IBR – Incremental Borrowing Rate (IFRS 16)

The IBR (Incremental Borrowing Rate) is the discount rate a lessee uses to measure a lease liability under IFRS 16 when the interest rate implicit in the lease cannot be readily determined. It is the rate the lessee would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of similar value in a similar economic environment. It should not be confused with the IBR (Independent Business Review), an independent review of a distressed company.

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The IBR is built additively: a reference risk-free rate (for example SARON), plus a borrower-specific credit spread, adjusted for the lease term, the nature of the security and the economic environment. It directly drives the lease liability and right-of-use asset recognised on the balance sheet, and therefore leverage ratios and adjusted EBITDA. It follows the same logic as the discount rate in the DCF method.

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Example: a Swiss SME signs an 8-year property lease with annual rent of CHF 250,000. With no readily determinable implicit rate, it applies an IBR of 3.5% (SARON 1.5% + credit spread 1.7% + term adjustment 0.3%). The discounted lease liability is CHF 1.71 million, recognised with an equivalent right-of-use asset.

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At Hectelion, we determine and document the IBR in our valuation and due diligence work, where the IFRS 16 restatement materially changes net debt and EBITDA multiples.