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First SORA-based green loan in Singapore approved by OCBC

by • November 24, 2020 • SORAComments (0)149

OCBC Bank partners Tong Eng Group on Singapore’s first SORA-based green loan

Singapore property developer, Tong Eng Group (“Tong Eng”), has secured Singapore’s first SORA-based green loan referencing the Singapore Overnight Rate Average (SORA) with OCBC Bank. The proceeds from the first SORA-based green loan will be used for the refinancing of Tong Eng Building, which received the Building and Construction Authority (BCA) Green Mark Platinum re-certification last month.

first SORA-based green loanThis is also OCBC Bank’s third SORA-based corporate loan, with the first two extended to CapitaLand and Sembcorp Industries in June and October respectively. It had introduced the first SORA-based retail home loan in July.

To date, OCBC Bank has extended more than S$1.3 billion in corporate and retail loans referencing SORA, which includes close to S$1 billion in SORA-based home loans.

The interest rate of this S$71 million revolving loan facility will be calculated based on the 3-month Compounded SORA published by the Monetary Authority of Singapore (MAS), as well as an applicable margin. Tong Eng will be informed on the first day of the loan, and thereafter, on each rollover of the loan, of the amount of interest due on their outstanding loan at the end of an interest period. This “compounding in-advance” methodology provides better visibility and therefore facilitates cashflow planning with regard to interest payment.

This first SORA-based green loan was raised under Tong Eng’s newly established Green Loan Framework (“Framework”), which was developed together with OCBC Bank as Green Loan Advisor. The Framework was prepared in accordance with the Green Loan Principles.

In obtaining the Building and Construction Authority Green Mark Platinum Award for Tong Eng Building, Tong Eng has incorporated several green features that has resulted in energy savings including the replacement of the original water cooled packaged units with chillers and air handling units coupled with smart control strategies which resulted in tremendous energy savings. The air handling units at each floor were also installed with controls to monitor carbon dioxide levels to regulate fresh outdoor air intake, in order to achieve a high level of indoor air quality.

Other sustainable features included installation of motion sensors fitted to the common area lighting as well as retrofitting tenant units with LED energy saving light fixtures.

Separately, Tong Eng undertook an extensive lift upgrading exercise, where all the lifts were fitted out with new technology motors, drives and controllers for optimum operation of the lifts.

Said Mr. Teo Tong Lim, Managing Director of Tong Eng Group, “We are pleased to have the support of OCBC on this SORA-based green loan, which is the first of its kind. Besides furthering our sustainability strategy, this loan is also an important step for us in transitioning our loan book to backwards looking rates – an inevitable shift that many businesses will have to undertake. Beginning this process early has given us a better understanding of the pricing of such loans, and the operational changes that have to be made, to prepare for the period after the cessation of SOR.”

Said Mr Linus Goh, Head of Global Commercial Banking, OCBC Bank, “We are delighted to support our long-standing customer Tong Eng in their first green loan. Choosing to launch this loan with the refinancing for the Tong Eng Building, which has been a fixture in the Central Business District since the 1980s, is an important signal of intent and a timely reminder that mature buildings can and should strive towards meeting today’s sustainability standards.

“This is also the first SORA-based green loan, and Tong Eng takes the lead as one of the early adopters of the new industry interest rate benchmark. This is consistent with their forward-thinking mentality which we hope will encourage other businesses to begin this transition to the new rate sooner rather than later.”

Mr Paul Ho, chief mortgage officer at iCompareLoan, said: “Forward looking companies will position themselves for the future by being SORA centered early. If they do this they will have a greater understanding of how SORA works and will be at the forefront of innovative SORA-based financing solutions as market adoption increases.”

In practice, a 3-month Compounded SORA Financial Package will reference the 3-month Compounded SORA rate, published by MAS, to compute the monthly loan instalment. The rate will be updated every month instead of every three months as is the case for the 3-month SIBOR-based home loan.

The first applicable 3-month Compounded SORA rate will be the one published by MAS on the date that the bank disburses the loan, and will apply for a period of one month. If the 3-month Compounded SORA is less than zero, zero will be applied.

How the 3-month Compounded SORA package works

MAS publishes SORA for a given business day in Singapore by 9.00am on the next business day in Singapore. Alongside SORA, the Compounded SORA rates for the 1-month, 3-month and 6-month tenors are also published.

The OCBC 3-month Compounded SORA Package will reference the 3-month Compounded SORA rate, published by MAS, to compute the monthly loan instalment. The rate will be updated every month instead of every three months as is the case for the 3-month SIBOR-based home loan.

The first applicable 3-month Compounded SORA rate will be the one published by MAS on the date that the bank disburses the loan, and will apply for a period of one month. If the 3-month Compounded SORA is less than zero, zero will be applied.

For each subsequent 1-month period, the applicable 3-month Compounded SORA will be the rate published by MAS on the first day of the 1-month period (rate review date) and will apply for such subsequent 1-month period.

This provides certainty to the customer as the customer will be notified at the start of the month of the applicable interest rate and instalment amount that will be charged at the end of the month. This arrangement helps the customer better plan his or her finances.

The 3-month Compounded SORA rate applicable on a Saturday, Sunday and Public Holiday would be the last published 3-month Compounded SORA rate. For example, if the rate review date falls on a weekend, the 3-month Compounded SORA rate applied for the next 1-month period would be the 3-month Compounded SORA rate published on the working Friday of that week.

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