Brazil’s largest private sector water and sanitation firm Aegea Saneamento incorporated more PPPs and concession contracts into its portfolio this year.
In 2024, the company will continue to look at opportunities in the market, including the privatization of São Paulo state utility Sabesp.
Aegea CFO André Pires spoke with BNamericas about the company’s plans.
BNamericas: What is the current state of Aegea’s business strategy?
Pires: In the last three years we have had transformative operations at Aegea that led to an increase in our growth curve and the most prominent operations in this period were the concession contracts in the state of Rio de Janeiro and also the privatization of Corsan, in Rio Grande do Sul.
To face this expansion, we reinforced our capital, with financial discipline and leverage mitigation.
As part of this, in 2023 we carried out important fundraising operations for both the acquisition of Corsan and our need for financing to cover our investments in Rio de Janeiro.
BNamericas: What can we expect for 2024?
Pires: We are in the phase of consolidating the assets we acquired, including some contracts that are not as transformational as those already mentioned, such as the recent contracts in the cities of Jaru and Governador Valadares, and the Sanepar PPP, which are contracts that add value but don’t generate significant impact on our balance sheet.
Looking ahead, we will continue to participate in specific auctions, where we see the possibility of adding value.
Now in relation to more transformational operations, we need to perhaps evaluate a more robust capital structure, so as not to burden our balance sheet.
Our main message for 2024 is that it will be a year of consolidation of our assets, but it’s our duty to continue looking at assets in the sector.
BNamericas: Will Aegea be more selective in evaluating new contracts?
Pires: We’re always selective and always look at the potential returns on contracts.
We’ll continue to have returns for our shareholders as a pillar and, in those transformational opportunities, assess the need for capital involved.
BNamericas: Does it make sense for Aegea to evaluate the privatization of Sabesp, even if it involves a sale of a stake in the company and not all the shares to a single bidder?
Pires: Firstly, it’s worth saying that Sabesp’s privatization model is not fully defined. I believe that we’re now going to see the definition of this model more clearly.
We have a duty to evaluate all the assets that are on the market, but as you yourself mention, if it’s a privatization model like what happened with [power firm] Eletrobras [sale of a stake through a public offering on the stock market] perhaps this would be a model that attracts more investment funds than operating companies like us.
In any case, we need to see the company’s sales model to know if our operational expertise would have something to add to the business.
BNamericas: What will be Aegea’s financing strategy in 2024?
Pires: We are a capital-intensive company. All the assets we have acquired in recent years require a lot of investment to expand water and sewage coverage for the population.
That said, our investment strategy remained the same along with our search for financing in the debt market, also through various agents such as BNDES, IDB, financing from Caixa Econômica Federal, Banco do Nordeste.
We’ve also carried out overseas bond issues and this will continue.
Although issues abroad require hedging operations, we want to do this to have a greater diversification of financing sources, since the international debt market is much larger than the local debt market.
BNamericas: Is Aegea evaluating renewable energy assets? Could this open up even more of a market for the company to issue bonds linked to sustainability goals?
Pires: We are already a company fully eligible to make bonds issues linked to sustainability metrics and we’ve made issues of this type recently.
Now, in relation to energy, 97% of our energy matrix comes from renewable energy, and we are always evaluating this, as currently our second biggest cost is energy, second only to the cost of labor, which is why it’s part of our strategy to look at projects for self-production of renewable energy.
BNamericas: What are the main bottlenecks in the sanitation sector in Brazil?
Pires: Currently for the entire sector, the main bottleneck is capital.
Studies indicate that there is a need for investments in sanitation in Brazil in the coming years of between 700bn reais [US$143bn] and 1tn reais, so the main bottleneck is the financing for all this necessary investment.
As for suppliers and labor, we’re developing long-term relationships with partners, so this is being resolved.
BNamericas: Do you see space in the short term for an IPO of Aegea and also other sanitation companies, given this great need for investment and financing?
Pires: The variable income market is closed to IPOs of local companies and it’s difficult to say when it will reopen.
Today our financing structure is resolved, but in the future an IPO is an option.
We always carry out internal assessments of all possibilities, but we don’t have any specific target or exact deadline regarding an IPO.