Thursday, Nov 07, 2002
MARC has reaffirmed its rating of A- (A minus) on Reliance Pacific Berhad’s (RPB) RM100 million Redeemable Secured Bonds. The rating reflects the group’s leading position in the travel industry supported by a wide distribution network, competitive cost structure and a fairly tight issue structure. The rating, however, is moderated by the vulnerability of the travel/tourism businesses to adverse developments in the domestic and regional economies and a sensitive cash flow. RPB is principally an investment holding company with subsidiaries engaged in travel and tourism, hotel management and resort development. RPB is Malaysia’s first fully integrated travel group and with a network of more than 20 offices and over 200 appointed agents locally, the group occupies the leading position in the local travel industry. With more than 30 years of experience in the business and an established brand name, RPB possesses a significant competitive advantage over its competitors in the travel industry. The group offers a wide variety of travel products, catering to the different segments of the market. Marketing of the products is supported by the group’s wide distribution network that has been built up over the years. RPB’s competitive cost structure enables it to compete on pricing in the volume-driven travel business.
The group’s revenue declined by 9% to RM254 million for the fiscal year ended 31 March 2002, reflecting the adverse effects of the September 11 terrorist attacks in the US on the travel and tourism businesses. Tourist arrivals, particularly from the West, dropped significantly on security concerns, against the backdrop of a weak global economy. Arrival volume has recovered since then, with tourist arrivals in 2002 expected to return to pre September 11 levels. The Group is currently developing its inbound business, targeting tourists from the Asian region, China as well as New Zealand and Australia. On average, inbound business contributed around 17% of the group’s total travel revenue over the last three years.
The group’s hotel in Sydney, Australia, a major revenue contributor, was also affected by the September 11 incident as well as the collapse of Ansett Airlines. Going forward, the group is aggressively repositioning the hotel in the corporate, government and conference market. While the global security environment is still uncertain, the outlook for Australian tourism nevertheless appears positive in the medium term.
With the shift in marketing efforts, the group expects revenue to increase in FY2003. RPB’s cash flow protection measures remain weak and sensitive to adverse developments in the travel and resort development businesses. Under its revised base case cashflow projection, RPB’s debt service coverage ratio is expected to average at about 1.78 times over the remaining period of the bonds. Liquidity risk is somewhat mitigated through the maintenance of a liquidity buffer equivalent to one coupon payment in a debt service reserve account.
The group’s debt leverage remains slightly above one time during the period under review with much of the debt obligations being long term in nature. The debt leverage has been capped at 1.25 times from the second anniversary of the bonds under the terms of the issue.
The group’s revenue declined by 9% to RM254 million for the fiscal year ended 31 March 2002, reflecting the adverse effects of the September 11 terrorist attacks in the US on the travel and tourism businesses. Tourist arrivals, particularly from the West, dropped significantly on security concerns, against the backdrop of a weak global economy. Arrival volume has recovered since then, with tourist arrivals in 2002 expected to return to pre September 11 levels. The Group is currently developing its inbound business, targeting tourists from the Asian region, China as well as New Zealand and Australia. On average, inbound business contributed around 17% of the group’s total travel revenue over the last three years.
The group’s hotel in Sydney, Australia, a major revenue contributor, was also affected by the September 11 incident as well as the collapse of Ansett Airlines. Going forward, the group is aggressively repositioning the hotel in the corporate, government and conference market. While the global security environment is still uncertain, the outlook for Australian tourism nevertheless appears positive in the medium term.
With the shift in marketing efforts, the group expects revenue to increase in FY2003. RPB’s cash flow protection measures remain weak and sensitive to adverse developments in the travel and resort development businesses. Under its revised base case cashflow projection, RPB’s debt service coverage ratio is expected to average at about 1.78 times over the remaining period of the bonds. Liquidity risk is somewhat mitigated through the maintenance of a liquidity buffer equivalent to one coupon payment in a debt service reserve account.
The group’s debt leverage remains slightly above one time during the period under review with much of the debt obligations being long term in nature. The debt leverage has been capped at 1.25 times from the second anniversary of the bonds under the terms of the issue.