DBS and Wilmar International Limited (Wilmar), an Asian agribusiness group, inked August 27 the agribusiness industry’s first corporate loan agreement pegged to the Singapore Overnight Rate Average (SORA). At the start of each interest period, Wilmar will also have the option to enter into a SORA interest rate swap (IRS) to give certainty of interest rates. This is the industry’s first SORA loan coupled with an IRS.
In August last year, the Association of Banks in Singapore and the Singapore Foreign Exchange Market Committee announced that the discontinuation of LIBOR (London Interbank Offered Rate) would affect the sustainability of the SGD Swap Offer Rate (SOR) and held a public consultation on the use of SORA as the new interest rate benchmark to replace SOR.
SORA is a backward-looking overnight rate as compared to forward-looking reference rates commonly used for loan facilities in Singapore, such as the SGD SOR where the interest rate is determined at the start of the interest period. To determine the interest rate of a SORA-based loan facility, the daily SORA rates are compounded in arrears and the interest rate is determined by the end of the relevant interest period.
The S$200 million (US$146 million) SORA-based loan and the IRS will be another milestone in the nation’s transition roadmap towards adopting SORA as the new interest rate benchmark for the Singapore dollar cash and derivatives markets. The loan facility’s interest rate, which references SORA, comprises two components: (1) a compounded daily SORA rate calculated in arrears, and (2) an applicable margin.
Andrew Ng, group head, treasury & markets at DBS says that the SORA IRS demonstrates DBS’ commitment to increase liquidity in SORA-derivatives. “This will allow clients like Wilmar to continue to hedge their loan exposures and facilitate a smoother transition into the new benchmark.”
Earlier this year, DBS was the first financial institution in Singapore to successfully price the issue of a SORA-referenced floating rate note.