The rating of Reliance Pacific Berhad’s (“RPB” or “the Group”) RM100 million Redeemable Secured Bonds (2001/2006) has been reaffirmed at A- (A minus). Underpinning the rating is the expected sustained growth in the travel and tourism industry and the group’s overall improved financial profile. The rating, however, is moderated by RPB’s somewhat high debt leverage and the continued lackluster performance of its resort development division.

RPB’s subsidiaries are involved in travel, hotel management, resort development and e-commerce. Through the provision of an integrated one-stop travel logistics consultancy as well as marketing and distribution (wholesale and retail) services supported by its hotels, the Group continued to maintain a leading position in the travel industry augmented by a wide distribution network, competitive cost structure and a well established brand name.

The Group’s bottom line recovered in FY2005 after three consecutive years of being in the red attributed to strong recovery in the tourism industry within the region coupled with cost restructuring and demand stimulation measures undertaken by RPB. In tandem with the increase in revenue, FY2006 (unaudited) saw a marked improvement in their pre-tax profit to RM19.4 million, edging operating profit margin up to 10.7% on the back of improved contribution from its travel division mainly attributed to the Group’s outbound tourism business. The travel division remained as the key contributor (77.6%) to the Group’s revenue followed by the hotel division (20.4%).

The Malaysian tourism industry continued to experience growth with about 16.4 million tourist arrivals in 2005 (2004: 15.7 million) which has generated RM31 billion in tourism receipts (2004: RM30 billion) and these arrivals are projected to increase to 17.5 million in 2006 and 20 million in 2007 spurred by the “Visit Malaysia Year 2007” campaign. Meanwhile, encouraging response is expected to continue for outbound tourism. However, moderating the stable outlook is the impact of looming uncertainties such as the threat of terrorism, further spread of the avian flu and rising airfares from increasing fuel prices. Moreover, should the upward trend of energy prices, inflation and interest rates persist, the country’s economic growth may be hampered and hence, the tourism industry could start feeling the impact.

RPB group posted improvement in net cash flow measures for FY2006 (unaudited) registering a Debt Service Cover Ratio (DSCR) of 1.81 times well above the minimum covenant of 1.50 times. The debt leverage level improved marginally on the back of higher shareholders’ funds aided by the repayment of the second series of bonds during FY2006 (unaudited). The group’s effective Debt to Net Tangible Asset (NTA) was at 1.03 times, below the covenanted level of 1.25 times.

The final redemption of the bonds of RM50 million on 25 July 2006 is expected to be fully met as the requirement of a minimum 50% placement in the Sinking Fund Account (SFA) under the issue structure has been met as at 5 June 2006.