Morocco plans bond sale after 5-year lull

The North African kingdom - the region’s only investment grade sovereign - aims to raise at least $1 billion

Jemaa Ell Fnaa square, in Marrakesh, Morocco. The country is planning a bond sale this year. AP
Jemaa Ell Fnaa square, in Marrakesh, Morocco. The country is planning a bond sale this year. AP

Morocco plans to raise at least $1 billion from an international bond sale this year, ending an approximately five-year hiatus, and switch to a policy of more consistent offerings to finance its broader economic overhaul programme.

The North African kingdom - the region’s only investment grade sovereign - has mandated a consortium of banks for the bond sale, its first since 2014, said Finance and Economy Minister Mohamed Benchaaboun. It also plans to go to the market again in 2020 amid efforts to hold more consistent sales, he said.

King Mohammed last year told the government to come up with a new growth model for the $105 billion economy as it steps up a crackdown on tax evasion. That directive has taken on even more urgency as the eruption of unrest in neighbouring Algeria sends a clear message about how a toxic mix of high youth unemployment and sputtering growth could snowball out of control.

The sale will take place “as soon as conditions permit it this year,” Mr Benchaaboun said at the weekend in Marrakesh, declining to elaborate further on the timing.

The former chief executive of Banque Centrale Populaire, Morocco’s second-biggest lender, said the country would continue to tap the market “in the most natural manner because debt, in essence, depreciates, and so you have evidently to build up the share of external financing in the overall debt”,

The plan marks a shift in strategy from his predecessor, Mohamed Boussaid, who was relatively reluctant to turn to the international market, Bloomberg said.

The proposed shift comes as authorities review how state-owned enterprises can finance the nation’s development plans and make them less reliant on government financing. As it stands now, the debt is counted as quasi-sovereign, limiting the administration’s room to manoeuvre.

Morocco’s neighbour Egypt has gone to the international bond market twice in the past few months, most recently with a 2 billion euro offer.

“When you are regularly present in the international bond market you set your pricing target for the debt you want to raise, and evidently you also move faster in the mobilisation of financing on behalf of the lenders because they know you,” Mr Benchaaboun said.

Moroccan officials have struggled to revive growth that has been squeezed over the past two years by drought and weak consumer demand.

The banking sector has also suffered.

BMCE Bank, one ofMorocco's largest lenders, reported this month a 10 per cent fall in its 2018 net profit attributable to shareholders due to a drop in activities in its African branches, Reuters reported.

Profit stood at 1.83 billion Moroccan dirhams ($190 mln) in 2018, down from 2.03bn dirhams in 2017.

African branches accounted for 46 per cent of profits, while Morocco and Europe represented 48 per cent and 6 per cent, respectively.

Net banking income dropped 1 per cent to 13.23bn dirhams, while the cost of risk rose 2 per cent to 1.83bn dirhams.

The International Monetary Fund, in the latest review of its precautionary and liquidity line arrangement with the country earlier this month, said that “improved fiscal management and economic diversification” have made the economy more resilient, though unemployment remains high, especially among younger Moroccans.

The government needs to press on with the changes it’s making “in order to increase productivity gains, create jobs, and raise growth potential” in line with its medium-term objectives, the Washington-based fund said in an April 2 report.

“The growth story can’t be summed up in one quarter,” Mr Benchaaboun said, pointing to the impact this year of drought on the country’s labour-intensive agricultural sector and “a non-agricultural GDP that is posting good growth levels.”

The government is sticking to its budgeted projection of 3.2 per cent growth, he said. The central bank last month cut the growth projection for 2019 to 2.7 per cent, citing mostly lower farming output.

Among the measures the government is taking to boost growth is a draft bill - now with parliament - to protect minority rights in corporations, as well as the launch later this year of the first real-estate investment trust, or REITs, which he said would “provide a fundamental source of financing for businesses across the board.”

“The repercussions will not be felt overnight,” Mr Benchaaboun said, stressing that authorities are confident the measures would boost growth and create jobs.

Published: April 8, 2019 08:15 AM


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