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Singapore sees first USD SOFR-linked export financing transaction

DBS has completed Singapore’s first export financing transaction referencing the USD Secured Overnight Financing Rate (SOFR) with global food and agri-business, Bunge. SOFR has been identified by the Alternative Reference Rates Committee, a group of private-market participants convened by the Federal Reserve Board and the New York Fed, as the recommended alternative to USD LIBOR.

The US$25m transaction, priced off SOFR averages, is a significant industry milestone as the global Interbank Offered Rate (IBOR) transition gathers pace, and DBS says it fortifies Singapore’s status as a global trade hub.

LIBOR transition deadline drawing closer

Such transactions enable DBS’ institutional clients to transition their trade financing instruments away from USD LIBOR as a reference rate, ahead of the December 2021 cessation guidance issued by the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation.

With LIBOR’s impending discontinuation, the bank has been actively engaging its institutional clients to ensure a smooth transition to alternative Risk-Free Benchmark Rates (RFRs). This includes partnering corporates plugged into the international trade system to develop suitable trade financing solutions that reference new USD-pegged benchmarks.

"The global IBOR transition is a hugely complex endeavour, and we are leveraging our deep market expertise to help our clients make sense of these changes," commented Tan Su Shan, group head of Institutional Banking at DBS. "We are pleased to partner forward-looking companies such as Bunge in pioneering trade financing instruments that are a fit for the new interest rate benchmark landscape. In doing so, we are entrenching Singapore’s position as a trusted and reliable trade nexus that is well prepared for the broader changes taking place in the financial markets."

The latest first with risk-free rates

Since 2020, DBS says it has helped its institutional clients transition to RFRs, including the Singapore Overnight Rate Average (SORA) for the SGD cash and derivatives market. In September 2020, DBS issued Singapore’s first SORA club loan coupled with a cross-currency swap to Olam.

The bank has also priced Singapore’s first SORA-referenced floating rate note, launched Singapore’s first business property mortgage loan referencing SORA, and executed Singapore’s first SORA-referenced interbank option trade. SORA-pegged loans now account for one-third of all new SME loans issued by DBS.

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