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CS Professional · Strategic Management and Corporate Finance · Role of Intermediaries in Fund Raising

Vistara Infra Ltd issues secured debentures of ₹50 crore. The trust deed requires asset cover of 1.25 times. The security consists of a mortgage on land valued at ₹30 crore and plant valued at ₹40 crore. Interest accrued and unpaid is ignored. By how much does the asset cover exceed the requirement in rupees of security value?

The security is worth ₹70 crore, while 1.25 times asset cover on ₹50 crore debentures needs ₹62.5 crore. The excess security is therefore ₹7.5 crore. Comparing 70 with the face value alone would overstate the cushion at ₹20 crore.

  1. A₹7.5 croreCorrect
  2. B₹17.5 crore
  3. C₹10 crore
  4. D₹20 crore

Explanation

Total security = 30 + 40 = ₹70 crore. Required security = 50 × 1.25 = ₹62.5 crore. Excess = 70 − 62.5 = ₹7.5 crore. The figure ₹20 crore ignores the cover requirement (70 − 50), and ₹17.5 crore wrongly subtracts only 52.5 after misapplying the ratio.

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