Reliance Pacific Berhad’s (RPB) rating is reaffirmed at BBB+ reflecting the group’s leading position in the travel industry supported by a wide distribution network, competitive cost structure and established brand name; coupled with improving sentiments in the travel and tourism industry. The rating, however, continues to be moderated by the group’s weak cash flow position and high debt leverage.

The travel division remained the group’s key revenue contributor (73.8%) in FY2004, followed by the hotel division (24.7%) and resort development (1.5%). Within the hotel division, the group’s overseas hotel contributed nearly 70.0% to the division, underpinned by healthy average occupancy rates (AOR) and average room rates (ARR).

The outbreak of the Severe Acute Respiratory Syndrome (SARS) in March 2003 affected RPB’s travel division in FY2004, causing the group’s revenue to contract by 12.9% during the year. Pre-tax losses, however, narrowed to RM5.7 million in FY2004 from RM15.7 million previously, underpinned by the group’s continuous efforts to minimize operating costs. As a result, operating margin improved to 6.6% (FY2003: 2.6%).
As at 31 March 2004, the group’s effective debt leverage ratio and debt to NTA ratio stood at 1.36 times and 1.39 times respectively, with the latter breaching the covenanted level of 1.25 times. However, with the first serial redemption of RM15.0 million in July 2004 and the completion of the bonus issue and rights issue exercise in October 2004, the effective debt leverage and debt to NTA ratio improved to 1.23 times and 1.25 times respectively. The debt leverage level is expected to pare down further following the gradual redemption of the bond’s facility.

As at 31 March 2004, DSCR stood at 0.65 times; below the covenanted level of 1.50 times. The group, however, managed to restore the DSCR to the covenanted level following the completion of the capital raising exercise in October 2004, although the bondholders’ approval to extend the cure period is still in progress.

In the immediate term, the RPB group will continue to focus on minimizing operating costs, among others, outsourcing its non-core services. Contingency marketing strategies are also continually in place in order to adapt to the dynamic conditions of the tourism industry.