Are Holding Companies Good for Business?

DEBATE has gripped energy and media circles as Swala Energy, fancy named oil and gas exploration firm based in Australia and operating in Tanzania with either a wholly owned subsidiary of the same name, or one that is linked with some local investors. That impression came up as the company protested the cessation of its negotiations with oil and gas sector regulator and operational participant, Tanzania¬†¬†Petroleum Develeopment Corporation (TPDC), as it argued the rejection ignores the need for ‘local content’ in allocation of licences, blocks. This wasn’t elaborated.

Those who have followed the debate between Swala Energy of Australia (leaving aide its local subsidiary) would realise that the firm entered into a marriage of convenience with another substantially capitalised firm, which apparently did not wish to engage in actual partnership in exploration and eventual drilling. If that was the case, their contract could not have contained a withdrawal clause where the remaining firm ‘acquires the rights of the company that has withdrawn,’ as if this does not affect the quality of the bid. That is what TPDC has been stressing.

Were it that the two firms entered into a genuine partnership to build up a well capitalised firm capable of the stresses and strains of exploration and test drilling, such a clause would have been a bit of a misnomer, asd it is meant to anticipate a ‘friendly withdrawal.’ Were it that the withdrawal was hostile, it would definitely involve a legal battle between the two sides as to their respective liabilities in relation for instance of their joint bid as to the Lake Eyasi block. When this did not happen, it means it was embedded in Swala’s original plan, as ‘window dressing.’

That is also what nags analysts as to the purpose of its continuation with listing on the Dar es Salaam Stock Exchange, in the wake of the collapse of the bid, and in a wider context of being satisfied not having its erstwhile joint venture partner. This builds up an image of company that is trying to wear boots that are oversized, for its profile is that of a company ready to take up a role in exploration and drilling, but it realises it needed a joint venture partner so as to put up a credible bid. When it is making no effort to salvage the partnership or seek a similar association to shore up its original credentials, listing on DSE instead, what should we read in it?

Reading between the lines, the company is seeking to use its local subsidiary as a local firm bidding for a block, which definitely is a rather patronising reading of the situation, for there is little that it local about the firm but its registration. When it thus lists on DSE, there is a mild chance that it is looking for more capitalisation for a business that is closer to its real capitalisation levels, which means midstream and downstream activities, or seeking to localise itself and thus be able to gather energy and support in shoring up its original profile for upstream activities. That sort of outlook is plausible, as this is the image its protest note on TPDC affirmed.

Whatever the case the company and local regulators seem like they will have their hands full in seeking to place the firm where it either belongs or wishes to be, in which case it may well live up to its name, as an agile species, an operator with aptitude for jumping from one class to another, pitying a burly regulator following it. There is a chance the firm is seeking to shed its foreign image, but this effort is not quite likely to succeed because the local share market is brittle and lacks large investors to beef up its capital profile for that quest. Unless of course there are other foreign investors with funds that are as yet loose, to place in a localised firm.

That is why Swala Energy (T) Ltd can definitely list on DSE after it has conducted the paperwork, as this enables it to start on a different investment trajectory in the country, as listing is unlikely to shore up its Eyasi bid, or a similar interest anytime soon. Whether it evolves into midstream and downstream activities or attracts more capital for its original upstream orientation is a matter for the future, so there is no harm in starting to build up a crop of relatively localised companies in that sector. This could also help us with alternatives on how to sort out some creepy situations.