How does a country, which no longer wants to rely on its rich for investment but whose assets are not quite attracting institutional capital, elevate its status within the global financial markets? If we’re talking about Morocco, the answer is it creates a private equity business.
Anyone trawling the property press this week may well have come across the announcement of a second investment by Wessal Capital, a newly-formed entity of the Kingdom of Morocco that, before this year, nobody had heard of. It involved a €775 million commitment to develop out a large mixed-use, tourism-themed project on a site between the cities of Rabat and Salé. Its first investment, a €530 million injection into the redevelopment of Casablanca’s port area, was announced last month.
Readers of either announcement will have learned that Wessal has €2.5 billion to deploy. Its capital comes from the Moroccan government, but also in equal parts from sovereign wealth entities in the United Arab Emirates, Kuwait, Qatar and Saudi Arabia. Naturally, such a large amount of capital earmarked for a market with little track record of rewarding investors for their private property investments prompted PERE to find out more.
In fact, the genesis of Wessal can be traced back a couple of years to London, one of its senior executives told PERE. Its structure borrows more from the limited partnership model of a private equity fund than a strategic sovereign wealth fund, with an investment period currently intended to run for just 10 years. This we learned is the result of extensive consultation with law firm Allen & Overy, as well as input from Wessal’s 30-strong squad, which includes a sizeable contingent of ex-bankers from Barclays, HSBC and Nomura.
Slapped by the global financial crisis, which took at least 100 basis points of its GDP (IMF reckons Morocco’s GDP will be less than 4 percent in 2014, when it previously was averaging more than 5 percent), and kept down by 2011’s Arab Spring, Morocco’s government is not waiting around for a few ultra-adventurous external managers coming along with an invitation to invest €100 million here or €200 million there. Instead, it is going to play the part of private equity manager itself, adopting the view that, if it puts ample skin into the game (as private equity firms do) and develop assets that global investors can get comfortable with (that’s where these property projects come in), international capital will come. The hope is that they will invest either with Wessal or directly with other private Moroccan businesses.
Regardless, the important thing is that investment comes to Morocco. That four investors, albeit other Middle Eastern sovereigns, have matched Morocco’s €500 million sponsor commitment is early proof that there are institutions willing to give this initiative a go.
Wessal wants further investment and would dearly enjoy Western support from other types of blue-chip institutions, such as corporate or public pension plans. That would be one major litmus test, given the comparatively shorter-term liabilities they would need to satisfy, as opposed to the more patient capital of its sovereign backers.
In terms of risk/reward, PERE understands that on offer is a premium on typical opportunistic returns of 20 percent IRR and equity multiples of 2x. This will help, as will the fact the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank are in for some debt financing.
There is meaningfully more impetus in Wessal Capital’s state/private equity firm/fund platform than there was behind some of the private equity real estate efforts to have graced Moroccan shores before the global financial crisis. But this time, the market needs to deliver the goods. A few full-circled investments by this hybrid newcomer should allow it to show the outside world that Morocco has what it takes to step up to the institutional plate.