Innovation on the global financial markets by SAFA

The South Australian Government Financing Authority (SAFA) has issued the first Floating Rate Note (FRN) linked to Australian Overnight Index Average (AONIA), also known as RBA Interbank Overnight Cash Rate. SAFA has mandated IHS Markit as the Independent Calculation Agent for the notes and UBS as Arranger for the issue.

AONIA is a recognised Risk Free Rate (RFR) in Australia, which is calculated and published daily by the Reserve Bank of Australia (RBA). Similar to other jurisdictions, RFRs are based on the official cash rate of central bank. RFR referencing financial securities have rapidly been developed in offshore markets over the past 12 months in response to regulatory changes. RFR product currently has widespread market acceptance with strong demand by both investors and issuers.

A RFR is a more appropriate interest rate benchmark for SAFA as it mitigates the interest rate credit risk of our client loan portfolio while meeting our key objective of remaining a low risk organisation. The AONIA FRN has been developed based on the traditional FRN formula and conventions. SAFA believes AONIA is both sustainable and robust in the Australian financial market for use as a RFR. This alternative benchmark is expected to coexist with Bank Bill Swap Rate (BBSW) as the key benchmarks for the Australian market.

Key stakeholders across the South Australian Government including endorsement from the SAFA Advisory Board and the Treasurer of South Australia, has provided SAFA the opportunity to position itself as the early adopter for issuing this RFR referencing product. Engagement across all sectors of the wider market has been ongoing, in order to support and advocate the development of AONIA products.

It is SAFA’s intention to continue to monitor developments in the RFR space and evolve its future issuance of shorter dated debt to best manage the interest rate risk for the State.

For more information
Mr Andrew Kennedy, Director, Treasury Services
Telephone +61 08 8226 9840   |   email andrew.kennedy2@sa.gov.au