Plantation companies promising fabulous returns on investment fifteen or twenty years hence have finally caught the eye of Sebi. These companies have been advertising their promises in the media, including television. Their countrywide network of agents to collect subscription is truly astonishing. The top five plantation companies are reckoned to have garnered not less than Rs 3,000 crore, with Golden Harvest alone credited with a collection of Rs 1,000 crore. Sebi should have known about these companies which were gathering deposits under a legal loophole in deposit regulations. Apparently, Sebi was empowered to supervise the plantation companies only recently. The question then arises, why were plantation companies kept out of Sebi's purview? Could it be that the bigger plantation companies have powerful political backers? Sebi has found the task of regulating plantation companies difficult. The overawed regulator has, therefore, prohibited plantation companies from accepting fresh deposits without arating. It has also banned the flotation of new plantation companies, pending new regulations. The stumbling block is to get right the definition of collective schemes. These are used by nidhis and plantation companies, making it difficult to pinpoint responsibility on the entrepreneurs of plantations. Every depositor/subscriber is an entrepreneur! Plantation companies sell dreams: buy so many teak or sal or whatever trees for a song today; the trees when fully grown will be worth tens of thousands of rupees.
In the interregnum, the investment earns interest. How does the plantation company service the interest or meet management costs? This is the problem to which Sebi has woken up. The most likely answer is, by collecting fresh deposits. The ball has been thrown into the court of the rating agencies.
Assessing uncertainty for 3 to 5 years is difficult enough. Doing so for a fifteen or twenty year period is almost impossible. A plantation can be ruined by a storm or pest. All that can be looked into isthe background of promoters, the kind of group support the plantation company has, the other assets at its command and the commercial value of plantation land. Raters will have a formidable task. What if a plantation company gets a negative rating? Lakhs of investors will face the prospect of a loss. This will come on top of the shakeout of NBFCs and the dismal performance of MFs. Investor confidence will suffer a massive setback.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
