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Morocco joins neighbours to draft sukuk law



Dubai: Morocco is drafting a law to allow the sale of Islamic bonds, joining North African neighbours seeking to lure more investors to their debt after global sukuk offerings surged to a record.

The government, led by the Islamist Justice and Development Party, will put the bill to parliament as soon as the draft is completed, Budget Minister Driss Elazami Eldrissi said by phone on November 20. He wouldn't say when that would happen. Tunisia and Egypt, two other North African countries ruled by Islamist parties after last year's uprisings, are also drafting laws to pave the way for possible sukuk sales in 2013.

Selling Islamic bonds helps issuers "reach conventional debt investors and sukuk investors at the same time," Elhassan Eddez, deputy director of treasury at Morocco's Finance Ministry, said by phone Nov. 20. "The sukuk market has a wider investor base."

Global sales of bonds that comply with Islam's ban on interest soared 66 per cent this year to a record $43.4 billion as nations such as Turkey and Qatar tapped the market for the first time, taking advantage of falling borrowing costs. The average yield on sovereign sukuk dropped 116 basis points, or 1.16 percentage points, this year to 2.74 per cent on November 23, the lowest since 2009, according to the HSBC/Nasdaq Dubai Sovereign US Dollar Sukuk Index.

IMF funding
Unlike Tunisia, Libya and Egypt, pro-democracy protests in Morocco didn't lead to regime change after King Mohammed VI granted the government more powers. The kingdom, which is preparing to sell its first dollar-denominated bonds, secured a $6.2 billion funding line from the International Monetary Fund in August as a shield against the repercussions of the debt crisis in Europe, Morocco's main trading partner. Morocco has managed to keep its BBB-rating at Standard & Poor's, the agency's lowest investment grade, throughout the unrest that swept through North Africa. The ratings company stripped Tunisia of that status in May and has lowered Egypt four times to B, the fifth-highest junk classification, since the so-called Arab Spring started.

The yield on Morocco's 4.5 per cent euro-denominated bonds due October 2020 has fallen 127 basis points this year to 4.61 per cent on November 23, data compiled by Bloomberg show. That compares with a 139 basis-point drop in the average yield of sukuk issued in the Gulf Cooperation Council (GCC), which includes Saudi Arabia, Qatar and the United Arab Emirates, to a record 2.92 per cent, according to the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index.

Tunisia, Egypt
"A Morocco sukuk bond will allow the government to potentially reduce its borrowing cost and tap new frontier markets," Hakim Azaiez, the London-based head of investment at GCA Asset Management, said by e-mail on November 23.

"The demand is there for sovereign sukuk issues," he added.

Tunisia plans to raise as much as 1 billion dinars ($636 million) next year and will use the proceeds to fund the budget deficit, Finance Ministry Director General Chaker Soltani said this month. Egypt said in October it received interest from foreign banks amounting to as much as $1 billion for a possible sukuk sale after it passes the requisite law.

So far, Arab sovereign sukuk issuers have been limited to Qatar, Dubai, the emirate of Ras Al-Khaimah and Bahrain, according to data compiled by Bloomberg.

The yield on Dubai's 6.396 per cent Islamic bonds due November 2014 fell 315 basis points this year to a record 2.42 per cent on November 23, according to data compiled by Bloomberg. The premium investors demand to hold Dubai's notes over Malaysia's investment-grade 3.928 per cent sukuk narrowed 187 basis points this year to 100.

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