Crédit Immobilier et Hôtelier (CIH), a large Moroccan retail bank, plans to issue covered bonds after a draft law, due to be discussed in the country’s parliament in the coming months, is passed, with the issuer keen to explore opportunities in dollars and euros.

Lotfi Sekkat, managing director, Crédit Immobilier et Hôtelier

Morocco’s law on Obligations Sécurisées envisages the introduction of mortgage backed and public sector backed covered bonds. A public consultation on the draft ended in April and the bill is set to proceed to parliament. (See here for previous coverage).

Lotfi Sekkat, managing director at Crédit Immobilier et Hôtelier (CIH) – a subsidiary of state-owned Caisse de Depôt et de Gestion – said that he is looking forward to the law’s approval, which he hopes will happen by the end of the year.

“We will proceed with a transaction as soon as the law is passed,” he told The CBR.

CIH strongly supports the introduction of the new type of financial instrument, according to Sekkat.

“CIH has already used most of the securitisation instruments available, and senior unsecured debt,” he said, “so the issuance of covered bonds will allow us to expand and diversify our funding options.”

Furthermore, covered bond issuance could contribute to reducing funding costs because of the lower risk profile of those financial instruments, he added.

Sekkat said that when CIH begins issuing the aim would be to launch an international transaction in dollars or euros, but he acknowledged that there would be some obstacles to international issuance. The main one would be the difficulty and costs of putting in place measures to mitigate exchange rate risks, especially for longer maturities.

“The ministry of finance is aware of this issue and it is working to provide adequate solutions,” said Sekkat.

“There is no doubt we are going to issue, but we keep an open mind on the currency. If there will be the right conditions, we will go for an international transaction, if not we will go for a dirham-denominated one.”

According to Sekkat, some foreign investors have already expressed to him an interest in investing in Moroccan covered bonds.

“International investors will be interested in Moroccan covered bonds because of the dynamism of the Moroccan market,” he said. “Moroccan covered bonds will also offer attractive yields, but in a competitive range in comparison to more mature jurisdictions because we will be able to leverage off the quality our assets.”

Sekkat said that one of the elements that contribute to the high quality of Moroccan loans is that most of mortgages for low income households carry a state guarantee. These are through programmes such as a state guarantee fund, Fogarim, for example, which guarantees up to 70% of the mortgage of low and irregular income households that earn up to $566 dollar a month.

However, others suggest that the first Moroccan covered bond issue will target the domestic investor community.

“The first issuance will be denominated in Moroccan dirhams, for currency-matching reasons, as well as domestic investors’ interest,” said Gabriel Sensenbrenner, lead macro financial economist for the Middle East and North Africa region at the World Bank. “Foreign investors that are comfortable with managing Moroccan dirham risk would also be attracted.”

CIH’s mortgage portfolio stands at around 17bn dirham (Eu1.6bn, $2bn), according to Sekkat.