UOB gets nod to switch interest rate benchmark for £350m floating-rate covered bonds due 2023 to Sonia

UOB announced on Thursday that it has received approval from bondholders to convert the interest rate benchmark for its £350 million (S$650.7 million) floating-rate covered bonds due 2023 from sterling London Interbank Offered Rate (Libor) to the compounded daily Sterling Overnight Interest Rate Average (Sonia).

This comes as Sonia, administered by the Bank of England, is identified as the replacement for Sterling Libor, which will be discontinued by the end of 2021.

The interest basis for UOB's covered bonds will be switched to compounded daily Sonia with effect from Aug 31, 2021 to coincide with the next interest payment date of the covered bonds, ahead of the year-end cessation of the sterling Libor.

In a statement, UOB said that its move to convert the interest basis for its covered bonds to Sonia underscores its efforts in supporting the global transition of interbank offer rates to alternative reference rates, which are more robust replacement benchmarks underpinned by deep and liquid overnight funding markets.

The covered bonds were issued in February 2018 under UOB's US$8 billion Global Covered Bond Programme that was established in November 2015.

Koh Chin Chin, UOB's head of group central treasury unit, said that the timing of the conversion enables bondholders to benefit from the well-established procedures and adjustment mechanisms set through similar sterling Libor-to-Sonia consent exercises conducted by bank issuers in Europe and other jurisdictions.

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In addition, bondholders also gain from the greater transparency and liquidity of the Sonia-Libor basis used for the pricing adjustment, she added.

Earlier in June, OCBC had obtained approval from holders of its £250 million floating-rate covered bonds due 2023 to replace the interest basis from sterling Libor to Sonia.