AySA’s Bond Surge and Future Privatization Prospects under Milei

Aguas y Saneamientos Argentinos (AySA), a state-owned utility, has experienced a bond price recovery after President Javier Milei lifted price controls. This reform allows AySA to charge higher fees, improving its financial standing for the first time since 2007. The company is considering privatization options, although broader governmental privatization efforts face challenges. The future of AySA’s bonds now hinges on successful privatization initiatives.

Debt holders of Aguas y Saneamientos Argentinos (AySA), the state-owned water and sewage company, are experiencing significant benefits following the decision of President Javier Milei to eliminate certain price controls on public utility services. This policy shift has led to a notable recovery for AySA after years of struggling under stringent regulations. Since Milei took office in December 2023, AySA’s dollar-denominated bonds maturing in 2026 have appreciated by over 20 cents and are now approaching par value, yielding investors a remarkable total return of approximately 56 percent.

Milei, a libertarian advocating for downsizing government and deregulation to address Argentina’s economic issues, is implementing reforms aimed at privatizing state-controlled enterprises, including AySA. The utility’s restructured operations, which now include the ability to significantly increase consumer fees, has resulted in fully funded operations for the first time since 2007. Notably, the average household water bill in Buenos Aires has surged by 344 percent since December 2023.

The restructuring of AySA involves notable reforms, including a leadership change in April 2024, which resulted in a 20 percent reduction in staff and decreased operational hours for maintenance and security personnel. As a result, the company’s earnings for the third quarter of 2024 reached US$59 million, a substantial recovery from the US$42 million loss reported the previous year. The average water bill has risen to approximately US$27.76, providing AySA with the financial stability to cover all operating costs with the fees charged.

AySA is now deliberating its future path towards privatization. The company is weighing options, including a public listing or selling a portion of government shares through an auction. It may transfer 51 percent ownership to a single operator while offering 39 percent to public equity investors via an initial public offering. However, this decision hinges on approvals from the country’s securities regulator and government officials.

Despite the potential for privatization, Milei’s broader strategy to divest state enterprises has faced challenges. Proposals to privatize airlines and banks have encountered hurdles in Congress and the judiciary, leaving the outcome of AySA’s privatisation uncertain. Future benefits for AySA’s bondholders will depend largely on the success of these privatization efforts, as the long-term stability of the company is contingent upon its transition into private ownership.

In conclusion, AySA is currently navigating a significant transition under President Javier Milei’s administration, leading to a remarkable recovery in its financial performance and bond values. With potential privatization on the horizon, the outcomes of these efforts are pivotal not only for the company’s sustainability but also for its investors. The evolving political landscape will play a crucial role in determining AySA’s future operations and profitability.

Original Source: batimes.com.ar