On the funding side Crisil would consider the fact that these companies almost completely depend on collective investment schemes. It would also give due weight to legal issues relating to ownership and transferability of land, adverse liability profile and criticality of continuing subscription to the collective investment schemes.

A grossly inadequate level of capitalisation is an unique feature among majority of the plantation companies. Unlike other entities that arerated by the rating agencies, plantation companies are not required to maintain a stipulated level of capital adequacy or gearing level, the report says. Very often the total funds raised by these companies are disproportionately high in relation to their own fund deployed in operation.

According to Crisil, another disturbing aspect is that unlike other kinds of entities whose fund mobilisation programmes are regulated by Companies Act, Banking Regulation Act etc., the fund raising by the plantation companies are not regulated by any law or regulation.

As of now, the Institute of Chartered Accountants of India is yet to come out with a model accounting standard/norm for the plantation firms and as such the accounting standard followed by different firms vary greatly from one firm to the other and are generally liberal, the report adds.

After going through a sample of plantation companies, Crisil came to the conclusion that the returns being promised are significantly high and the cost of fundmobilisation is also excessively high. It feels that the future liability profile of the plantation companies are adverse in relation to expected revenues.