CapitaLand receives first average overnight rate loan in Singapore

As part of a sustainability-linked loan, this brings the total sustainable financing raised by CapitaLand to S $ 2.72 billion ($ 1.96 billion) in less than two years.

Real estate developer CapitaLand has received the first Singapore Exchange Rate Average (SORA) loan from OCBC Bank – a three-year S $ 150 million ($ 108 million) loan, according to an announcement on Tuesday . The SORA-based loan is part of a S $ 300 million sustainability loan from the bank, which will be used for general corporate purposes.

Singapore loan facilities generally use forward-looking benchmarks, with the interest rate determined at the start of the interest period. SORA is a retrospective overnight rate, and SORA daily rates are compounded in arrears and the interest rate is determined at the end of the relevant interest period. For this loan, the compounded average SORA will be calculated in arrears, using the five business day retroactive observation period methodology, according to the announcement.

“CapitaLand’s pioneering adoption of SORA-based lending allows us to contribute to how SORA will be understood, structured and priced, while setting the stage for widespread adoption in the future.” André Lim, the chief financial officer of CapitaLand, said of the loan.

Growing adoption

According to the OCBC, the industry tends to use retrospective rates made up of arrears.

“This agreement will provide guidance for the development of SORApegged loans, pave the way for greater market acceptance and help these loans gain market traction.” Elaine lam, said the head of OCBC’s global corporate bank.

The bank noted several advantages of using SORA, including more stable rates compared to forward-looking forward rates such as SOR, which are exposed to idiosyncratic market factors during a single-day fixing. He also noted that the SORA has been identified as the alternative benchmark rate for Singapore dollar derivatives, so pegging money market products to the same benchmark allows for effective hedging as the basis risk between markets in the cash and derivative markets is minimized.

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