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Moroccan Homebuilders Singing for Sales as Cash Dries Up

Khaled is crooning about love again. This time the Algerian-born singer is telling Moroccan TV viewers of his affection for a new apartment by local real estate developer Douja Promotion Groupe Addoha SA, rather than a girl who doesn’t care.

In another TV ad, Bollywood film star Shah Rukh Khan is singing the praises of a home from Espaces Saada, a smaller builder.

Behind the catchy tunes and lavish sets, the developers don’t have much to sing about. Alliances Developpement Immobilier SA, Morocco’s second-biggest builder, and Addoha, its largest, are both asking investors to accept shares instead of dividends this month -- a first for Moroccan homebuilders -- as tighter credit hurts demand for low-cost housing and prompts the companies to hoard cash in anticipation of a lengthy slowdown.

“Property developers in Morocco have a huge concern called cash,” Mohamed Chbani, the Rabat-based head of research at CDG Capital SA, said by phone. “New projects declined by 26 percent in the first half of this year, and it’s not as if 2012 was the best for the industry.”

A shortage of cash in Morocco’s financial system is hurting the country’s homebuilders as mortgage growth slows and companies struggle to get loans. Falling exports, a decline in remittances from Moroccans living abroad and higher government borrowing are draining cash from domestic banks after lending grew by more than 10 percent every year from 2005 to 2012, peaking at 29 percent growth in 2007.

Lending Slows

Mortgage-lending growth slowed to 9.1 percent in the six months through June, the slowest pace since 2004. Home loans grew more than fivefold from 2001 through June of this year to 157.5 billion dirhams ($18.9 billion), or 21.6 percent of all lending, central bank data showed. In 2001, mortgages accounted for 15 percent of all loans.

To make matters worse for homebuilders, the government is considering a plan to eliminate a tax break initially designed to help the state meet its goals for low-cost housing construction. The incentive, equal to about 13 percent of the Value-added tax on a completed low-cost property, will be reviewed as part of changes ahead of the 2014 budget.

Close to half the increase in the national unemployment rate of 8.8 percent in June stemmed from 38,000 job losses in the construction industry, data by the country’s planning agency showed.

New Stock

Addoha, controlled by property tycoon Anas Sefrioui, will ask investors to accept new stock equal to 567 million dirhams in lieu of a cash dividend of 1.8 dirhams a share for 2012, according to a notice to shareholders published by the bourse regulator CDVM. That’s 4 percent of the company’s existing share capital.

Alliances is seeking to save half of the 242 million dirhams due this month by converting the payment into 242,000 new shares, the company said in a filing with the Casablanca exchange.

Addoha was up 0.2 percent at 43 dirhams in Casablanca trading as of as of 12:59 p.m. The shares ave fallen 32 percent this year. Alliances was unchanged at 420 dirhams for a decline this year of 23 percent. Morocco’s benchmark MASI Free Float Index has declined by 9.9 percent in 2013.

Addoha needs to hold onto cash to “strengthen its capital in a context of growth of its business, allow shareholders to benefit from an opportunity to consolidate their shareholding and optimize its cash with a view to reducing its debt ratio,” the company said on Aug. 7.

The day before, Alliances said the lower dividend payout will help the company “cope with the development” of its real estate programs.

Cash Demands

“Homebuilders have huge cash-flow demands and these capital increases should keep the machine going amid the current decline in demand and tight financing conditions of today,” said Bachir Tazi, head of sales at Casablanca Finance Group, which has 5.8 billion dirhams under management.

Addoha’s balance sheet shows that cash liabilities stood at 3.57 billion dirhams in 2012 compared with cash assets of 43.3 million dirhams. The ratio stood at 2.62 billion dirhams of liabilities against 64.5 million dirhams of cash in 2011, indicating that the company has become more vulnerable to a downturn in sales.

Addoha’s debt has almost doubled since 2009 to 10.2 billion dirhams in 2012, according to data compiled by Bloomberg. Alliances saw debt increase in the period to 8.13 billion dirhams from 2.28 billion dirhams.

Africa Plans

Both homebuilders have announced plans to expand in Africa as the local market slows. Addoha expects to build 15,000 low-income units by 2015, mainly in Ivory Coast and Guinea. Alliances in December signed a contract for 7,000 low-income units in Ivory Coast’s economic capital, Abidjan.

Low-cost housing has become the biggest source of income for Moroccan homebuilders as years of government support starting with King Mohammed’s “Cities Without Shantytowns” initiative in 2004 fueled growth. Housing for low-income buyers accounts for 60 percent of residential sales, the finance and economy ministry’s research department DEPF said in July.

Home starts in that category fell 46 percent to 81,500 in the first half, according to the housing ministry. Addoha’s low-cost and middle-range housing accounted for two thirds of the company’s sales in 2012, its financial statements show.

Budget Cuts

The government slashed its public-investment budget by a quarter in April, the first cut since the 1980s. The reductions will affect all government departments including the housing and urban planning ministry, which is responsible for making land available for housing development. Reductions in transportation and infrastructure will also constrain urban-development plans.

Bank al-Maghrib, the nation’s central bank, twice last year took steps to increase liquidity in the market as lending slowed. In March 2012, the central bank cut the benchmark rate by 25 basis points to 3 percent. Six months later, it reduced the size of the reserve banks must hold to 4 percent of deposits from 6 percent, a measure than unlocked about 7 billion dirhams of cash, central bank officials said.

The homebuilders haven’t yet published first half-earnings. Addoha’s 2012 sales rose by less than 1 percent to 9.48 billion dirhams, after increasing 23 percent the year earlier.

Alliances reported an 8 percent decline in sales to 4 billion dirhams last year and Cie. Generale Immobiliere, affiliated with the country’s biggest institutional fund, CDG, said revenue dropped by 10 percent.

Tight Credit

Loans to homebuilders fell by 0.7 percent to 69 billion dirhams in the first half from a year earlier, the central bank said. Chbani said homebuilders in the country are highly leveraged and their businesses aren’t strong enough to tap international debt markets.

Addoha and smaller rival Espaces Saada have for now turned to TV marketing featuring some of the most popular singers for middle-class and lower income-Moroccans to overcome the downturn. In his video, Khaled is surrounded by dancers and fans clad in the bright orange of Addoha’s logo while he sings a version of his song “Ana Achek,” or “I’m in Love,” with new lyrics to promote the homes.

Shahru Khan sings about the promise of buying a home in Espaces Saada’s social-housing program to a woman in a red sari. She insists on having a kitchen in the apartment “to show you what these hands can do.”

To contact the reporter on this story: Souhail Karam at skaram5@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; Rob Urban at robprag@bloomberg.net

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