Morocco $1bn bond to target GCC
Rabat, August 6, 2012
Morocco plans to sell at least $1 billion of sovereign bonds probably in October, a senior official source said, after obtaining a $6.2 billion lifeline from the International Monetary Fund (IMF).
"The bond issue will take place this year, probably in October. We can go for at least $1 billion but we may introduce some terms that can allow institutional investors from the GCC (Gulf Cooperation Council) to subscribe for around half the total," the source said on condition of anonymity pending an official announcement.
On Friday, the IMF approved a $6.2 billion precautionary line of credit for Morocco over two years, which it said the government would treat as "insurance" in case economic conditions deteriorated and it faced sudden financing needs.
Morocco said the IMF credit should give comfort to foreign lenders, investors and rating agencies, and allow it to tap international capital markets at favorable borrowing terms.
The $90-billion economy is heavily anchored to the now-troubled euro zone. Rabat raised about 1 billion euros via its most recent international bond issue in 2010.
"We are confident that we will be able to obtain better terms than the last issue," said the source. "There is a strong chance that we the upcoming issue will be denominated in U.S. dollars to tap the obvious advantage it offers".
A US-dollar denominated issue will be more attractive for institutional investors from the Gulf Arab region, he said.
Rabat wants to use the money to mainly catch up with a delay in the execution of this year's budgeted public investment and to help with the execution of reforms such as that of justice and the country's costly subsidy system, the source said.
"We are not going to the international market because we want to cover expenditure. We want to do it for investment," the source said.
Morocco's fiscal and current account deficits surged last year to their highest levels in many years and analysts are worried about Rabat's ability to quickly reverse the trend.
While the Moroccan currency is not convertible, the rise in those deficits exacerbated a chronic shortage in liquidity in a domestic market that is the state's biggest creditor.
After bad weather hit its agricultural sector, the North African country is now bracing for higher food import costs after drought slashed its farming output.
Foreign currency reserves barely cover four months of import needs, the lowest since the 1980s, when the north African country was forced to follow a painful restructuring plan dictated by the IMF.
The rise in the budget deficit followed a series of handouts, which included public sector wage hikes and higher spending on subsidies last year aimed at containing a spillover from Arab Spring revolts.
Authorities have promised to start reducing spending on subsidies, costs of which amounted to roughly the budget deficit last year, but indicated the process may take until 2016. - Reuters