5.

0 Security
Security or collateral is part of the 5Cs. Collateral assets come in many types of
form such as property, plant and equipment, vehicle, stock or bonds. It is additional
forms of security which can be used to ensure a lender have a second source of loan
repayment. The most common of the collateral is real property. If one day the
borrower stops making the promised loan repayment due to insolvency or other event,
the borrowers are actually forfeits the property pledge as collateral. Thus, the lender
becomes the new owner of the collateral. The lender can decided to seize the
collateral to cover back its losses or to continue hold it. The loans that are secure by
collateral typically have lower interest rate than unsecured loan. A lender claim to
borrower collateral is called a lien. After all the measurement, we discover certain
goods of Ajinomoto Berhad can be serves as the collateral:

Collateral

Description
Account receivable if the money owed by customer due to
exchange or goods and service have been delivery or

Account
receivable

used, but not yet paid for it.

Receivable come in the form of operate lines of credit.
Typically are short time period, ranging from a few days
to a year.
This show that account receivable is liquidity as it can
converted into cash quickly.
Stock and bond are marketable collateral in exchange of
financial assets. The stock and bond of Ajinomoto are able

Stock and
bond

to sell under a normal market condition with reasonably

fair price.
A lender should always update with the current value of
the stock. In case if the stock value drops, the borrower is
request to put up more money so that the loan will not
exceed the permitted maximum.

 Ajinomoto Berhad has a freehold land with unlimited

Freehold
Land and
building

useful life and therefore is not depreciated.

Ajinomoto Berhad building has the useful life to 9 to 15
years.
The land and building are qualifying as good security as
the intrinsic value of it will increase from year to year.

The assets under construction in property, plant and

Property,
plant &
equipment

equipment are not depreciated.

The values of it are defined as RM102, 306,204 in year of
2013. The value of the property, plant & equipment are
sufficient to cover the loan. So, this also refers as a good
security.
Ajinomoto Berhad also has a lot of motor vehicle for

Motor Vehicle

transport the product with the useful life of 6 years.

It also can become the part of the collateral.

After decided the suitable collateral, the lender also have to mitigate risk of
default by impose the condition or covenant stipulated. Covenant is a promise in a
contract, or any other formal debt agreement, to control and monitor the borrower
certain activities will or will not be carries out. A covenant is usually often related
with the term in a financial contract. It states all the limits for borrower to further lend
or other such stipulations. Covenant is impose by the lender in purpose to protect
them from borrower default their obligation due to the financial action detrimental to
themselves or business. A covenant also can make sure that the borrowers use the
borrower fund as intention. Most of the borrower failure to repay obligation due to
fund diversion, the company do not follow the purpose of lending and involve in
certain activities that may harmful to their company wealth.

Covenant serve as a rule and regulation to guide the company follow the right
path of the ways. A covenant cannot be standardized on different borrower, the mainly
reason is because the entire borrower have their specific unique of need and
requirement. Each borrowers profile are differ and a lender must package the loan or
advance to a borrower in accordance to the borrower need and requirement. As such,
the covenant must be tailored made to reflect the package as well as to mitigate the
risk.
There are 3 types of covenant impose to Ajinomoto Berhad. Firstly, condition of
precedent. Ajinomoto Berhad has to carry out certain condition before release of the
loan, including:
The letter to confirm employment
Solicitor legal opinion of all land.

Secondary the positive covenant, Ajinomoto Berhad must take certain specified
action or cause specific event to occur in future during the lifetime of the loan.
Ajinomoto Berhad must make sure that the value of the debtor ageing list must
be less than RM1 Million per annum.
60% of the monthly sale must be deposited in to the current account.

The third covenant is negative covenant. Ajinomoto Berhad will be restricted

from certain performance specified action or cause specified event to occur in the
future without the consent of lender.
Each time Ajinomoto Berhad intends to launch a new products are required to
show the proposal to the bank.
Ajinomoto Berhad cannot own their supplier more than RM50, 000 a month
and the suppliers credit ageing list must deliver to bank each 5 months.
Once Ajinomoto Berhad failure to repay or fulfill any of the covenants in the
future, the bank will consider taking remedial management. Implement actions
including winding-up proceedings, foreclosure action or turnaround service.