x Abu Dhabi, UAEThursday 27 July 2017

Morocco cashes in on its investment grade

What's Up: Morocco, the only North African nation Standard & Poor's rates investment grade, is seizing on tumbling borrowing costs to sell its first 30-year bonds.

Morocco, the only North African nation Standard & Poor's rates as investment grade, is seizing on tumbling borrowing costs to sell its first 30-year bonds.

The kingdom sold US$500 million of notes due 2042 yesterday, paying 290 basis points, or 2.9 percentage points, over US Treasuries, according to three people familiar with the deal who asked not to be identified because the details are private.

Morocco also sold $1 billion of 10-year notes at 275 basis points over Treasuries, implying a yield of 4.34 per cent.

The cost of borrowing abroad for Morocco, rated the lowest investment grade of Bbb minus by S&P, has declined after the IMF pledged a $6.2bn credit line in August and the country avoided the regime change that has unsettled neighbours Tunisia and Egypt.

Yields on euro-denominated bonds due 2020 sank to a record-low 4.37 per cent yesterday, bringing their drop this year to 151 basis points.

Middle Eastern debt yields have fallen 86 basis points this year to 4.05 per cent, according to the HSBC/Nasdaq Dubai Middle East Conventional Sovereign US Dollar Bond Index.

"The 30-year was a surprise," said Samir Gadio, an emerging- markets strategist at Standard Bank in London on Wednesday.

Idriss Azami Al Idrissi, Morocco's budget minister, did not answer calls made to his phone yesterday to confirm the sale.

The bond issue will help Morocco to finance a current account deficit that the IMF estimates will reach 7.6 per cent of economic output this year, the second-highest gap in North Africa after Egypt, rated five steps below Morocco by S&P.

While the budget deficit may narrow to 6.1 per cent of GDP this year, it will still be wider than the government's 5 per cent target, IMF data shows.

The Washington-based lender extended assistance to Morocco to shield its economy from a drop-off in export demand from Europe, its chief trading partner.

Growth in Morocco's economy may slow to 2.9 per cent this year, the weakest pace since 2007, according to the IMF.

The support of the IMF "was a turning point in terms of market sentiment, despite the weaker fundamentals," said Mr Gadio.

Morocco retained its investment-grade status throughout the unrest that has swept through parts of the Middle East, while S&P demoted Tunisia to junk in May, and has lowered Egypt four times to B, the fifth-highest non-investment grade rating, since the Arab Spring started at the end of 2010.

Morocco's economy may recover next year to expand 4.5 per cent, said Mr Al Idrissi.

* Bloomberg News