Crisil warning on two plantation firms

MUMBAI, June 3: Credit rating agency Crisil has rated the investment scheme of two plantations companies -- Sparrow Agro Forest Ltd (SAFL) a...

MUMBAI, June 3: Credit rating agency Crisil has rated the investment scheme of two plantations companies — Sparrow Agro Forest Ltd (SAFL) and Mahakaushal Plantation Ltd (MPL) — as `Grade V’ indicating high uncertainty regarding assured returns in the from of produce or cash. It has also downgraded ratings of Wipro Finance, Electrex (India) and Punjab Alkalies and Chemicals. Crisil said the rating of MPL reflects the high level of uncertainty associated with agricultural returns due to long tenure of maturity of plantations, inherent vulnerability to climatic conditions and vagaries of nature and extremely high financial risk characterised by low capitalisation level, high cost of raising investors funds, and negligible operational cash inflows. The rating also factors in the near total dependence on future investor funds to meet existing repayment obligations.

The company has recently acquired 55 acres of land near Bhopal with 7,500 teak trees. While the soil and climatic conditions in the region areconsidered suitable for eucalyptus and teak farming, the limited track record of the company and the promoters, the long tenure of crop maturity (5-6 years of eucalyptus and 18-20 years of teak) coupled with high susceptibility to climatic conditions results in a high degree of uncertainty about the expected quantity and quality of the agriculture produce, Crisil said.

Crisil added the company has very low equity funds (Rs 10 lakh as on March 1998) and is totally dependent on high cost deposits from investors for meeting both its operational expenditure as well as for existing repayment obligations.

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As on March 1998, the company had deposits outstanding of about Rs 36 crore, out of which about Rs 25 crore would become due within one year.

Haryana-based, SAFL’s rating reflects the adverse overall risk profile of the company on account of near total dependence on fresh funds to meet its repayment obligations in the short to medium term, nascent stage of operations, high dependence of the success of theseed development project and jojuba plantation project which are at a preliminary stage and high financial risk on account of skewed capital structure and low cash inflows.

Crisil has downgraded the outstanding ratings of Wipro Finance’s BBB+ assigned to the non-convertible debenture issue. The `FA’ assigned to the fixed deposit programme and B2 assigned to company’s the short term debt programme has been downgraded to BB+, FB+ and P4 respectively.

Electrex’s Rs 20 crore non-convertible debenture issue has been downgraded to D from "BBB" on account of a default on its debt service obligations. The rating of Punjab Alkalies’ Rs 5 crore floating rate bond issue has been downgraded to "BB" from "A", reflecting concerns about the company’s cash flows a result of poor financial performance in 1997-98.

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