Olam snags $200m Sora-pegged club loan from DBS, ICBC Singapore

Proceeds from the loan will be applied towards general corporate purposes of Olam and its subsidiaries. PHOTO: OLAM INTERNATIONAL

SINGAPORE (THE BUSINESS TIMES) - Agri-food giant Olam International has obtained Singapore's first club loan pegged to the Singapore Overnight Rate Average (Sora) from DBS and the Industrial and Commercial Bank of China, Singapore Branch (ICBC Singapore).

A club loan is a type of syndicated loan with more than one party providing the financing.

Olam has the option to enter into a Sora cross-currency swap with DBS at the start of each interest period, giving added certainty on interest rates and swap SGD proceeds into USD, the three parties said in a joint statement on Monday (Sept 28).

The loan and the cross-currency swap mark another milestone in Singapore's transition roadmap set out by the Steering Committee for SOR Transition to SORA (SC-STS) towards adopting Sora as the new interest rate benchmark for SGD cash and derivatives markets, they added.

Given Sora's growing importance as a key interest rate benchmark in SGD financial markets, the loan supports the Association of Banks in Singapore and the Singapore Foreign Exchange Market Committee (ABS-SFEMC)'s efforts to develop new Sora-based markets, the companies said.

Undertaken by Olam with its wholly-owned subsidiary Olam Treasury, the loan facility's interest rate comprises two components - a compounded daily Sora rate calculated in arrears, and an applicable margin.

Olam managing director and group chief financial officer N Muthukumar said the loan provides Olam with "the flexibility to remain adaptable and future-ready itself as we embrace the industry's shift towards mainstream adoption of the new benchmark for the cash and derivatives market in Singapore".

DBS group head, institutional banking group Tan Su Shan said: "By adopting Sora-based financing ahead of the market, forward-looking companies such as Olam are positioning themselves well by gaining an early understanding of how Sora works, and how to better tap Sora-based cash and derivatives markets as industry adoption grows and liquidity deepens."

ICBC Singapore deputy general manager Geng Hao said the Chinese lender is "committed to supporting the Monetary Authority of Singapore's (MAS) vision and providing quality banking services to the community".

Earlier this month, a top MAS official said the authority will be stepping up supervisory engagement to ensure that banks in the Republic are well prepared to transition from the Swap Offer Rate (SOR) - a key interest rate benchmark - to Sora by the end of 2021.

Singapore banks last year began a two-year transition from the use of SOR to Sora, as the scandal-tainted London Inter-bank Offered Rate is due to meet its end after 2021.

In July this year, a consultation report by ABS-SFEMC and the SC-STS also recommended that the SGD Singapore Interbank Offered Rates be discontinued in three to four years, and that Sora be used as the main interest rate benchmark for SGD financial markets.

Proceeds from the loan will be applied towards general corporate purposes of Olam and its subsidiaries.

DBS and ICBC have been appointed mandated lead arrangers, and DBS is the sole bookrunner and facility agent for the loan.

Olam shares ended Friday at $1.26, up two cents or 1.6 per cent, while DBS finished at $20.01, up 21 cents or 1.1 per cent.

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