With a tight calendar, the main investments for the universalization of basic sanitation in Brazil are concentrated in a few companies, warn experts heard by the InvestNews. The good news is that at least two players of weight are heading to enter the market: the Sabespwith its new nationalization strategyand the Spanish Actionwhich recently won its first auction. The duo tends to help accelerate the necessary contributions for the mandatory expansion of the service until 2033.
There are less than 10 years left for companies to comply with the requirements of the 2020 Sanitation Framework, to guarantee access to drinking water for 99% of the population and sewage treatment and collection for 90%. So far, what has been seen is Aegean e Iguá dominating the advancement of investments: both won the most relevant concessions in the last three years. In contrast, BRK Environmental e Waters of Brazil they performed more timidly.
“A lot of things ended up being left to a few companies”, reinforces Renato Sucupira, partner at BF Capital, a consultancy specialized in structuring financing for infrastructure projects. “It is not possible to say that these companies have reached the limit (of debt), but the presence of foreign investors, which was the initial expectation (with the Sanitation Framework), has not yet happened.”
The most recent estimate from Instituto Trata Brasil indicates that R$44.8 billion per year will be needed for the target established by the milestone to be achieved. Since 2020, investments have been around R$20 billion per year.
For Clayton Souza, partner responsible for industry and infrastructure at LEK Consulting, some companies are going through the process of “digesting” assets, which limits their ability to make new investments. “Sanitation should attract more players international and strategic, but the investor often needs to find the right horse”, he adds.
New competitors
If the last few years were dominated by Iguá and Aegea, now the game will count on Sabesp and Acciona to divide the concessions pie.
It is unlikely that Sabesp, which had its privatization completed at the end of September, will participate in new auctions this year. But Equatorial Energia, which paid R$6.9 billion to become a reference shareholder of Sabesp, it can expand its investments in the sector.
The company has already made it clear to the market that its objective is to make Sabesp its basic sanitation platform in the country. Em presentation to investorsthe company showed that it is studying concessions that should be auctioned next year, such as Goiás, Minas Gerais and Paraíba. Today, in addition to São Paulo, Equatorial manages the service in Amapá.
Acciona, which already operates in other infrastructure projects in the country and has been rehearsing its entry into sanitation for a few years, actually entered the market in September, when it won one of the lots from the state-owned company’s Public-Private Partnership (PPP). Sanepar from Paraná. Now, the expectation is that the Spanish company will start competing for more concessions.
The next sanitation auction is scheduled for the end of this month for the sanitation concession in Piauí. Next come Pará, Pernambuco and Rondônia. There is also an expectation for the concession of the service in Porto Alegre next year.
Concentrated debt
For now, the scenario is still one of concentration. And one of the main side effects is that debt also ends up concentrated, leading companies to set up real financial engineering to guarantee contributions and continue looking for new opportunities.
The most recent example is Iguá. After committing to pay R$4.5 billion for the water and sewage concession in Sergipe for 35 years, the company announced last month that it will make a capital increase with the contribution from its main shareholderthe Canadian pension fund CPPI. The contribution, of up to R$2.2 billion, aims to cover the payment of the grant and the R$6.3 billion in mandatory investments in the State.
With the operation, the company wants to avoid an increase in its debt, which before the auction was already at a stratospheric ratio of 7.2 times net debt to operating profit (EBITDA). The consequence of such a high level of debt is that financing begins to become more expensive and scarce given the risk of default.
André Pires, CFO of Aegea, says that it is inevitable to take on debt for any sanitation company. But this is a sector in which structuring a project finance it might be easier. This is because companies have a monopoly on the service, which guarantees revenue predictability, without competition.
The executive cites as an example the River Watersthe company’s main asset, which handles the water and sewage concessions for 35 municipalities in Rio de Janeiro and which will require around R$40 billion in investments over 35 years.
“We created a mix of financing, including lines from development banks and capital markets, and today Águas do Rio does not need to raise anything else or new contributions from Aegea. It’s a project’fully funded‘, in other words, it is an asset that pays for itself”, he explains.
Another major project of the company is the gaúcha Corsan. Aegea committed around R$17 billion between the purchase of the company and mandatory investments. In this case, the capital structure of the asset has not yet been fully resolved, but the tendency is that, from 2025 onwards, the company will access the market more frequently to meet the commitment.
Accessing the resource should not be a challenge, says Pires, since development agencies are mobilized to assist in the expansion of sanitation. “There is a great interest from multilateral agencies in financing sanitation in Brazil, and it normally comes with a longer term. interesting”, adds the CFO of Aegea – which, it is worth remembering, is controlled by the Singapore sovereign wealth fund (GICin English), Itaúsa e Equipav.
