30 August 2021
On 29 July 2021, the Steering Committee for SOR & SIBOR Transition to SORA (“SC-STS”) published a report setting out updated timelines and key recommendations for the industry-wide transition of financial contracts away from the legacy use of SOR. The recommendations cover a wide spectrum of financial products across wholesale and retail markets, and aim to facilitate a smooth transition out of SOR contracts.
The SC-STS strongly encourages wholesale market participants to substantially shift out of their legacy SOR exposures by 31 December 2021, using the SOR-SORA basis swap market as a transparent and market-determined reference for the transition from SOR to SORA. While the SOR-SORA basis swap market is expected to be liquid as the industry-wide transition gathers pace, it will become less liquid in 2022 as derivatives market approach the completion of transition from SOR to SORA.
The SC-STS states that borrowers and lenders should refer to the SOR-SORA basis swap mid-rate as the starting basis for discussions on conversion. The mid-rate is deemed to be reasonable as it is in the interest of both parties to convert the legacy SOR contract to reference SORA before SOR is discontinued.
In addition, given that syndicated loans constitute close to 60% (or S$46 billion) of legacy SOR corporate loans that mature after SOR is discontinued, the
SC-STS recommends that agent banks lead the coordination among lenders, borrowers and all other parties to the syndicated loan in order to facilitate a smooth loan conversion to SORA.
The SC-STS states that market participants should actively transition out of SOR derivatives by end-December 2021, in tandem with banks’ gradual wind-down of their SOR exposures in the coming months. Market participants are strongly urged to convert their derivatives contracts to SORA early while liquidity in the SOR-SORA basis market remains ample.
The SC-STS states that it is essential for issuers of (i) resettable fixed rate securities that reference SOR interest rate swap rates after 31 December 2021 and (ii) floating rate notes that mature after 30 June 2023, to immediately explore options for the remediation of such securities. Where necessary, a consent solicitation process should commence as soon as practicable and before 31 December 2021, as this process could take several months to complete.
Retail loan market
The SC-STS recommends a simplified transition approach for the retail loan market, where banks would make available to retail customers a SORA Conversion Package at no additional fee or lock-in. The SORA Conversion Package switches a customer's existing SOR loan to a comparable SORA loan by applying a standardised Adjustment Spread (Retail).
The SORA Conversion Package will be made available to retail customers with legacy SOR loans from 1 September 2021 to 31 October 2022 in order to facilitate their voluntary conversion to a comparable SORA loan. The SC-STS discourages transition of SOR loans to SIBOR, in line with its previous guidance that banks stop new use of SIBOR after 30 September 2021. SIBOR will be discontinued after 31 December 2024.
The SC-STS will undertake a public education campaign starting in September 2021 to raise awareness on the industry-wide transition from SOR to SORA. Banks will also directly engage retail customers with legacy SOR loans in October 2021 to encourage conversion.
The following materials are available on the website of the Association of Banks in Singapore www.abs.org.sg:
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