SBI & IOCL Signs Maiden SOFR Linked Deal Worth $100 Mn

The State Bank of India (SBI) has signed its first deal in the external commercial borrowing (ECB) market using the new Secured Overnight Financing Rate (SOFR). In a statement, the bank says, SBI and Indian Oil Corporation (IOCL) have signed this $100 million deal for tenure of five years.

SOFR is the new alternative benchmark rate which would be replacing LIBOR (London Interbank Offered Rate), which is the existing benchmark rate. SOFR will replace LIBOR by end of 2021. The sunset has been triggered by the decision of Financial Conduct Authority (FCA) in the UK not to compel contributing banks for LIBOR calculation after December 2021.

C Venkat Nageswar, Deputy Managing Director (International Banking Group) says, “It is the first SOFR deal in the ECB space and the transaction demonstrates SBI’s position as a leader in aligning its systems and processes to embrace Alternate Reference Rates (ARRs).”

Venkat continues, “IOCL, the largest public sector Oil Marketing Company in India, by availing the first SOFR linked ECB, will set the pace for smooth transition by Indian Corporates to ARR mechanism.”

On January 20, SBI said it executed two inter-bank short-term money market deals with pricing linked to SOFR. Likewise, on January 21, ICICI Bank announced that it executed the first interbank money market transaction that is linked with SOFR. Thus, the transaction, executed through the Bank’s Hong Kong branch, is part of the Bank’s Benchmark Transition Management that plan to assess the readiness towards a smooth transition to the new Alternative Reference Rates (ARRs), says the bank.

The FCA said the LIBOR will cease to exist immediately after December 31, 2021, in the case of all sterling, euro, Swiss franc and Japanese yen settings, and the 1-week and 2-month US dollar settings and immediately after June 30, 2023, in the case of the remaining US dollar settings. After these dates, the representative LIBOR rates will no longer be available.

Sandeep Kumar Gupta, Director (Finance), IOCL says, “This is a first step, albeit an important one, in our quest to gear up for the impending transition from LIBOR to Alternate Reference Rates. This will also facilitate in efficiently tapping the funding opportunities provided by the ECB market in future.

The FCA has been the conduct regulator for close to 60,000 financial services firms and financial markets in the UK and the prudential supervisor for 49,000 firms, setting specific standards for 19,000 firms. Moreover, the FCA has confirmed that it does not expect any LIBOR settings to become unrepresentative prior to these intended cessation dates, given the undertakings received from the panel banks.