RIL cuts term SOFR deal with JP Morgan, heralds a new era

Reliance Industries has cut a trade-financing deal with Wall Street bank JP Morgan using the Term SOFR (Secured Overnight Financing Rate), heralding a new era in loan-pricing benchmarks as the hitherto popular reference frame LIBOR is phased out after decades of international duty.

LIBOR is being replaced in phases by alternative rates for all loans and derivative deals starting January next year.

The financing deal was sealed at the bank’s overseas branch, likely in Singapore, and it involved discounting a Letter of Credit (LC). The amount involved was about $50 million.


Reliance is said to have obtained an LC from an Indian bank for procuring raw materials from the global market, three market sources familiar with the matter told ET. This LC will be discounted at a rate determined by SOFR Term rate with maturity running between two and three months.

“The financing will be provided by JP Morgan at the SOFR Term Rate,” said one of the persons cited above.

The SOFR Term rate, with a three-month maturity, yields 0.05043 percent.

Officials at Reliance and JP Morgan did not comment on the matter untill publication of this report.

“With a transition away from the LIBOR benchmark now inevitable, Indian users will have to start getting familiar with alternative reference benchmarks such as SOFR,” said Ananth Narayan, associate professor at the SP JAIN Institute of Management. “Larger corporates and banks leading the way in this transition is actually a good sign.”

CME group, the world’s largest derivative exchange, got the approval from the Alternative Reference Rates Committee (ARRC) to launch SOFR Term rates end-July.

"We…have been delivering robust, forward-looking SOFR term rates to the industry, based on our deep and liquid underlying CME SOFR futures market, since September 2020," said Sean Tully, CME Group Global Head of Financial and OTC Products, in a statement.

SOFR is a benchmark rate administered by the Federal Reserve Bank of New York, which has been selected to replace dollar-denominated LIBOR. SOFR is reportedly based on overnight transactions in the US Treasury repo market.

Nearly two months ago, India’s central bank warned banks and financial institutions against structuring deals linked to LIBOR.

In its bi-monthly monetary policy, RBI relaxed norms to facilitate the financial industry’s migration to alternative reference rates instead of LIBOR. It directed banks and borrowers to work a smooth transition.