XYZ Ltd. is an asset financing company with a proven track recordand has been in the business of mainly providing finance to purchase trucks, tractors,farmequipmentandcommercial vehicles. In the past, it wasfinancing used and new vehicles, but overthe recent years, it prefers to concentrate on new vehicles only. Trucks form the majorpart of thefinancing business. There is a lot of competition in this field, but due to the increasing norms on pollution control and the decrease in the value of second hand vehicles, the company wants to strategically confine itself only to new vehicles in the coming years.

XYZ Limited mainly uses debt financeforitsoperations. The debt-equity ratio is in the range of 5:1 on an average. This is in line with the industry.

The company feels that in addition to truck financing, it can expanditsbusinesstofinance smaller vehicles such as passenger cars and tempo travelers. The current expansion plan is described in the succeeding paragraphs.

There has been a recent entrant in thecountrywidemarketby amobile applicationprovider who has not only ushered in a revolution in the way cars are being hired by commonman,butalso in the manner of documentation ofbookings,charges,cancellationsand in theownership of vehicles for such hire. This operator has also lured many entrepreneurs to successfully earn money either as drivers or as owners of self-driven cars and be engaged by users of the mobile app. This app has found immense success in the car segment and is also being considered for trucks for transport as well as connections from goods trains to factories so that companies can track the distribution of material and finished goods on an optimal cost.

While discussing with this app provider, XYZ Ltd. has discovered a huge potential to finance vehicles to be demanded by virtue of the app users who may be new entrepreneurs,small transport companies, etc. Since the individual entrepreneurs may turn out to be risky and counterproductive for HRS for repossession in the event of failuretorepay,theapp provider, who has a wide data base and the recovery mechanism for fares realized, has agreed to be the co-borrower for the vehicles.

Under such an arrangement, the vehicles financed will be hypothecated to XYZ by the entrepreneur who is the principal borrower, fully guaranteed by the app provider.

The app provider will also ensure that the used vehicle is also be handed over to another entrepreneur attached to him. Thus, only the repossessed vehicles will form the used vehicle financing segment. Agreements are proposed to be drafted with conditionsfor repossession within one month of default and redeployment of such vehicles for earning money.

Choose thecorrect answers tothe following questions:

(1.1) This company is:

(A)required to disclose the debt service coverage ratio to SEBI every half year.

(B)required to disclose the debt service coverage ratio to SEBI every quarter.

(C)not required to disclose to SEBI the debt service coverage ratio except at the time of issuing the prospectus.

(D)not required to disclose to SEBI at any time any debt service coverage ratio. (1.2) The following is true:

(A)The debenture trust deed must be signed with the debenture trustee and submitted

to SEBI before every issue of debentures.

(B)The debenture trust deed can be signed with the debenture trustee after the issue of debentures.

(C)The debenture trust deed has to be signed only for and before the first issue of debentures. For subsequent differentdebentureissues thedeed neednot be signed if the trustee is unchanged.

(D)The debenture trust deed has to be signed with the debenture trustee and can be submitted to SEBI after the issue of debentures. There need not be submissions for every tranche.

(1.3) In case this company does not pay the debenture interest ortheredemptionamount on time, then

(A)The debenture trustee pays it on behalf of the company to the debenture holders and later recovers it from the company.

(B)The debenture trustee does not pay the holders anyamount,butthedebenture holders have recourse against the company bywayof liquidatingtheassetsbased on which the debentures are secured.

(C)SEBI will wait for two months to lapse and suspend the trading of the debentures and enforce payment of interest.

(D)It can issue fresh debentures and use the proceeds for paying up the principal and interest overdue.

(1.4) If the redemption ofdebenturesis drawingnear and the companywantstouse thefunds it has set aside for redemption for some other purpose,

(A)It can, before the redemption becomes due, arrangefor afresh issue of debentures of any category and use the proceeds of issue to fund the redemption.

(B)Only the shortfall between the redemption amount and the funds set aside can beraised by a fresh issue of debentures before the due date of redemption.

(C)Only the same type of debentures can be issued afresh for funding the redemption.

(D)Itcannot use the freshissue proceeds tofund theredemption of debentures.

(1.5) For the purpose of paying interest for the first half year,the date from whichthe interesti s to be reckoned is:

(A)from the date of allotment

(B)from the date of application

(C)from the date of deemed allotment

(D)from the record date. (1.6) A company

(1.6)

(A)can list its debentures only if it has listed its equity shares in the exchange.

(B)can list its debentures even without listing its equity shares.

(C)has to list its debentures if it has listed its equity shares

(D)is itself a listed entity and henceall itssecuritiesaretradeableon theexchange.

(1.7) Some debenture-holders of this company have not updated their addresses and their bank

account numbers. Hence the interest payments sent to their bank accounts have been returned unpaid. There has not been any response to intimations from the company.

Redemption is due next year. Then, for this year, the company.

(A)can usethis amount for other purposes suchas redemptionof other debenturesor to provide for the redemption to these debenture-holders themselves.

(B)can write back this amount from interest expenses.

(C)cannot use this amount for any other purpose, but retain it in unpaid interest account until redemption is due.

(D)cannot use it for any other purpose but transfer it to Investor Protection Fund, treating the amount as unclaimed interest.

(1.8) The company had an earlier issue of debentures of ` 500 crores whichisduefor redemption in eleven months from now. Those debentures were secured by fixed assets consisting of land and building then worth ` 750 crores. The value of the land and building has now risen substantially to ` 950 crores and the company therefore proposes to secure these debentures also with the same assets. The current issue size is ` 500 crores.

(A)The same assets cannot be used for securing another issue of debentures unless the earlier issue has been redeemed in full.

(B)The cost of the underlying assets is what has to be considered for security.Henceonce offered as security, it cannot be taken again as security.

(C)The company has to provide for the coverage of the shortfall in the security of 50 crores before it can issue.

(D)The company can go ahead and use the same assets for coverage of the next issue also.