REA Kaltim may become insolvent.
In that event, the value of the East Kalimantan project and of REA's interest in
that project is likely to be seriously diminished. Moreover, since the East
Kalimantan project represents the only significant operating component of the
group, the value of REA's shares is likely to be materially adversely affected
and the loss of the project would be likely to render REA unsuitable for
listing.

In order to reduce the risks described above, the directors intend that REA
should support Makassar and REA Kaltim in seeking additional long term finance
to provide REA Kaltim with greater financial resources and to permit REA Kaltim
to refinance its existing loans and sponsor support arrangements from REA and
the MEZ group.

Although present cropping levels and crude palm oil prices should ensure a
significant increase in group turnover in 2002, it must be recognised that such
turnover will have to cover substantially all the costs of operating the 13,200
hectare development in which much of the planting has yet to achieve its full
yield potential. Accordingly, for 2002 at least, unit costs of production must
be expected to be significantly higher than they will be when the existing
development reaches full maturity. The group results for 2002 will reflect this.
2002 crops and cash flows are in line with budgets.

The directors have not recommended the payment of a dividend on the ordinary
shares in respect of 2001 and do not expect to be able to recommend the
re-commencement of ordinary dividends until such time as the East Kalimantan
project is generating sufficient surplus cash.

As respects dividends on the preference shares, the directors previously
indicated that payment of such dividends should be made only out of cash
resources generated from the group's operations, or from the proceeds of
divestment of group assets, and that the directors would have to reflect
carefully before declaring a dividend on the preference shares if payment of
that dividend would have, in effect, to be met out of new money raised from
ordinary shareholders. Consistent with that indication, the directors would have
liked to utilise part of the proceeds of divestment of DTC to fund payment of
preference dividends. However, given the importance of the East Kalimantan
project to the company and its shareholders as a whole, the directors feel that
such funds must be available to meet the expenses of the open offer and the
balance of the monies needed by the company to fund the take-up by it of its own
rights entitlement pursuant to the Makassar rights issue. The directors also
have to have regard to the fact that the company is incurring significant legal
costs in connection with the claims made by the MEZ group.

Accordingly, the directors would not anticipate payment of any dividends on the
preference shares until such time as the cash flow derived by REA from its
interests in the East Kalimantan project is sufficient to cover payment of such
dividends. The semi annual dividend on the preference shares that fell due on 31
 December 2001 has not been paid and, absent as aforesaid and without commitment
to any position beyond 2002, the directors do not foresee that that they will be
in a position to recommend any resumption of preference dividends during the
current year.

The rights of the preference shares provide for accumulation of arrears of
preference dividends so that no entitlement to dividends will be lost by
preference shareholders. However, the directors recognise that many preference
shares are acquired for income and that the postponement of that income is
unsatisfactory.

Working capital

The directors are of the opinion that, taking into account the proceeds of the
open offer, the group does not have sufficient working capital for its present
requirements, that is for at least the 12 months following the date of this
document.

This is because the formal legal documentation relating to the proposed REA
Kaltim debt rescheduling has not yet been finalised and because there are no
legally binding arrangements governing the basis under which the lenders are
continuing to support REA Kaltim pending formal completion of legal
documentation. Accordingly, the availability of committed facilities under the
REA Kaltim debt rescheduling is uncertain. However, the directors are aware that
in Indonesia it is common practice to operate borrowing arrangements for a
considerable time, and sometimes indefinitely, on an informal basis similar to
this. The directors are hopeful that the necessary legally binding documentation
with a sufficient majority of lenders will be in place within three months of
the date of this document. The directors believe that such documentation will be
sufficient having regard to the commercial circumstances and Indonesian law to
ensure continuance of all relevant loans to the company. The company will make
an appropriate announcement in due course.

The directors are of the opinion that, subject to receiving the proceeds of the
open offer and the legal completion of the REA Kaltim debt rescheduling in the
manner envisaged by the directors in the preceding paragraph following
successful implementation of the proposals the group will have sufficient
working capital for its present requirements, that is for at least the 12 months
following the date of this document.

