The largest industrial company in the UAE outside of the oil and gas sector, Emirates Global Aluminium (EGA), has agreed to a revolving credit facility tied to the Term Secured Overnight Funding Rate (SOFR).
SOFR is the emerging replacement for the US dollar London Interbank Offering Rate (LIBOR), which has been the global lending benchmark for decades but has been the subject of market manipulation accusations.
According to Investopedia, the SOFR is an influential interest rate that banks use to price US dollar-denominated derivatives and loans. The daily secured overnight financing rate – SOFR – is based on transactions in the Treasury repurchase market, where investors offer banks overnight loans backed by their bond assets.
The company’s transaction is one of the first syndicated corporate credit facilities to be agreed in the Middle East with Term SOFR as the benchmark pricing, using the Chicago Mercantile Exchange SOFR forward rate. The transaction helps establish market practice for the use of Term SOFR in the region and by industrial companies worldwide.
EGA sets market practice for use of Term SOFR
SOFR provides a benchmark interest rate based on data from observable transactions, while LIBOR relied on disclosures from a panel of selected banks.
Zouhir Regragui, chief financial officer at EGA said: “EGA has broken new financial ground in the Middle East with this Term SOFR facility, and this is an example of how to manage the global transition to this new benchmark. The facility itself, like the one it replaces, will enable us to continue our robust and structured approach to managing our short-term working capital and liquidity position.”
The new committed revolving credit facility provides EGA access to $137.5mn, with a term extended by 12 months. Participating banks include Abu Dhabi Commercial Bank, Emirates NBD, and the Commercial Bank of Dubai.
In total, the company revealed that it continues to have $737.5mn of committed revolving credit facilities.
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