Plantation cos returns skewed: Crisil

"This assumes greater importance in light of the extremely weakcapitalisation of these companies and a near total dependence on collective investment schemes for funding operations," Crisil said on its rating of schemes of plantation companies.

Further, there does not appear to be any law or regulation which permits the fund raising nor sets any limits, unlike other entities which get their mandate from cretain legislative laws, Crisil said. Moreover, there are no consistent accounting practices being followed and the accounting methods used by most of them are extremely liberal, the rating agency noted.

Plantation companies offer returns to investors in their collective investment schemes by way of cash or in the form of agricultural or farm produce and in some cases by transferring land as well.

The extent of predictability of cash flows of the plantation companies is impacted by the fact that the returns are expected generally over a fairly long term and from activities that are subject to the vagaries of nature thereby exposing investors to extremely high riskespecially when the plantation company has not taken any risk cover through crop insurance.

The expenses incurred to attract subscriptions to these schemes are also excessively high, Crisil noted. To sum up, the risk factors include an unregulated access to public subscriptions towards collective investment schemes, negligible capitalisation levels, lack of model accounting standards, flexibility to assure apparently unrealistic returns to investors, adverse liability profile and criticality of subscriptions, Crisil said.

It may be recalled that a panel appointed by the Mumbai High Court has found that around Rs 1,037 crore mobilised by the Chandigarh-based plantation firm, Golden Forests, from the public "are not safe and return of the deposits by the company cannot be guaranteed considering the state of affairs of the company." Following the receipt of the independent panel report, the court has restrained GFIL on Thursday from floating any new investment scheme till further orders.

SEBI — theregulator for such firms — has received information from 478 plantation companies about the schemes floated by them. The major ones are Golden Forest (over Rs 1,000 crore), Enbee Plantations (Rs 102 crore), Sterling Tree Magnum (Rs 181 crore), Anubhav Plantations (Rs 127 crore), Okara Agro Industries (Rs 69 crore) and Parasrampuria Plantation (Rs 76 crore).

Swarnabhumi: high uncertainty

MUMBAI: The collective investment scheme of Swarnabhumi Forest (India) Ltd (SFIL) has been assigned a "grade – V" rating by Crisil indicating high uncertainty that it would provide the assured return in the form of produce and/or cash.

The rating — one of the first ratings of a plantation firm — reflects the company’s negligible capitalisation levels, high cost of raising investor funds and the high degree of uncertainty associated with returns from agriculture due to long time horizons and inherent vulnerability to climatic conditions and vagaries of nature. The rating also factors in the near totaldependence on future investor funds to meet existing repayment obligations.

The Chandigarh-based agro forestry concern, SFIL is primarily engaged in farming of wheat, vegetables and seeds although in future it intends to focus on on poplar plantations with inter-cropping of other cash crops and vegetables, a Crisil release here said.

The company has cultivated 1225 acres out of 1421 acres of land located mainly in Punjab and Madhya Pradesh and is heavily dependent on investor’s funds, which amounted to Rs 40 crore as on December 31, 1997, the release said.