Should the proposed REA Kaltim debt rescheduling not succeed, absent any
alternative arrangements that are not currently in place, REA Kaltim would
become insolvent if it were required to pay all its debts immediately. In that
event, the value of the East Kalimantan project and of REA's interest in that
project could be seriously diminished. Moreover, since the East Kalimantan
project is REA's sole business, the value of REA's shares are likely to be
materially adversely affected and the loss of that business could render REA
unsuitable for listing.

Extraordinary general meeting

Further details of the extraordinary general meeting are set out in the
circular.

Recommendation

The directors consider the proposals to be in the best interests of the company
and shareholders as a whole. Accordingly, the directors will recommend holders
of ordinary shares to vote in favour of the first, second and third resolutions
set out in the notice of the extraordinary general meeting in the circular, as
they intend to do in respect of their own beneficial holdings of 698,972
ordinary shares in aggregate (representing 5.6 per cent of the issued ordinary
share capital of the company).

The directors also consider it to be in the best interests of the company and
its shareholders as a whole that the directors be granted the authorities and
powers referred to in the penultimate and last paragraphs under 'Extraordinary
general meeting' in Part I of the circular. Accordingly, the directors will also
recommend holders of ordinary shares to vote in favour of the fifth and sixth
resolutions set out in the notice of the extraordinary general meeting, as they
intend to do in respect of their own beneficial holdings of 698,972 ordinary
shares in aggregate (representing 5.6 per cent of the issued ordinary share
capital of the company).

The directors (other than John Oakley, who has abstained from voting due to his
interest in the matter) also consider the proposed grant to John Oakley of an
option to subscribe up to one million ordinary shares to be in the best
interests of the company and its shareholders, as a whole. Accordingly, the
directors (other than John Oakley) will also recommend holders of ordinary
shares to vote in favour of the fourth resolution set out in the notice of the
extraordinary general meeting in the circular, as they intend to do in respect
of their own beneficial holdings of 648,462 ordinary shares in aggregate
(representing 5.2 per cent of the issued ordinary share capital of the company).

An undertaking to vote in favour of all of the resolutions set out in the notice
of the extraordinary general meeting has been obtained from Emba in respect of
its holding of 5,656,364 ordinary shares (representing 45.5 per cent of the
issued ordinary share capital of the company).

The circular will be on display at, and copies will be available free of charge
from, the company's solicitors, Ashurst Morris Crisp, at Broadwalk House, 5
Appold Street, London EC2A 2HA from the date the circular is posted up to and
including the date of the meeting referred to in the circular.

