SINGAPORE (June 16): OCBC Bank and CapitaLand have just signed a $150 million three-year corporate loan as part of a $300 million sustainability-linked loan.
The loan facility agreement, which references the Singapore Overnight Rate Average (SORA), is Singapore’s first, as in the industry moves towards adopting SORA as the new interest rate benchmark for the Singapore dollar cash and derivatives markets.
OCBC Bank had previously executed Singapore’s first overnight indexed swap derivatives transaction using SORA as the reference rate in November 2019.
The loan facility’s interest rate comprises two components – a compounded average of daily SORA rates calculated in arrears, and an applicable margin, where the interest rate is determined by the end of the relevant interest period.
SORA is a backward-looking overnight rate, compared to the forward-looking reference rates commonly used for loan facilities in Singapore, such as the Swap Offer Rate (SOR), where the interest rate is determined at the start of the interest period.
Around the world, several jurisdictions have identified overnight rates as alternative benchmark rates to the London Interbank Offer Rate (LIBOR) in their respective currencies. The industry is currently trending towards the use of backward-looking, compounded-in-arrears rates.
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For Singapore’s inaugural SORA-based loan facility, the compounded average SORA will be calculated in arrears, using the ‘five-business day backward-shifted observation period’ methodology.
“We are pleased to be working with CapitaLand on Singapore’s first SORA-pegged loan, which is an important first step for the industry transition from SOR to SORA,” says Elaine Lam, head of global corporate banking at OCBC Bank.
“This deal will provide guidance for the development of SORA-pegged loans, pave the way for greater market acceptance and help such loans gain traction in the market. This landmark SORA-pegged loan, being a sustainability-linked loan, deeply resonates with OCBC’s and CapitaLand’s shared commitment to advancing green finance in Singapore,” she adds.
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“CapitaLand’s pioneer adoption of the SORA-based loan enables us to contribute to how SORA will be understood, structured and priced, in the process preparing the groundwork for mainstream adoption in the future. It also positions CapitaLand well as we embark on our own gradual transition,” says Andrew Lim, group chief financial officer at CapitaLand Group.
“With the support of a like-minded partner in OCBC, we are able to dovetail this important innovation in Singapore’s financial ecosystem with our commitment to our environmental, social and governance efforts. We will continue to advocate and pursue responsible growth and sustainability as a Group,” he adds.
Shares in CapitaLand closed 4 cents lower, or 1.3% down, at $2.96 on Monday.
