OCBC gets nod from covered bondholders to transition to Sonia from sterling Libor

OCBC on Thursday said it has obtained approval from holders of its £250 million floating-rate covered bonds due 2023 to replace the interest basis from sterling Libor (London Interbank Offered Rate) to Sterling Overnight Index Average (Sonia).

The move is in line with the cessation of sterling Libor by the end of 2021, and the switch to Sonia.

OCBC said it is the first bank in Asia to complete the transition of its sterling covered bonds' interest rate benchmark. The bank said this is a "big step" towards a smooth transition in Asia from Libor to risk-free rates identified as robust alternatives. It also paves the way for other bond issuers to follow suit, said the lender in a  statement on Thursday.

Darren Tan, chief financial officer of OCBC, said this transition move would provide certainty for the bank’s investors, given that the sterling 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 sterling Libor to Sonia is one of the proactive steps to adopt the risk-free rate to ensure a smooth and seamless transition,” he 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 sterling Libor bonds diminish. 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 sterling Libor.”

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OCBC said the sterling Libor vs Sonia interpolated basis would be 0.078 per cent. Thus, the adjusted margin is 0.348 per cent. The pricing took place at 9pm on Wednesday. 

The Sonia rate for the covered bonds will be effective from June 14, 2021.

In its consent solicitation memorandum dated May 18, OCBC said the adjusted margin will be the sum of the sterling Libor versus the Sonia interpolated basis and the covered bonds' current margin of 0.27 per cent. (see Amendment note)

The bank had sought to modify the terms and conditions of the covered bonds in a consent solicitation process, which took place by way of an extraordinary resolution. The resolution was passed at 5pm (Singapore time) on Wednesday.

Both Fitch Ratings and Moody’s said that the change is not expected to affect their AAA and Aaa ratings of OCBC's covered bonds respectively, the bank said.

OCBC is not the only bank to have embarked on a consent solicitation exercise to make the transition to Sonia. On Tuesday, UOB said it commenced its own seeking of approval process to modify the terms and conditions of the bank's £350 million (S$652.5 million) floating rate covered bonds due 2023, to facilitate the transition to Sonia from Libor. 

READ MORE: 

• Singapore sets example for Libor shift with 'ground-breaking' debt sale

• Singapore to move ahead with Sora transition by year-end

Amendment note: A previous version of this story misstated the covered bond's margin of 0.27 per cent as 0.24 per cent.