UOB has broken new ground here by pricing capital securities with a reset coupon rate that references the Singapore Overnight Rate Average Overnight Indexed Swap (Sora-OIS) rate.
The move is another step towards the adoption of a Sora-based pricing benchmark in the Singdollar bond market, and part of broader industry efforts to develop robust Sora-based cash and derivatives markets.
The reset coupon rate of UOB's perpetual, non-call five-year additional Tier 1 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.
This comes as Singapore is moving from SOR to Sora as the new interest rate benchmark, given that the London Interbank Offered Rate (Libor) will be discontinued at the end of this year, which would affect SOR as it uses the US dollar Libor in its computation.
Sora was picked as the new benchmark as it was found to be the most robust and suitable alternative, underpinned by a deep and liquid overnight funding market.
It is expected to be the de facto floating rate benchmark for all institutional Singdollar financing activity from the end of April. Liquidity in the Singdollar interest rate derivatives market will then shift over time from SOR IRS to Sora-OIS.
The Monetary Authority of Singapore backed the transition last June when it established a daily auction process to facilitate price discovery in Sora-OIS. The use of Sora-OIS as a reference rate for pricing of Singdollar bonds will contribute to the further deepening of the liquidity of the Sora-based derivative market.
UOB chief financial officer Lee Wai Fai said: "UOB is pleased to be the first issuer to reference Sora for a capital security." He added that the bank will continue to step up efforts and expand the use of Sora across more financial products.
The transition from SOR and the Singapore Interbank Offered Rate to Sora is in line with global reform efforts to improve the robustness and integrity of financial benchmarks.
THE BUSINESS TIMES
