The growth plans of Brazilian sanitation firm Aegea

Brazil’s largest private water and sanitation firm Aegea Saneamento e Participações expects to complete all funding requirements for its massive investment program in Rio de Janeiro state by year-end. Local bonds known as debentures are among the financing options that Aegea is using.

The company is also looking into financing solutions for its operations in other states and continues eyeing new contracts via concessions, PPPs or privatizations.

In this interview, financial director Fabiana Ieno Judas tells BNamericas about the company's growth strategy and the outlook for the coming months.

BNamericas: What are Aegea's financing needs at this moment?

Judas: We have just completed an infrastructure debenture issue of 5.5bn reais [US$1.1bn] and these funds will all be used to finance the investments in our concession in Rio de Janeiro.

The issuance had an investor demand of more than 9bn reais, which shows the confidence of investors in our operations and the Brazilian sanitation sector.

This operation is part of the financing program for our operations in Rio de Janeiro of up to 25bn reais, all investments for the state.

In addition to the debentures already issued, we are finalizing conversations with the IDB and federal government program Saneamento Para Todos [sponsored by state-run bank Caixa Econômica Federal], and with that we hope to be able to conclude all our financing needs for our large investment program in Rio de Janeiro.

By the end of this year, we will have all our investments scheduled for Rio de Janeiro within the concession contract fully funded.

BNamericas: In addition to Rio de Janeiro, what are the company's most urgent financing needs?

Judas: Last year we won the auction for the privatization of state-owned Corsan in Rio Grande do Sul, and we took over the contract this year.

With that, we have an investment obligation in the state of around 15bn reais by 2033 for which we are looking for financing.

As a strategy we will look at issuing in the local market via debentures, but we also want to talk to multilateral organizations to discuss funding from these institutions as well.

BNamericas: Is the sanitation sector in Brazil too heavily reliant on financing through debentures and does it represent a risk?

Judas: It is always important to have new financing options and the Brazilian capital market has developed. But it is true, we need new financing mechanisms and guarantee funds to create such instruments.

BNamericas: As part of the funding diversification, is Aegea planning an IPO at some point?

Judas: An IPO is always a possibility that we are evaluating but that depends on factors that go beyond Aegea's control, including market conditions.

We do not have an IPO in mind for the short term, but the equity market and the international debt market are options that will be evaluated.

We have already made overseas issues via sustainable bonds and, due to the nature of our business, we will consider such issues again in the future.

BNamericas: Are you interested in Sabesp's privatization?

Judas: As a leading company in the sector Aegea will always be evaluating opportunities, but we do not know exactly how the Sabesp privatization model will turn out to say now whether we will study it or not.

We have made major moves in recent months, expanding our portfolio and operations from the country’s north to the south.

We won a sewage contract in Crato [Ceará state], we also walked away with a PPP contract in the same state with [state-owned water utility] Cagece, we won the privatization auction for Corsan, a PPP contract with Sanepar, so we are always evaluating opportunities.

But before looking at any opportunities, we assess whether our capital structure remains robust and whether there is a potential for attractive returns on these contracts. We always look at assets with a lot of discipline.

BNamericas: The Paraná government has announced its intention to offer two PPP contracts with Sanepar by year-end. As you recently won the auction for a PPP in the state, are there synergies with these other contracts being offered?

Judas: We have not yet looked at the tender notices for these contracts that will be offered so I cannot answer that right now.

BNamericas: Some analysts say Brazil’s sanitation sector may see a consolidation phase at some point. As the largest private company in the sector, is Aegea eyeing acquisitions of rival firms?

Judas: This consolidation phase is not currently on our radar.