SINGAPORE - Singapore banks are debuting more loan products pegged to the Singapore Overnight Rate Average (Sora), helping in the transition to Sora as the new benchmark interest rate.
Sora, which is the average rate of unsecured overnight interbank Singdollar transactions, is a backward-looking rate seen offering more stability than the two forward-looking term rates commonly used - the Singapore Interbank Offered Rate (Sibor) and the Singapore Swap Offer (SOR).
United Overseas Bank and property giant CapitaLand announced on Thursday (Sept 3) that they had signed a two-year $200 million term loan pegged to both the Singapore Overnight Rate Average (Sora) and the Secured Overnight Financing Rate (SOFR).
The dual-tranche loan is the first of its kind in Singapore, UOB and CapitaLand said in a joint statement on Thursday.
The interest rate on the loan's two tranches will be based on the compounded averages of daily Sora and SOFR, both calculated in arrears, and with respective applicable margins.
The loan proceeds will be used for CapitaLand's general corporate purposes.
The loan facility comes ahead of a global transition from interbank offer rates, including the London Interbank Offer Rate, to alternative risk-free rates. Alternative risk-free rates are overnight interest rate benchmarks based on actual transactions and are seen as more transparent and more reflective of market conditions.
Through the collaboration, UOB and CapitaLand aim to enhance market confidence in adopting Sora, which will in turn help accelerate the transition from the use of SOR to Sora.
"This is in line with the Monetary Authority of Singapore's initiatives to support the adoption of Sora as a key interest rate benchmark in Singapore and the development of vibrant and robust Sora markets," they added.
CapitaLand was the first company in Singapore to obtain a Sora-based loan, It signed in June a loan facility agreement with OCBC Bank for a $150 million three-year corporate loan.
Also on Thursday, DBS Bank launched a Sora-pegged business property loan it said was the first in Singapore.
The new package provides business property owners with additional property financing options and covers all property loan types. It also marks another milestone in Singapore's transition towards the adoption of Sora as the main interest rate benchmark for Singdollar cash and derivatives market.
The new loan is tailored for small and medium-sized enterprises (SMEs) looking to finance their commercial and industrial properties. Interest rates will be based on the three-month compounded Sora published by the Monetary Authority of Singapore, as well as an applicable margin.
DBS group head of SME banking Joyce Tee noted that while demand for new business property has dropped, the bank has observed a sustained interest among the SME community for property refinancing solutions amid the challenging economic outlook.
"DBS' new Sora-pegged business property loan affords SME business property owners the opportunity to refinance their property loans on more competitive terms," she said.
SME business property owners can borrow up to 80 per cent of their property value and choose to stretch their repayment tenor to up to 25 years.
Ms Tee added that with the industry moving towards a phased discontinuation of Sibor and adoption of Sora, DBS is giving business property owners the option of taking up a Sora-pegged package ahead of time "to save them the hassle of repapering their loans down the road".
Last month, DBS launched the agribusiness industry's first Sora-based loan, as well as the industry's first Sora loan coupled with an interest rate swap.
Correction note: An earlier version of this article did not give an accurate description of the Singapore Overnight Rate Average. We are sorry for the error.