Oct 23, 2018

After IL&FS crisis, govt looks into holding companies: Report

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The government wants to evaluate if the practice of keeping listed companies under an unlisted holding company is the correct way forward

Following the IL&FS crisis, the government is looking into the practice of unlisted parent companies listing subsidiaries, Mint reported quoting a top government official.

IL&FS’ subsidiaries IL&FS Transportation Networks (ITNL), IL&FS Engineering and Construction Co and IL&FS Investment Managers are all listed on stock exchanges but the parent itself is not.

This is an established practice in the corporate sector. The Corporate Affairs Ministry is evaluating whether holding companies that are major players in multiple sectors can remain unlisted.

This review may bring more transparency to the corporate system. “There is a need to see if keeping the holding company unlisted is the right way of organising a business. It is better if it is the other way around,” the official cited above said.

The regulatory framework for independent directors, boards of directors, auditors and credit rating agencies will also be reviewed as a part of this exercise.

Unlisted companies are only mandated to disclose their annual financial statements, not quarterly ones. Getting unlisted holding companies listed would mean they would have to disclose information about themselves as well as their subsidiaries on a quarterly basis.

Another example of this is Tata Sons, which is not listed but has several subsidiary companies that are. Notably, most major Tata Group entities are publicly traded.

Experts believe this may not be the solution the government is looking for.

“It may be a good idea to increase the disclosure requirements of unlisted holding companies rather than denying the flexibility of keeping the parent unlisted altogether. It should be left to the business to decide,” Pavan Kumar Vijay, Founder of advisory firm Corporate Professionals, told Mint.

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