Part of a sustainability-linked loan, this brings the total sustainable financing raised by CapitaLand to S$2.72 billion ($1.96 billion) in less than two years.
Property developer CapitaLand has received the inaugural Singapore Overnight Rate Average (SORA) based loan from OCBC Bank - a S$150 million ($108 million) three-year loan, according to an announcement on Tuesday. The SORA-based loan is part of a S$300 million sustainability-linked loan from the bank, which will be used for general corporate purposes.
Loan facilities in Singapore typically use forward-looking reference rates, where the interest rate is determined at the start of the interest period. SORA is a backward-looking overnight rate, and the daily SORA rates are compounded in arrears and the interest rate is determined at the end of the relevant interest period. For this loan, the compounded average SORA will be calculated in arrears, using the five-business day backward-shifted observation period methodology, the announcement said.
«CapitaLand’s pioneer adoption of the SORA-based loan enables us to contribute to how SORA will be understood, structured and priced, in the process preparing the groundwork for mainstream adoption in the future,» Andrew Lim, chief financial officer, CapitaLand, said about the loan.
Growing Adoption
According to OCBC, the industry is trending towards the use of backward-looking, compounded-in-arrears rates.
«This deal will provide guidance for the development of SORApegged loans, pave the way for greater market acceptance and help such loans gain traction in the market,» Elaine Lam, OCBC head of global corporate banking said.
The bank noted several benefits of using SORA, including more stable rates compared to forward-looking term rates such as SOR, which are exposed to idiosyncratic market factors on a single day’s fixing. It also noted that SORA has been identified as the alternative benchmark rate for Singapore dollar derivatives, so pegging cash products to the same benchmark allows for effective hedging as the basis risk between cash and derivatives markets is minimized.
