SBI, IOCL ink India's first Libor alternative rate deal

SBI and IOCL reach an important milestone in Libor transition with a $100 mn deal for 5 years

State Bank of India (SBI) and Indian Oil Corporation Limited (IOCL) will be inking the first SOFR (Secured Overnight Financing Rate) linked external commercial borrowing (ECB) deal as the world moves away from London Interbank Offered Rate (LIBOR), the de facto international benchmark reference rate.  

In a statement, SBI said it will be arranging $100 million for 5 years linked to SOFR.  

The LIBOR will no longer remain the benchmark after December this year. Consequently, the Indian banks are also getting prepared to move from Libor to another benchmark. Secured Overnight Financing Rate (SOFR) and Sterling Overnight Interbank Average Rate (SONIA) are the two popular alternatives, but internationally, only a few swap deals are linked to them internationally. Libor still continues to be used heavily, especially for loans that mature within a year.

Both SBI and IOCL officials said the deal will help other firms in India to reference their deals based on an alternate reference rate. 

Deputy Managing Director (International Banking Group), C Venkat Nageswar, said, “It is the first SOFR deal in the ECB space and the transaction demonstrates SBI’s position as a leader in aligning its systems and processes to embrace Alternate Reference Rates (ARRs). IOCL, the largest public sector Oil Marketing Company in India, by availing the first SOFR linked ECB, will set the pace for smooth transition by Indian Corporates to ARR mechanism.” 

Sandeep Kumar Gupta, Director (Finance), IOCL said, “This is a first step, albeit an important one, in our quest to gear up for the impending transition from Libor to Alternate Reference Rates. This will also facilitate in efficiently tapping the funding opportunities provided by the ECB market in future.”