Investment Holding Companies (IHCs)

25.06.2024

Investment Holding Companies (IHCs)

Why in the news?                                                                                                                                                                                                                                      

 Shares of several investment holding companies (IHCs) rallied recently, defying weak market conditions, after the Securities and Exchange Board of India (Sebi) announced a special call auction session for their fair price discovery.

About Investment Holding Companies (IHCs):

• It is commonly referred to as Holdcos, are entities which hold assets and securities of other listed companies, most commonly of their own group firms.
• They own a controlling interest in one or more companies but don't provide other services (such as the production of goods or services) or engage in business directly.
• It only serves as an ownership vehicle of other companies or investments.
• Its primary purpose is to hold and manage investments in one or more subsidiary companies.
• The holding company may or may not provide direct operational support to the companies it owns.
• IHCs come in several forms, including private equity firms and publicly traded corporations.
• An IHC may provide a vehicle for multiple investors to pool their funds and collectively invest around a specific investment objective or strategy, e.g., real estate.
• They may be built around an industry vertical or broadly diversified across multiple industries.
• But they all have the same focus: to maximize investor returns through asset management and capital allocation.
• Holding companies often look for businesses with growth potential or companies in need of restructuring or operational improvements.
• They provide strategic guidance, financial resources and connections to help grow ‌businesses (i.e., their investments).

                                               Source: Business standard

Ques :- Consider the following statements with reference to the Investment Holding Companies (IHCs):

Statement-I

 It only serves as an ownership vehicle of other companies or investments.

Statement-II

 Its primary purpose is to hold and manage investments in one or more subsidiary companies.

Which one of the following is correct in respect of the above statements?

A.Both Statement-I and Statement-II are correct, and Statement-II is the correct explanation for Statement-I.

B.Both Statement-I and Statement-II are correct, and Statement-II is not the correct explanation for Statement-I.

C.Statement-I is correct, but Statement-II is incorrect.

D.Statement-I is incorrect, but Statement-II is correct.

Answer A