This is the industry’s first SORA loan coupled with an interest rate swap, which provides certainty of interest rates.
DBS has issued a $200 million ($146.4 million) loan to agribusiness group Wilmar International – the agribusiness industry’s first corporate loan agreement pegged to the Singapore Overnight Rate Average (SORA), the bank announced on Thursday.
The loan facility’s interest rate, which references SORA, comprises a compounded daily SORA rate calculated in arrears and an applicable margin.
Charles Loo, Wilmar chief financial officer, said the loan will put the company in good stead to ride the wave of interest rate reforms and drive better understanding and greater adoption of risk-free rates in general, which is more stable and robust.
SORA is a transaction-based interest rate benchmark underpinned by the SGD overnight interbank funding market. 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.
Singapore plans to shift away from the SGD Singapore Interbank Offered Rates (SIBOR) in three to four years and adopt SORA as the new interest rate benchmark for the Singapore Dollar cash and derivatives market, saying this will bring more transparent loan market pricing for borrowers and more efficient risk management for lenders.
The SORA IRS demonstrates DBS’ commitment to increase liquidity in SORA-derivatives, Andrew Ng, DBS group head, Treasury & Markets, said. This will allow clients like Wilmar to continue to hedge their loan exposures and facilitate a smoother transition into the new benchmark.