May 24, 2013:
Morroco is already set to finalise a new securitisation law which will allow the state as well as companies to issue sukuk which are Islamic equivalent of bonds. Necessary steps have already been taken up for preparing corporate and sovereign sukuk. Morroco is seen as second potential sukuk market after South Africa. Issuance of sukuk has gained widespread momentum because they represent ownership in the form of tangible assets, not in the form of debt ownership. This is the fact behind uprising of global sukuk issuance which shot up to 64 % as per the rating agency Standard and Poor’s (S&P). Further countries like, Egypt and Tunisia are also up for such similar issuances.
Securitisation became part of Morrocan legal system in 1999.It was to basically promote housing finance which also outlined the framework for the securitisation of mortgage loans and was strongly influenced by French Securitisation Act which introduced securitisation vehicles into the French legal system.
This new reform of Act demonstrates Morocco's desire to provide a secure financial tool, which complements traditional financial methods, for the benefit of companies, investors and the Moroccan financial system as a whole. This reform allows Morocco to position itself as the destination of choice for the development of securitisation and Islamic Finance in Morocco and Africa. It is anticipated that by introducing sukuk it will reform country’s securitisation law which was enacted in 2002, amended in 2010 so as to broaden the range of eligible assets so that institutions other than banks can also make use of securitisation as means of financing. It is expected that the law will come into force in the coming months once the draft regulations are finalized. In anticipation of a tightening regulatory environment for financial institutions in the wake of the regulatory tide that is spreading globally, and taking advantage of the experience gained from the market turmoil in the last couple of years, Morocco has fully revamped law in relation to securitisation.
The reason for sukuk issuance is widely because economic conditions in Europe has worsened, which also happens to be Morroco's traditional trading partner and also for the purpose of diversification and to attract middle eastern investors. A sound investment grade rating would attract interest from foreign investors and ensure Morroco’s political stability. As per S&P rating, Morocco got assigned with a foreign currency rating of BBB- which is the lowest investment grade. However, South Africa has a higher sovereign rating, one notch above Morocco at BBB, according to S&P.
Further to this introduction of sukuks will allow the creation of a new asset class and will offer an opportunity of asset diversification. Sukuk are essential to assure the development of Islamic finance in Morocco, and with their introduction the country has the means to access a non-negligible amount of international financing.
In order to ensure smooth implementation, the government will also have to take necessary steps to augment Morrocan sukuk market for promoting sound economic policies.
Vinod Kothari Consultants Private limited have organized training workshop in Morocco. For schedule of training courses please visit http://vinodkothari.com/secwork.htm.
[Reported by: Paridhi Bagaria]