Rabat’s debut on the sovereign Islamic bond market through its finance ministry sees the significant oversubscription of its sukuk sale

Morocco’s government issued its first sovereign Islamic bonds on 5 October, selling MD1.1bn ($116m) of sukuk with a five-year maturity and an annual yield of 2.66 per cent.

The bonds were issued in local currency via an ijara contract, under which mode of financing the state will cede the annual rental value of certain real estate assets to bondholders.

The significantly oversubscribed issue saw orders worth MD3.6bn, according to the finance ministry, which noted that the bonds would help Islamic banks manage their liquidity.

Elisa Parisi-Capone, senior analyst at Moody’s, highlighted the Islamic bonds “as a way for the government to access an alternative source of long-term financing via a diversified investor base”.

The issue followed a government decree in June allowing financial authorities to define various types of sovereign sukuk based on the legal opinion of Morocco’s Higher Council of Ulema.

The permissibility of sukuk had been under scrutiny in Morocco after a vaguely worded 2013 amendment to the securitisation law led to the council forbidding all but ijara sukuk.

This led to a reworded amendment accommodating “murabahah, salam, istisnah, mudarabah, wakalah and musharakah” sukuk being voted through by the House of Representatives in February 2018.

The new bill mandated that any prospective sukuk issuers must first obtain approval from the Higher Council of Ulema for a product and establish a special-purpose vehicle for the issuance.

Separately, in early 2017, Morocco’s central bank approved five new Islamic banks and granted permits for three French banking subsidiaries to sell Islamic products.

Akin Majekodunmi, vice-president and senior credit officer at Moody’s, added that the issuance fell “in line with our expectations for African sukuk issuance”.

In a recent report by Moody’s on Islamic finance, the ratings agency noted the appetite within Africa for stronger investment ties to the Gulf, whose “large pools of capital” are expected to “help drive the issuance of sukuk on the continent”.

Moody’s estimates that within the next five years the share of Islamic banking assets will rise to more than 10 per cent of total African banking assets, up from a figure below 5 per cent at present.

Since the start of 2014 there has been $2.3bn of African sukuk, or Islamic bond, issuance, providing new funding sources for both sovereigns and financial institutions.

Following the Morrocco issuance, Majekodunmi added: “We forecast further sukuk issuances in Africa to reach at least $1 billion over the next 18 months”.

Globally, sukuk sales reached a record of $55.7bn in 2017.

In October, Saudi chemical giant Sabic completed a $2bn bond issuance.

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