Gide Cuatrecasas Casablanca lawyers Wacef Bentaibi and Jérémie Bismuth discuss their work as issuer's counsel on Morocco's first sovereign sukuk with Laura Mendes
How long has the firm been working with Morocco’s Ministry of Economy and Finance? How did you establish the relationship?
WB: Gide is present in 14 countries, we are present in Morocco since 2003 and were one of the first international firms to open on the ground, which explains our connections with Moroccan private and public counterparties. Aside from this sukuk issuance, we work for the Moroccan tate or state-owned entities on a wide range of transactions or mandates including, PPP and infrastructure projects, real estate and acting on behalf of the government drafting or reviewing new sets of regulations.
At any time we are working for the government or state-owned entities on one or two transactions. We have been active in the country for more than 20 years, even before having an office in Morocco we were already working with the government and the Moroccan authorities out of our Paris and other Gide international offices.
As this was the first sovereign sukuk issue by Morocco, did the country have to make any legislative changes?
JB: We had to authorise the issuance of sukuk by the state, which entailed modifying the securitisation law and some other existing regulation for the transaction to be valid.
When you transfer assets from the state to an SPV (especially real estate assets), the SPV (in our case, a fonds fonds de placements collectifs en titrisation) needs to meet certain criteria, so we had to amend some existing regulation (notably article 82 of the Règlement général de la comptabilité publique) in order to allow the SPV to purchase real estate assets from the Moroccan state. In addition, the government wanted the sovereign sukuk to have the same prudential treatment as the sovereign bonds issued by the state, therefore we had to review and propose amendments to all of the Moroccan prudential regulations.
Was there anything unusual about the structure of the deal?
JB: The sukuk are of an ijara structure. Even if the ijara structure has been used in other countries, this was one of the first civil law country to perform an issuance of ijara sukuk. We had therefore to adapt the requirements of an ijara sukuk issuance with the concepts of usufruit and nu-propriété applicable in Morocco.
WB: We had to deal more specifically with certain public and administrative regimes that Morocco inherited from French public/administrative law.
For instance, some of the asset transfers, or the way that the assets would be used or rented by the SPV, were questioning certain aspects of public law on the transferability or rules applicable to the future renting or use of the assets, on the valuation you could associate to those assets. We had to address and consider very specific legal questions involving a public law and real estate.
What were the biggest challenges to successfully closing the deal?
WB: The main challenge of this transaction was being able to work in a consistent manner and maintain a close working relationship with the transaction team at the Ministry of Finance. The sukuk Islamic finance requirements and the ijara structure are not very flexible by nature and not specifically designed to develop this type of transaction. Our team therefore had to explore different legal mechanisms to ensure a proper fit between Islamic finance concepts and requirements and available civil law mechanisms.
From a structuring perspective, what are the main differences between working on a sukuk and a bond issue?
JB: One big difference is of course that you have to structure the deal in order to avoid having any interest. You also need a sharia counsel to assist you in the review and negotiations of the documentation. We have therefore structured the deal in order to have rents to be paid to the SPV, and with such rents the SPV is able to remunerate the subscribers of the sukuk. It is quite interesting because it is completely different to classic bond issuances where you have capital and interest.
Another difference is that classic bond issuances, even from the state, do not require a state guarantee.
WB: In this specific situation the state wanted to go a step further to secure the investors as this transaction was a first for Morocco. To achieve this, the state issued a sovereign guarantee which is not always the case for classic bond issuances.
What impact do you think this deal will have on the Islamic finance market in Morocco in general?
JB: From our understanding a lot of investors in North Africa were waiting for this sukuk issuance (especially participative banks in Morocco). There has been a lot of coverage of this transaction as it was a first and the government has been trying to do this for years. This will allow Morocco to develop Islamic finance in the country.
WB: This also needs to be seen in the context of the Moroccan government developing a dedicated legal framework for Islamic banks in Morocco. These type of transactions increase the drive for new financing establishments to develop their activities in the country and to invest in new projects that were not available before.
Looking at the Moroccan market in terms of the type of deals you have seen in the last 12 months, what have been the main trends?
WB: Generally the trend has been that the financing market is driven by the financing or refinancing of infrastructure, industrial projects and real estate developments. This will become more and more the case over the next year because the Moroccan state has launched a development programme in terms of infrastructure which includes the first Moroccan gas to power project, the development of new port infrastructures, highways, and airports. These projects are likely to require a strong involvement from both local and international lenders including commercial banks, IFI's and DFI's, which are already deeply involved in the Moroccan market.
JB: In general we see that the market is developing and is becoming more and more mature. We work on a number of securitisations every year in Morocco and we expect this trend to continue.
What areas or sectors do you expect to be the most active in 2019?
WB: I would say the same trends of 2018 will continue, on project related activities like energy, including renewables, and water and infrastructure. And also an increase in investment in the industrial (automotive and aeronautic sectors) with possibly new real estate developments requiring new financings.