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Argentina Utility’s Bond Rally Faces Key Privatization Test

An AYSA truck brings drinking water to Villa Azul in Argentina.

Photographer: Marcelo Endelli/Getty Images

By Kevin Simauchi, Giovanna Bellotti Azevedo, and Manuela Tobias

27. März 2025 at 14:39 MEZ

Takeaways NEW

• Debt holders of Aguas y Saneamientos Argentinos (AySA) are benefiting from President Javier Milei's decision to scrap some price controls for public utility services, leading to a sharp recovery for the company.

  Summary by Bloomberg AI

• AySA's dollar-denominated bonds due in 2026 have jumped more than 20 cents since Milei took office and now trade close to par, with a total return of around 56% for investors.

  Summary by Bloomberg AI

• The company is undergoing restructuring efforts, including a potential sale or public listing, and has already seen significant improvements in its operations and earnings, with the average household's water bill in Buenos Aires increasing by 344% since Milei took office.

  Summary by Bloomberg AI

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Debt holders of state-owned water and sewage company Aguas y Saneamientos Argentinos are reaping a windfall after President Javier Milei scrapped some price controls for public utility services, sparking a sharp recovery for a business that’s struggled under heavy regulation.

AySA’s dollar-denominated bonds due in 2026 have jumped more than 20 cents since Milei took office in December 2023 and now trade close to par, according to data compiled by Bloomberg. The bonds have handed investors a total return of around 56%, compared with an average return of some 11% for emerging-market corporate peers over the same period.

A libertarian who wants to shrink the government and deregulate to flip the switch on Argentina’s crisis-prone economy, Milei has pushed reforms that would ultimately allow the privatization of several state-controlled firms. AySA’s restructuring efforts, coupled with its newfound ability to charge consumers higher fees — the average household’s water bill in Buenos Aires soared 344% since Milei took office — have resulted in fully funded operations for the first time since 2007.

“The transparency of the company, and its cost efficiency has changed quite dramatically since Milei came to office,” said Fernando Pueyrredon, a corporate credit strategist at BancTrust & Co.

Water Bills in Buenos Aires Surged 344% Under Milei

Payments cover AySA operating costs for the first time since 2007

Source: Instituto Interdisciplinario de Economía PolItica de Buenos Aires UBA CONICET

Milei’s belt-tightening campaign sparked a bout of optimism among investors and fueled a surge in bonds — both sovereign and corporate — from the Latin American nation. His plans include a push to privatize companies including AySA, which has added to the gains.

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The utility, which has already tapped the World Bank Group’s International Finance Corporation to advise them on the potential sale, is in the midst of a massive restructuring. After swapping out its leadership in April 2024, AySA reduced headcount by 20%, sold off part of a vehicle fleet and reduced the hours worked by security, cleaning and maintenance staff. Earnings before some items were $59 million in the third quarter of 2024 — compared with a loss of $42 million during the same period a year earlier.

Following sharp price increases, the average household’s water bill in the capital of Buenos Aires soared to $27.76 at the official exchange rate, according to research institute Instituto Interdisciplinario de Economía Politica. That’s given the company enough leeway to cover 100% of operating costs with fees it charges its consumers, up from 52% last year, according to a press release.

Two Paths

AySA could choose a public listing or a sale of the government’s stake in an auction, according to a company official, who asked not to be named because the discussions are private. Argentine officials could sell 51% of its shares to a single operator and another 39% to equity investors via an initial public offering, the official said, adding that executives have yet to decide which path they want to pursue.

AySA has to win approval from the country’s securities regulator and ultimately, from Milei and his team. The federal government owns 90% of the company, while employees hold the remaining the 10%.

A spokesperson pointed to the company’s efforts to balance its costs and said the move now is to advance the privatization, adding that the state “must remove itself from all activities that can be better managed by the private sector.”

AySA Among Best Performing Argentine Corporate Bonds

The utility's dollar bonds have posted 56% returns since Milei took office

Source: Bloomberg

To be sure, Milei’s strategy to sell state enterprises so far has struggled to take off. Air carrier Aerolineas Argentinas still faces a congressional vote after authorities declared the airline subject to privatization. A judge also blocked Milei’s plan to take the country’s largest bank private, and the sale of oil-driller YPF SA is on hold, too.

Future gains for AySA’s bonds now depend on how the company advances its privatization efforts, BancTrust’s Pueyrredon said.

“Under Milei’s government, the company will be efficient, but I don’t know if the next government will be Milei,” he said. “For it to be a longstanding company, it needs to be privatized.