SBI and IOCL to Ink India’s First Libor Alternative Rate Deal

State Bank of India (SBI) had signed the first deal in the external commercial borrowing (ECB) market using the new Secured Overnight Financing Rate (SOFR). SBI and Indian Oil Corporation (IOCL) have inked a $100 million deal for five years.

Key Points

• SOFR is the new alternative benchmark rate that will replace LIBOR (London Interbank Offered Rate).
• LIBOR is the existing benchmark rate but is being phased out due to irregularities in it.
• LIBOR will be replaced by SOFR end of 2021.
• The decision to phase out LIBOR was taken by the Financial Conduct Authority (FCA).
• Deputy Managing Director (International Banking Group), C Venkat Nageswar said that 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).
• IOCL will set the pace for smooth transition by Indian Corporates to ARR mechanism by availing the first SOFR linked ECB.
• IOCL is the largest public sector Oil Marketing Company in India.

Previous Transactions

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

FCA on LIBOR

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.

The FCA is the conduct regulator for nearly 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.