AySA’s bond prices surged following President Milei’s deregulation efforts, with bonds due in 2026 soaring over 20 cents. This improvement has provided investors with a 56 percent total return. Milei’s government plans to privatize AySA to enhance efficiency, though previous privatization attempts have faced setbacks. The success of AySA’s bonds now depends on the execution of these privatization strategies.
Aguas y Saneamientos Argentinos (AySA), a state-owned water and sewage company in Argentina, is experiencing a bond market resurgence following the removal of price controls by President Javier Milei. AySA’s dollar-denominated bonds due in 2026 have surged over 20 cents since December 2023, currently trading near par and yielding investors a remarkable total return of around 56 percent. This performance stands in contrast to an average return of 11 percent for similar emerging-market corporate bonds during the same timeframe.
President Milei’s pro-business agenda, characterized by government downsizing and deregulation, aims to revitalize Argentina’s struggling economy through the privatization of state-owned enterprises. AySA has adjusted its pricing strategy, leading to an average household water bill increase of 344 percent, enabling the company to fully cover operating costs, which it had not accomplished since 2007. According to Fernando Pueyrredon, a corporate credit strategist, since Milei assumed office, AySA has exhibited enhanced transparency and cost efficiency.
Milei’s reforms have fostered optimism among investors, leading to a bond market rally encompassing both sovereign and corporate bonds in Argentina. AySA is currently undergoing significant restructuring, having contracted its workforce by 20 percent and achieving earnings of $59 million in the third quarter of 2024, a marked recovery from a $42 million loss reported the previous year. The average household water bill in Buenos Aires has reached $27.76, substantially improving revenue streams for the utility.
As for the company’s future, AySA is contemplating either an initial public offering (IPO) or a government stake sale to enhance its operational efficiency. Argentine officials are deliberating the sale of a majority share of the company, with required approvals from the securities regulator and the Milei administration. Notably, the Argentine government currently holds a 90 percent stake in AySA, with employees controlling the remaining 10 percent.
Despite Milei’s privatization intentions, challenges remain. Initiatives to privatize other state-owned enterprises have encountered obstacles, including pending congressional votes and legal challenges. The fate of AySA’s bonds may hinge on the successful execution of its privatization plans, with Pueyrredon noting the importance of transitioning to private ownership for enduring success.
Overall, while AySA is positioned for potential growth amidst favorable market conditions, the effectiveness of Milei’s privatization strategy will significantly influence the utility’s future performance and bond valuations.
In conclusion, AySA’s recent bond market success underscores the impact of President Javier Milei’s deregulation efforts on state-owned enterprises. The utility’s improved financial performance and restructuring highlight a significant turning point after years of heavy regulation. Nevertheless, the path to privatization remains fraught with challenges, and the company’s sustained success is contingent on navigating these complexities effectively.
Original Source: batimes.com.ar
