SBI and IOCL to ink India’s First Libor Alternative Rate Deal

The State Bank of India (SBI) and Indian Oil Corporation Limited (IOCL) will be sign the first Secured Overnight Financing Rate (SOFR) linked external commercial borrowing (ECB) deal. The deal will be signed because the de facto international benchmark reference rate called the London Interbank Offered Rate (LIBOR) will no longer work as the benchmark after December 2021.

Highlights

The state Bank of India highlighted that, it will be arranging $100 million linked to SOFR for 5 years. The LIBOR will no longer work as the benchmark after December 2021. Thus, the Secured Overnight Financing Rate (SOFR) and Sterling Overnight Interbank Average Rate (SONIA) are the most potential alternatives. But only a few swap deals are linked to these alternatives at the international level. Libor is still used extensively specially for loans which are getting matured within the year.

London Interbank Offered Rate (LIBOR)

LIBOR is an interest-rate average which is calculated with the help of the estimates which is submitted by leading banks in London. Under it, each bank estimates what it would be charged to borrow from other banks. The rate was formerly known as British Bankers’ Association Libor (BBA LIBOR) before the responsibility of the administration was transferred to Intercontinental Exchange. It is a primary benchmark for the short-term interest rate across the world, along with the Euribor. However, this interest rate average will not be published any after December 2021 and the market participants are being encouraged to transition towards other risk-free rates. These rates are calculated on five currencies and seven borrowing periods which ranges from overnight to one year. The rates are published each business day by the Thomson Reuters.

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