AySA, Argentina’s state-owned water company, has seen significant bond value increases following President Milei’s removal of price controls, lifting bonds up 56 percent since December 2023. A major restructuring and higher consumer fees have led to full funding of operations for the first time in over a decade. The company’s future may lie in privatization, pending governmental approval and strategic decisions.

The bond holders of Aguas y Saneamientos Argentinos (AySA), a state-owned water company, are experiencing significant gains following President Javier Milei’s removal of certain price controls on public utilities. The value of AySA’s dollar-denominated bonds due in 2026 has surged over 20 cents since Milei took office in December 2023, with a total return of approximately 56 percent, eclipsing the average 11 percent return of similar emerging-market corporate bonds during the same period.

President Milei, a libertarian advocating for reduced government influence and deregulation to address Argentina’s economic challenges, has initiated reforms that may lead to the privatization of state-owned enterprises, including AySA. With permission to increase consumer fees, the average water bill in Buenos Aires experienced a staggering 344 percent rise since his administration began, allowing AySA to fully fund its operations for the first time since 2007.

Fernando Pueyrredon, a corporate credit strategist at BancTrust & Co., noted the significant improvements in AySA’s transparency and cost efficiency since Milei’s arrival in office. Investors have welcomed his austerity measures, resulting in a broader surge in both sovereign and corporate bonds from Argentina.

AySA is currently undergoing an extensive restructuring, having consulted with the International Finance Corporation on its potential sale. Changes implemented include leadership alterations, a 20 percent staff reduction, asset sales, and operational cost reductions, leading to a profit of US$59 million in Q3 2024 compared to a loss of US$42 million in the same quarter the previous year.

Thanks to increased pricing, the average household’s water bill in Buenos Aires reached US$27.76, enabling AySA to cover all operating costs with customer fees, a rise from just 52 percent the previous year. AySA faces pivotal decisions about its future, including whether to pursue a public listing or auction its government stake; market approval from the country’s securities regulator is necessary for any move.

With the federal government holding 90 percent ownership of AySA and employees 10 percent, there are ongoing discussions regarding the privatization strategy. Nonetheless, several of Milei’s privatization initiatives, such as the proposed sale of Aerolíneas Argentinas and YPF SA, have encountered significant hurdles, raising questions about future privatization prospects and AySA’s bond performance.

In conclusion, AySA’s bond market recovery reflects the impact of President Javier Milei’s reforms, which have lifted price controls and improved the company’s financial health. The ongoing restructuring enhances the company’s viability, while prospective privatization remains crucial for sustained success. The firm’s growth potential hinges on definitive governmental approvals and strategic decisions regarding its future ownership structure. In this fluid economic landscape, AySA’s bonds showcase a microcosm of broader market conditions and privatization efforts in Argentina.

Original Source: batimes.com.ar