AySA’s Bond Rally Faces Crucial Test Amid Privatization Efforts

AySA bonds have surged following President Javier Milei’s removal of price controls, yielding a 56 percent return. The company’s restructuring and increased consumer fees have positioned it for potential privatization, critically dependent on government approvals. The path to privatization remains uncertain amid broader challenges facing state enterprises in Argentina.

The rise of Aguas y Saneamientos Argentinos (AySA) bonds can be attributed to recent policy changes from President Javier Milei, who eliminated price controls on public utilities. This shift has allowed AySA to thrive financially as its dollar-denominated bonds due in 2026 have appreciated by over 20 cents since Milei’s inauguration in December 2023, yielding a total return of approximately 56 percent for investors.

Milei’s libertarian approach aims to privatize state-owned enterprises, and AySA is positioned to benefit significantly from this initiative. With the company’s restructuring and the capacity to impose higher fees—averaging a 344 percent surge in Buenos Aires households since December 2023—AySA now effectively covers all operating costs for the first time since 2007.

Fernando Pueyrredon, a corporate credit strategist, noted a marked improvement in AySA’s transparency and cost efficiency since Milei took office. His stringent economic reforms have spurred optimism among investors and fostered a significant rise in sovereign and corporate bonds within Argentina.

As AySA undergoes restructuring, the company has engaged the International Finance Corporation for potential privatization strategies following leadership changes, workforce reductions, and enhancements in financial performance. In the third quarter of 2024, AySA reported earnings of US$59 million compared to a loss of US$42 million the previous year, indicating robust recovery.

Currently, AySA is contemplating two potential paths towards privatization—either through a public listing or an auction of governmental shares. However, any plan requires greenlighting by Argentina’s securities regulators and the federal government, which currently holds a 90 percent stake in the company. The state has expressed its intention to extricate itself from sectors better suited for private management.

Despite Milei’s ambitious privatization agenda, initiatives such as the sale of Aerolíneas Argentinas and the nation’s largest bank have faced challenges, causing uncertainty regarding the future privatization of state enterprises. Thus, the sustainability of AySA’s bond gains is contingent on the success of its privatization efforts, as articulated by Pueyrredon, who acknowledged the need for privatization to ensure long-term operational effectiveness.

In summary, AySA’s bond performance has markedly improved due to President Javier Milei’s deregulation policies. The company is strategically restructuring to enhance financial health and explore privatization options. Nevertheless, successful privatization will be critical for future bond performance amidst Milei’s broader economic reforms, which remain under scrutiny.

Original Source: batimes.com.ar