Hind Beverages
Hind Beverages Inc., the leading soft drink and drinking water company in the private sector, has acquired Himalayan Water Co., in a deal worth $8.6 billion in 2007 to further expand its market share. A financial decision of this magnitude has significant implicitness for both Hind Beverages Inc and Himalayan Water as well as their employees and shareholders.
Hind Beverages Inc. raised a debt of over $8 billion to finance the transaction. This financing decision affected the capital structure of the acquirer.
Identify the source of debt that a company might have used to raise $8 billion to finance the transaction.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Debentures
Option (1) Equity Shares — Incorrect. Equity is the owners’ own capital. It is not repaid while the company runs, and it carries no fixed interest.
Option (2) Debentures — Correct. Hind Beverages raised debt, meaning borrowed money. A debenture is a certificate of a loan taken by the company. Its holders get fixed interest and are repaid on a set date, so it is a source of debt.
Option (3) Preference Shares — Incorrect. They carry a fixed rate of dividend, but they are still share capital, part of the owners’ funds, not a loan.
Option (4) Retained Earnings — Incorrect. These are profits kept back in the business. They are the company’s own internal funds, not borrowed money.
Note 1: The passage is the NCERT case study ‘When Tata Steel Acquired Corus’, which has been reproduced by NTA in the exam with the names of the companies changed. Read the case studies in NCERT too; NTA picks them up with only the names changed. Note 2: It seems that there is a mistake in the original NTA paper, which prints “significant implicitness” in the passage when it should read “significant implications”. The slip is NCERT’s own: the NCERT case study prints the same word, and NTA copies lines from NCERT word for word, even where the book is wrong. Read the word as “implications”, meaning effects. NTA changed the company names in the case but kept NCERT’s wrong word.
NCERT (2026-27 Edition): “Capital Structure … Owners’ funds consist of equity share capital, preference share capital and reserves and surpluses or retained earnings. Borrowed funds can be in the form of loans, debentures, public deposits etc. …” “When Tata Steel Acquired Corus … Tata Steel raised a debt of over $8 billion to finance the transaction. …” |