Singapore - OCBC Bank announced today that it has received the approval of bondholders to convert the interest rate benchmark for its £250 million floating rate covered bonds, making it the first bank in Asia to successfully complete the replacement of its covered bonds’ interest rate benchmark from GBP London Interbank Offered Rate (LIBOR) to Sterling Overnight Interest Rate Average (SONIA). This is a big step towards a smooth transition in Asia from LIBOR to risk-free rates identified as robust alternatives and paves the way for other bond issuers to follow suit.  

The Bank had launched a bondholder consent solicitation on 18 May 2021 to modify by way of an extraordinary resolution the terms and conditions of the £250 million covered bonds (due in 2023), issued out of the Bank’s US$10 billion Global Covered Bond Programme established in 2016. The £250 million covered bonds, issued in March 2018, was for general corporate purposes. The extraordinary resolution was passed at about 10am (London time) on 9 June 2021 (about 5pm Singapore time, 9 June 2021).

The existing GBP LIBOR in the OCBC covered bonds will be replaced with the compounded daily SONIA. The SONIA rate for the covered bonds will be effective from 14 June 2021.

Both Fitch Ratings and Moody’s said that the change, which comes ahead of the discontinuation of GBP LIBOR by end-2021, is not expected to affect their ‘AAA’ and ‘Aaa’ ratings of OCBC Bank’s covered bonds respectively.

Globally, companies are preparing for the end of LIBOR, which will impact multiple financial instruments involving trillions of dollars. Companies are only starting to understand the implications. The Investment Association in the UK estimated earlier this year that more than £100 billion of bonds linked to GBP LIBOR have yet to transition to a new benchmark rate.

Mr Darren Tan, Chief Financial Officer of OCBC Bank, said the move by OCBC Bank to transition the interest rate benchmark, LIBOR, for its GBP covered bonds to SONIA would provide certainty for the Bank’s investors given that the GBP LIBOR cessation date is drawing near.

“Since it was announced that LIBOR would cease to be referenced as a benchmark interest rate, we have undertaken a bank-wide assessment of its impact on our Bank, our investors, and our customers. The move to convert our bonds from referencing GBP LIBOR to SONIA is one of the proactive steps to adopt the risk-free rate to ensure a smooth and seamless transition,” Mr Tan said.

“It strikes the balance of doing so with the right timing: not too early as transition standards were evolving, or too late such that liquidity for GBP LIBOR bonds diminishes. By doing so, we give investors the peace of mind that their ownership of the bonds issued by us will not be adversely affected by the cessation of GBP LIBOR.”

OCBC has been leading the way for the transition from the Singapore dollar interest benchmark, SOR to SORA, having executed Singapore’s first overnight indexed swap derivatives transaction using SORA in November 2019, inked Singapore’s first SORA-based loan in June 2020, and launched Singapore’s first compounded SORA home loan in August 2020.