OCBC Bank has received the approval of bondholders to convert the interest rate benchmark for its £250 million ($468.1 million) floating rate covered bonds from the GBP London Interbank Offered Rate (LIBOR) to Sterling Overnight Interest Rate Average (SONIA).

The move, which is in line with the cessation of GBP LIBOR by the end of 2021 and the switch to SONIA, makes OCBC the first bank in Asia to do so.

The step is a big one towards a smooth transition in Asia from LIBOR to risk-free rates that are identified as robust alternatives.

The move also makes other bond issuers to be able to follow suit.

OCBC had, on May 18, launched a bondholder consent solicitation to modify, by way of an extraordinary resolution, the terms and conditions of the £250 million covered bonds due in 2023 issued out of the bank’s US$10 billion ($13.24 billion) Global Covered Bond Programme established in 2016.

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The £250 million covered bonds were issued in March 2018 for general corporate purposes.

The extraordinary resolution was passed at 5pm on June 9.

The existing GBP LIBOR in the OCBC covered bonds will be replaced with the compounded daily SONIA.

The SONIA rate will be effective from June 14.

The move is not expected to affect the ‘AAA’ and ‘Aaa’ ratings of OCBC Bank’s covered bonds, according to Fitch Ratings and Moody’s.

Companies around the world are preparing for the end of the LIBOR, which will affect multiple financial instruments involving trillions of dollars.

So far, over £100 billion of bonds that are linked to the GBP LIBOR have yet to transition to a new benchmark rate.

The move to SONIA, says OCBC’s chief financial officer Darren Tan, would provide certainty for the bank’s investors. 

“Since it was announced that LIBOR would cease to be referenced as a benchmark interest rate, we have undertaken a bank-wide assessment of its impact on our Bank, our investors, and our customers. The move to convert our bonds from referencing GBP LIBOR to SONIA is one of the proactive steps to adopt the risk-free rate to ensure a smooth and seamless transition,” says Tan.

“It strikes the balance of doing so with the right timing: not too early as transition standards were evolving, or too late such that liquidity for GBP LIBOR bonds diminish. By doing so, we give investors the peace of mind that their ownership of the bonds issued by us will not be adversely affected by the cessation of GBP LIBOR,” he adds.

Shares in OCBC closed 3 cents higher or 0.2% up at $12.39 on June 10.