Debenhams supplier says customers wary after Egypt rating cut

Al Arafa Investments & Consulting, a garment exporter to companies including Debenhams Plc, said suppliers are demanding letters of credit for the first time after rating companies cut Egypt’s credit ratings.

“There is a lack of confidence because of the country risk,” Chief Executive Officer Alaa Arafa said in a phone interview from Cairo. Customers “are worried about logistical problems, that they may not get shipments on time.”

Egypt’s credit rating was reduced four times this year at Standard & Poor’s to B+, four levels below investment grade, while Moody’s Investors Service cut the rating three times to B1. The turmoil that followed the ouster of President Hosni Mubarak sent government borrowing cost to a record and the economy shrank more than 4 per cent in the first quarter.

Al Arafa, which supplies to stores such as Selfridges Plc and House of Fraser Ltd, said nine-month revenue rose 2.6 per cent to $206 million. Profit fell to $6.5m from $13m because of the “increase in selling and administrative expenses that the company had to incur in order to generate revenues and retain customer base.”

Al Arafa, which owns 35 per cent of Pal Zileri brand-owner Gruppo Forall of Italy, in January put on hold an offer from a US investor to buy a stake because of the popular unrest, Arafa said, declining to identify the suitor. The shares tumbled 31 per cent this year, while the country’s benchmark EGX 30 Index dropped 45 per cent.

Egypt is holding the second round of parliamentary elections on Wednesday. The military council that took interim power from Mubarak said the presidential election will take place by the end of June.

The company expects the economic outlook to improve in the second half after the presidential vote, which will complete the transition of power to civilians, Arafa said. He said the Cairo- based company is also banking on a possible devaluation of the pound after international reserves plunged 44 per cent this year. The pound has lost 3.7 per cent this year to 6.031 a dollar today, the lowest in seven years.

“People will export more and tourism will be cheaper, so we will have more tourists,” he said. “We don’t have other solutions but to manufacture and to export.”