AySA’s dollar-denominated bonds have risen sharply after President Milei removed price controls on public utilities, yielding investors a total return of 56%. AySA has implemented reforms that have enhanced financial stability, resulting in fully funded operations. The company’s future hinges on successful privatization, which remains uncertain amid broader government challenges.
Debt holders of Aguas y Saneamientos Argentinos (AySA) are experiencing significant returns following President Javier Milei’s decision to lift certain price controls on public utilities. Since his inauguration in December 2023, AySA’s dollar-denominated bonds due in 2026 have surged over 20 cents, nearly reaching par, yielding an impressive total return of approximately 56%, starkly contrasting the average return of 11% from similar emerging-market corporate bonds during the same timeframe.
As a libertarian advocating for a reduction in governmental influence and a pathway to privatization of state-owned enterprises, Milei’s reforms have allowed AySA to increase consumer charges significantly; average household water bills in Buenos Aires have escalated by 344% since December. This surge has marked the first instance since 2007 where AySA’s operations are fully funded, leading to a more transparent and efficient company as noted by Fernando Pueyrredon, a corporate credit strategist at BancTrust & Co.
Since Milei’s fiscal adjustments, investor sentiment has positively shifted, resulting in substantial bond price increases throughout Argentina. The government aims to privatize several entities, including AySA, which has engaged the World Bank Group’s International Finance Corporation for assistance in its restructuring and potential sale. Additionally, AySA has made considerable operational cuts and enhanced its financial performance, earning US$59 million in Q3 2024, a remarkable turnaround from a US$42 million loss in the same quarter last year.
The average water bill for households in Buenos Aires currently stands at US$27.76, providing AySA a stronger framework to cover operational costs—now at 100% from just 52% the previous year. The company faces a pivotal decision on its future direction, considering options for a public listing or an auction of the government’s stake. The Argentine government maintains a 90% ownership of AySA, while the remaining 10% is held by employees.
To proceed, AySA requires approval from the country’s securities regulations and Milei’s administration. The government’s stance aligns with a broader strategy to streamline operations by transferring responsibilities better managed by the private sector. Although complications have arisen regarding the privatization of other state-owned enterprises, AySA’s bond success is largely dependent on how effectively the organization navigates its privatization.
Pueyrredon emphasizes, “For AySA to be a longstanding company, it needs to be privatized.” The future viability of AySA’s bonds and its objectives rely on the outcomes of its privatization aspirations, specifically given the uncertainties surrounding future governmental leadership in Argentina.
In summary, AySA has experienced a substantial bond rally following President Milei’s reforms aimed at privatizing state enterprises. The company now boasts fully funded operations for the first time since 2007, attributed to significant price increases and strategic restructuring. Future growth depends heavily on successful privatization, a process that may face challenges and will require careful navigation by AySA’s leadership.
Original Source: batimes.com.ar
