- The SOFR linked ECB deal is for about $100 million with a maturity of 5 years.
SBI & IOCL Being the Changeover:
- This deal made by SBI & IOCL is the first SOFR linked ECB deal in India. It will facilitate other firms in India to take this as a reference to make a transition from Libor to Alternate Reference Rates (ARR) linked ECB.
Reason behind the shift from LIBOR to ARRs:
- In July 2017, Financial Conduct Authority (FCA) in the UK decided to stop LIBOR, the international benchmark reference rate lending by December 2021 and suggested using ARRs
- Among the 5 currencies under LIBOR, the US dollar will exit by the end-June 2023 and the remaining 4 currencies (Swiss franc, euro, sterling, yen) by the end – December 2021.
LIBOR’s current status: It is still being heavily used one especially for loans that mature within a year.
Alternate Reference Rates (ARRs):
- Secured Overnight Financing Rate (SOFR) and Sterling Overnight Interbank Average Rate (SONIA) are the two popular alternatives, but only a few swap deals are linked to them internationally.
External Commercial Borrowings (ECB):
- It is a loan availed by an Indian entity from a non-resident lender with a minimum average maturity.
- Borrowing limit is about $750 million per financial year
- Minimum average maturity period is 3 years
- The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates ECB guidelines and policies.
Recent Related News:
On February 23, 2021, In accordance with the new EY (Ernst & Young) India report titled “Impact of IBOR transition on NBFCs in India”, Indian Non-Banking Finance Companies (NBFCs) require an effective plan for Inter-Bank Offered Rate (IBOR) transition, as the majority of London Inter-Bank Offered Rate (LIBOR) rates are likely to be phased out by the end of 2021.
About Indian Oil Corporation Limited(IOCL)
Establishment -30 June 1959
Headquarters – New Delhi
Chairperson – Shrikant Madhav Vaidya