Morocco
Arabic Version
Morocco: Privatization Momentum Growing
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Morocco began privitazing in 1993. Its program has advanced at a steady pace, averaging one sale per month. so far, it has sold forty one companies and hotels, raising more than US $1 billion in revenue plus investment commitments of another US $260 million. Now it is picking up speed and expanding in scope. During the first five months of 1996, though innovative privatization bonds and public offerings, it raised US $350 million -twice as much in 1995. Authorities are confident that 1996 will be the program's banner year.

Why and how of sales
Privatization fits well into Morocco's overall liberal environment and continues the State's long term withdrawal from economic activities. It is entirely a home-grown policy that was set in motion by King Hassan II.

The sales process is open and transparent, carried out by a tripartite organizational structure made up of a Minister, a Commission of high government officials, and a price setting Board. the standard sales mechanisms are employed. Showing good sense, authorities opted for openness and transparency by favoring stock market listings or tenders, which together have accounted for 75% of revenue. Worker shares, rights of first refusal and trade sales account for the rest.

Multiple methods
Sales of large industrial or financial firms often combine different methods. Authorities often sell in tranches designed to link a strategic investor with a broader shareholding public through a listing on the Casablanca Stock Exchange (CSE) and shares reserved for workers. Several complex transactions are needed to sell one firm. For example, the SAMIR oil refinery will come to market in at least three tranches: 30% in a CSE IPO, 30-51% through tender to a trategic investor, 1.7% to workers. authorities have not excluded a secondary stock offering either on the CSE or to international institutional buyers.

Some small industrial firms, which often have severe financial difficulties, need a presale restructuring to give them a fighting chance for success after privatization. Officials boast that no company had yet been closed because of privatization.

No job loss
One noteworthy feature is that no jobs have been lost as a result of the program. The starting outcome has come about because the current privatisables were chosen, in part, on their lack of overstaffing. Indeed, the new owners have come in with expansion plans, so that privatization has resulted in a net job creation.

Stocks surge
Increased shareholding by Moroccans is one of privatization's objectives. While no estimates exist of the number of CSE shareholders before privatization started, informed observers agree on less than 10,000 individuals. Privatization alone has generated some 300,000 subscribers - a stunning success. Almost 60,000 bought in the SAMIR oil refinery in January 1996. Moreover, the new shareholders appear to hold to their names, instead of reselling them for a speculative gain.

Privatization has been essential to the recent CSE growth. Market capitalization rose 3.5 times from DH 17.0 billion in 1992, before the first privatization listing, to DH 58.8 billion in April 1996.

During the same period, average daily share volume grew 35-fold from DH 2.5 million to DH 94.8 million. Improvement in the indicators strongly correlates to privatization speed.

Recently, the CSE itself was privatized. Its new owners are all stockbrokers, including foreign companies, having a seat on the exchange. Other notable changes include the creation of a stock exchange watchdog and the licensing of mutual funds.

Flocking from foreign lands
Fifteen companies and hotels were sold in whole or in part to foreign buyers. These include some of the world's largest industrial operators and most prominent fiancial investors who account for 30% of privatization revenue.

But, it is not only foreign buyers who are bringing funds to the program; Moroccans who work abroad have been major participants as well. They have invested steadily in all CSE offerings, accounting for an average of 20% of sales. more importantly, they are strengthening the traditional family and emotional ties that bind them to Morocco with economic ties based on modern financial intruments - privatization stocks and bonds.

Innovative bonds
In January 1996, the Ministry launched a new product - privatization bonds. they confer an absolute priority in buying shares privatized on the CSE before 31 December 1998 maturity. They were introduced to meet two goals: sustaining CSE growth and delinking sales from revenue.

Bonds have found a strong acceptance. The january and May offerings were both fully subscribed raising US $ 314 million. They were marketed through an ingenious television ad based on a recent Moroccan hit film and done entirely in the arabic dialect of Fez - both of limited attraction to foreign investors. Nevertheless, foreign buyers did account for 1.82% of bonds in the first offering and 3.45% of the second. an international bond tranche is being considered.

In the recent SAMIR IPO, investors converted 76.2% of their bonds to stocks. The IPO gave them the first opportunity for conversion - and Ministry officials had only forecast conversion of 50%-60%. They maintain that the high conversionrate validates their claim that the bonds differ from the standard debt instruments and should be considered a prepayment for privatization shares. The fact that privatization bonds pay 2% less than comporable treasury bonds bolsters their claim.

Coming changes
New firms will be added to the current privatization list. These are expected to include the national airline, telecommunications, other large industrial projects, and the remaining hotels. In a parallel move, the government plans to sell off agricultural lands currently managed by State Farms. Parliament is now debating a bill to this effect. Regarding future prospects, Minister Saaidi has said that " In the long run, however, authorities do not expect to sell the phosphate production activities. Nonetheless, they will open up downstream activities relating to phosphate processing in the prvate sector. These include the FERTIMA fertilizer producer scheduled for CSE listing in mid-1996.

Procedural changes to speed up the privitization process are also planned. while the results for the first half of 1996 have already been striking, the planned additions to the list and the streamlined procedures clearly show that the best is yet to come.


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© June 1996
Alfred Saulniers