Reliance Pacific Berhad’s (RPB) rating downgrade is based upon the continued weakness of the group’s financial profitability and cash flow position, reflecting the adverse effects of SARS and terrorism on the tourist industry; the general softening in international tourist arrivals; and stiff price competition amongst industry participants. Generating sales and maintaining hotel revenue via occupancy rates will be the overriding concern of the group in the near to medium term.

The rating remains underpinned by the group’s leading position in the travel industry supported by a wide distribution network, competitive cost structure and established brand name.

The travel segment remains the biggest contributor to RPB’s revenue. The group’s hotel division was the second largest revenue contributor, with the overseas hotel accounting for about 10% of total

revenue.

Moving forward, RPB will continue to focus on driving revenue and stimulate businesses through hotel occupancy. To achieve the necessary margins, attention will be given to respective division meeting budgeted levels of profitability and gross operating margins. Labour costs and other departmental expenses will be scrutinised regularly.

The group’s debt leverage stood at 1.67 times as at March 2003. This is above the cap of 1.25 times set under the issue structure. DSCR as at 31 March 2003 was 2.19 times, which is in accordance with the covenanted DSCR of above 1.5 times.