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CS Professional · Strategic Management and Corporate Finance · Infrastructure Investment Trusts

A road developer, Bharat Roads Ltd, has completed toll roads that generate stable cash flows but its balance sheet is heavily leveraged. It wants to free up capital for new projects. Which InvIT-linked route best serves this goal?

Bharat Roads can sell its operating toll roads to an InvIT and use the proceeds to repay debt and finance new projects. This asset monetisation recycles capital. Bonus shares bring in no cash, and the other options do not release capital.

  1. ASell the operating road assets to an InvIT, using the sale proceeds to repay debt and fund new projectsCorrect
  2. BIssue bonus shares to its shareholders
  3. CConvert the toll roads into a partnership firm
  4. DBuy units of its own InvIT to hold the assets longer

Explanation

Developers commonly monetise completed, cash-generating assets by transferring them to an InvIT, which pays for them using money raised from unit holders. The developer recycles capital into new projects and reduces debt. Bonus shares raise no cash.

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