Monday, Jun 11, 2001
Reliance Pacific Berhad’s (RPB) rating of A- (single A minus) in respect of its RM100 million Redeemable Secured Bonds 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 business to adverse developments in the domestic and regional economies; a sensitive cash flow and increasing debt leverage.
Incorporated in 1992, 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.
Emerging from the Asian economic and financial crisis in 1997/1998, which had adversely affected tourism in the region, tourist arrivals in Malaysia recovered in the following two years, reaching 8.5 million people in the year 2000. Competition amongst the 1,700 registered travel agents is stiff and is expected to intensify with the entry of foreign players upon the opening of the Asean Free Trade Zone. In the near term, MARC expects the tourism industry to be somewhat affected by the slower pace of economic growth in various parts of the world in year 2001.
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 foray into the hotel industry is under two brands : namely Avillion (in Port Dickson and Sydney) and Gateway (hotel management services). Avillion Hotel, Sydney made its maiden revenue contribution of RM31.6 million (or 12.6% of total revenue, before inter-co.) in FY2000; securing it second position behind the travel business. Both Avillion hotels recorded average occupancy rates of over 60% in the year 2000.
The amortizing debt payment structure reduces refinancing risk at the final maturity of the facility. Liquidity risk is mitigated through the maintenance of one coupon payment buffer in a debt service reserve account. RPB is also required to either build up funds or secure an irrevocable credit facility six months before the repayment of the principal sum due under each series.
The RPB group’s financial position recovered in FY2000 from the adverse effects of the 1997/1998 economic recession. In that fiscal year, the group posted a 19.7% increase in revenue to RM243.90 million, reflecting the economic recovery in 2H99. Pre-tax profit, however, slipped to RM8.3 million (FY98: RM9.21 million) under the weight of the heavier interest expense.
RPB’s cash flow protection measures were poor over the last two fiscal years, with net cash from operation recording deficits due to heavy working capital funding requirement. Under its base case projection, RPB expects its cash flow to improve, with the debt service coverage ratio averaging 3.80 times over the period of the bonds. The cash flow was found to be sensitive to the performance of the group’s resort development. Debt service is somewhat protected with the maintenance of the liquidity buffer in the reserve account.
The group’s funding profile has seen the progressive addition of long term debts over the years to finance its resort and hotel development projects. Consequently, debt leverage is slightly above one time and has been capped at 1.25 times from the second anniversary of the bonds.
Incorporated in 1992, 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.
Emerging from the Asian economic and financial crisis in 1997/1998, which had adversely affected tourism in the region, tourist arrivals in Malaysia recovered in the following two years, reaching 8.5 million people in the year 2000. Competition amongst the 1,700 registered travel agents is stiff and is expected to intensify with the entry of foreign players upon the opening of the Asean Free Trade Zone. In the near term, MARC expects the tourism industry to be somewhat affected by the slower pace of economic growth in various parts of the world in year 2001.
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 foray into the hotel industry is under two brands : namely Avillion (in Port Dickson and Sydney) and Gateway (hotel management services). Avillion Hotel, Sydney made its maiden revenue contribution of RM31.6 million (or 12.6% of total revenue, before inter-co.) in FY2000; securing it second position behind the travel business. Both Avillion hotels recorded average occupancy rates of over 60% in the year 2000.
The amortizing debt payment structure reduces refinancing risk at the final maturity of the facility. Liquidity risk is mitigated through the maintenance of one coupon payment buffer in a debt service reserve account. RPB is also required to either build up funds or secure an irrevocable credit facility six months before the repayment of the principal sum due under each series.
The RPB group’s financial position recovered in FY2000 from the adverse effects of the 1997/1998 economic recession. In that fiscal year, the group posted a 19.7% increase in revenue to RM243.90 million, reflecting the economic recovery in 2H99. Pre-tax profit, however, slipped to RM8.3 million (FY98: RM9.21 million) under the weight of the heavier interest expense.
RPB’s cash flow protection measures were poor over the last two fiscal years, with net cash from operation recording deficits due to heavy working capital funding requirement. Under its base case projection, RPB expects its cash flow to improve, with the debt service coverage ratio averaging 3.80 times over the period of the bonds. The cash flow was found to be sensitive to the performance of the group’s resort development. Debt service is somewhat protected with the maintenance of the liquidity buffer in the reserve account.
The group’s funding profile has seen the progressive addition of long term debts over the years to finance its resort and hotel development projects. Consequently, debt leverage is slightly above one time and has been capped at 1.25 times from the second anniversary of the bonds.