In its latest move to promote the use of a new pricing benchmark in the Singapore dollar bond market, UOB has priced Singapore’s first capital securities with a reset coupon rate that references the Singapore Overnight Rate Average Overnight Indexed Swap (SORA-OIS) rate.

The reset coupon rate of the bank’s perpetual, non-call five-year additional Tier 1 (AT1) securities on the first call date will reference the five-year SORA-OIS rate, instead of the five-year Swap Offer Rate (SOR) interest rate swap (IRS) that had been the benchmark reference rate in the market.

The Association of Banks in Singapore and Singapore Foreign Exchange Market Committee had earlier identified SORA as the rate to replace SOR in the Singapore dollar cash and derivatives market. This will see liquidity in the SGD interest rate derivatives market shift over time from SOR IRS to SORA-OIS.

Lee Wai Fai, the bank’s chief financial officer, comments: “2021 is an important year in Singapore’s transition to a SORA-centred interest rate market and UOB is pleased to be the first issuer to reference SORA for a capital security.

“This transaction is another step to encourage the use of the new benchmark rate for pricing in the SGD bond market as part of broader industry efforts to develop deep and robust SORA-based cash and derivative markets. As the industry progresses on the transition to SORA, we will continue to step up our efforts and play our part in expanding the use of SORA across more financial products

An overnight indexed swap is an interest rate swap agreement where a fixed rate is swapped against a pre-determined published index of a daily overnight reference rate, with SORA being the reference rate in this instance. A perpetual debt securities may have a “call” feature which enables the issuer to redeem the bonds at a stated date.