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CS Professional · Strategic Management and Corporate Finance · Real Estate Investment Trusts

Konkan Office REIT has assets of Rs 2,000 crore and plans consolidated borrowings and deferred payments of Rs 600 crore. Which statement is correct under the REIT borrowing limits?

Rs 600 crore is 30% of Rs 2,000 crore. This is above the 25% threshold, so a credit rating and unitholder approval are needed, but it is below the 49% overall cap of Rs 980 crore, so the borrowing is permitted once these are obtained.

  1. AIt is within limits and needs no special step, because the overall cap is 49% (Rs 980 crore)
  2. BIt needs a credit rating and unitholder approval, because borrowings above 25% of asset value (Rs 500 crore) trigger these, and it is still under the 49% capCorrect
  3. CIt is prohibited, because borrowings cannot exceed 25% of asset value
  4. DIt is prohibited, because borrowings cannot exceed 10% of asset value

Explanation

Consolidated borrowings and deferred payments may not exceed 49% of asset value, which is Rs 980 crore here. Once they exceed 25% (Rs 500 crore), a credit rating and unitholder approval are required. Rs 600 crore is 30%, so those steps apply. Option 1 ignores the 25% trigger.

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