Enquiries

Richard Robinow

R.E.A. Holdings plc 020 7419 0100

Leonie Grimes, David Kent

Andersen Corporate Finance 020 7438 3000





Definitions

Unless the context otherwise requires, the following definitions apply
throughout this announcement
'Agusan'                     Agusan Plantations Inc
'application form'           the form upon which a qualifying holder may apply for convertible stock
                             pursuant to the open offer
'board' or 'directors'       the directors of the company
'Commerzbank'                Commerzbank (South East Asia) Ltd
'Commerzbank loan'           the $11 million loan made by Commerzbank to REA Kaltim pursuant to the
                             agreement dated 28 May 1999 made between (1) REA Kaltim as borrower, (2)
                             Commerzbank as bank and (3) PT Bank Finconesia as security agent,
                             supplemental to a facilities agreement dated 3 December 1997, which loan
                             is divided into two equal tranches of $5.5 million, tranche A and tranche B
'company' or 'REA'           R.E.A. Holdings plc
'convertible stock'          the new 4 per cent convertible loan stock 2012 of the company proposed to
                             be issued pursuant to the open offer, which is to be convertible into
                             ordinary shares (or, in certain limited circumstances, ordinary shares in
                             the capital of MPL), particulars of which are set out in Part III of the
                             circular
'DTC'                        Deundi Tea Company Limited
'East Kalimantan project'    the oil palm plantation project in East Kalimantan, a province of
                             Indonesia, being developed by REA Kaltim
'Emba'                       Emba Holdings Limited
'group'                      REA, REAS, MPL, Makassar and REA Kaltim
'Listing Rules'              the Listing Rules of the UK Listing Authority
'London Stock Exchange'      London Stock Exchange plc
'Makassar'                   Makassar Investments Limited
'Makassar ordinary shares'   ordinary shares of $1.00 each in the capital of Makassar
'Makassar preferred shares'  preferred shares of $1.00 each in the capital of Makassar
'Makassar rights issue'      the invitation that REA proposes be made by Makassar to holders of
                             Makassar ordinary shares to subscribe Makassar ordinary shares at $480
                             per share on the basis of 2.6454 new Makassar ordinary shares for each
                             Makassar ordinary share held, to raise $11 million (£7.6 million) before
                             expenses
'Makassar shares'            the Makassar ordinary shares and the Makassar preferred shares and, where
                             the context so permits, the founder shares of $1.00 each in the capital
                             of Makassar
'MEZ group'                  Mr M. E. Zukerman and entities associated with, or understood to be
                             associated with, Mr M. E. Zukerman, including Bodley Investment Company,
                             M. E. Zukerman & Co. Inc, M. E. Zukerman Investment Limited and the
                             Zukerman family trust, or, where the context so requires, any one or
                             several of such entities
'MPL'                        Makassar Participation Limited (to be re-registered as Makassar
                             Participation plc)
'MPL acquisition agreement'  the contract summarised in paragraph (b) under 'Details of the MPL
                             formation agreement and the MPL acquisition agreement' in Part V of the
                             circular whereby REA has acquired all the issued ordinary shares in the
                             capital of MPL and 2,753 preference shares in the capital of MPL
'MPL formation agreement'    the contract summarised in paragraph (a) under 'Details of the MPL
                             formation agreement and the MPL acquisition agreement' in Part V of the
                             circular whereby MPL has acquired all the Makassar shares owned by the
                             non-founder Makassar shareholders
'non-founder Makassar        the holders of Makassar shares other than REA and the MEZ group (and any
shareholders'                nominees for REA or the MEZ group) immediately prior to the completion of
                             the MPL formation agreement
'ordinary shares'            ordinary shares of 25p each in the capital of the company
'open offer'                 the invitation to qualifying holders to subscribe for convertible stock
                             contained in the circular and accompanying application forms
'preference shares'          9 per cent cumulative preference shares of £1.00 each in the capital of
                             the company
'proposals'                  the proposals, details of which are contained in the circular, involving
                             the open offer, the subscription of Makassar ordinary shares and, the
                             sale of the balance of 25 per cent of DTC owned by REA
'qualifying holders'         holders of ordinary shares and warrants on the registers of members or of
                             warrant holders at the close of business on 24 April 2002 (other than
                             certain overseas holders as referred to in Part II of the circular)
'REA Kaltim'                 P.T. REA Kaltim Plantations
'REA loan notes'             5 per cent unsecured loan notes of the company issued pursuant to the MPL
                             acquisition agreement
'REAS'                       R.E.A. Services Limited
'SIBOR'                      Singapore inter-bank offered rate (being the rate offered for inter-bank
                             deposits in the Singapore inter-bank market)
'underwriting agreement'     the contract summarised in sub-paragraph (a) (12) under 'Material
                             contracts' in Part V of the circular whereby, subject to satisfaction of
                             the conditions of the open offer, Emba and Agusan have assured the
                             subscription at par of all the convertible stock
'warrants'                   warrants 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


Except where otherwise explicitly stated or clear from the context, amounts
expressed in dollars (or shown with the symbol $) are US dollar amounts and have
been converted to sterling on the basis of an exchange rate of £1 = $1.4492
being the closing rate on 24 April 2002, being the latest practicable date
before the publication of this announcement.

ENDS



                      This information is provided by RNS
            The company news service from the London Stock Exchange