Swala eyes pension funds for capital

Dar es Salaam. Swala Oil and Gas Tanzania Plc is engaging pension funds in both Tanzania and Uganda to raise money for buying equity in gas producing PanAfrican Energy.

If all goes well, the oil prospecting company which is listed on the Dar es Salaam Stock Exchange (DSE) will diversify from pure exploration into a more balanced portfolio.

Swala is actively exploring for oil in the East African Rift System with a 25 per cent equity interest in, and is the operator of, the Kilosa-Kilombero and Pangani licences.

The firm started discussions with Orca Exploration Group Inc. regarding an investment of up to $130 million in PanAfrican Energy, a Mauritius-registered company that is a wholly-owned subsidiary of Orca.

PanAfrican Energy is Tanzania’s first natural gas producer – supplying gas for power generation at the Ubungo Power Plant in Dar es Salaam. The company also supplies natural gas to 38 industrial and commercial customers in the city as well as Compressed Natural Gas (CNG) for use in vehicles.

Gas from the Songo Songo island plant is transported by a 25 km 12-inch marine pipeline and a 207 km 16-inch land pipeline that extends north along the coast to Dar es Salaam.

The company started investor meetings in Dar es Salaam and Kampala early this month to offer seven-year retail bonds with a coupon of 12-16 per cent payable in either available funds or Swala shares at a 12.5 per cent discount.

“We got really good reception in both Tanzania funds and now in Uganda,” said Swala Oil and Gas Tanzania chief executive officer Dr David Mestres Ridge.

“This is a strategic investment for us because it allows us to diversify from pure exploration into a more balanced portfolio,” he added.

The investment is envisaged as being structured in several tranches and the company’s ability to complete such an investment will depend on securing the necessary finance in each tranche.

Tranche 1 has committed funding from internationally recognized global institutional investors subject to the completion of legal due diligence that is currently ongoing.

The second tranche has been designed to encourage the participation of Tanzanian corporate bond investors in a manner that aims to maximize their participation alongside that of sophisticated international institutions, in line with the company’s demonstrated commitment to local involvement in the natural resources sector.

“Orca and Swala have been discussing an investment by Swala for some time, and both were determined to structure the investment to encourage the participation of Tanzanian bond investors who are normally not able to participate in these transactions.

Our intention is to construct an approach that could lead to a significant interest in the investment being indirectly held by Tanzanian investors through their ownership in Swala, an efficient alternative to stock exchange listings that we believe creates a win-win situation for the government of Tanzania and local and foreign investors alike.” The company said in a statement earlier.

Orca Exploration Group Inc confirmed recently that it was in discussions with Swala regarding a possible minority investment in PanAfrican Energy but said “there are no assurances that these discussions will lead to a definitive agreement and any such agreement is expected to be subject to Swala securing necessary financing as well as a number of other conditions.”

According to the recent statement, Swala has secured, subject to ongoing legal due diligence, funding for its first investment tranche from a major US investor, along with a seven-year CAPEX draw-down facility from a major South African investment fund. This facility will be used by Swala to optimise its forecast cashflow profile and ensure that it can meet any project development obligations.

Tanzania’s state-owned environmental watchdog said in July that it had given tough conditions to Swala before it started drilling at a game protected area in the Kilombero valley in Morogoro region to protect the environment.

Swala intends to drill oil in the game protected area but the National Environment Management Council said the drilling will be done after it meets stringent conditions aimed at safeguarding the environment of the area.