OCBC executes sustainability-linked interest rate swap with Far East H-Reit

Vivienne Tay

Published Wed, Jun 9, 2021 · 01:58 PM

OCBC on Wednesday said it executed a sustainability-linked interest rate swap with Far East Hospitality Real Estate Investment Trust (Far East H-Reit), which is part of Far East Hospitality Trust (FEHT).

The 2.5-year S$85 million structured derivative transaction aims to provide a hedge against interest rate risk related to the Reit's sustainability-linked loan facility obtained in March this year. The hedge allows Far East H-Reit to fix its interest rate for the loan during the duration of the swap.

OCBC has more than doubled its sustainable finance target from S$10 billion to S$25 billion by 2025, and it said it expects its sustainability-linked derivatives to grow in them with this goal.

Contrary to most sustainability-linked interest rate swaps which are step-ups that impose heavier rates on companies unable to meet their sustainability goals, OCBC's swap is a form of step-down. This means if Far East H-Reit meets its sustainability targets, it will enjoy a lower rate.

Gerald Lee, chief executive of Far East H-Reit's manager, said: "The step-down nature of the swap offered by OCBC further incentivises Far East H-Reit to continue its sustainability practices with potential interest cost savings."

OCBC head of global treasury Kenneth Lai expects to see more sustainability-linked derivatives in Singapore and globally. He said sustainable derivative solutions remove some of the volatility of interest rate or foreign exchange fluctuations, while incentivising clients to meet their sustainability goals.