Peru utility preparing for U$160mn bond sale

Lima's state water company Sedapal plans a 500mn-sol (US$160mn) debt offering to help finance its investment projects over the next eight years, CEO Marco Vargas said.

Sedapal, which plans to pump 9bn soles into potable water and sewerage projects over the next eight years, plans to sell 5-10 year bonds in its first foray into capital markets, Vargas said.

The company, which invested 640mn soles in projects in 2014, aims to invest 700mn soles this year and a similar amount annually over the next five years.

The company has lined up 3.8bn soles in financing to date, of which 60% comes from company cashflow, 30% from multilateral lenders the World Bank, IDB, CAF and KFW and 10% from the housing and construction ministry, Vargas said.

Accountancy firm Deloitte has produced a favorable audit of the company, while Moody's affiliate rating agency Equilibrium rates Sedapal 'A-', an investment grade qualification the company is trying to improve to 'A+++', Vargas said.

"Lower interest rates will help cut costs and we can invest in more projects until we reach 100% water coverage," Vargas told broadcaster TV Peru. "There are a few investment issues pending financing, so we are ready to issue debt."

The company's plans for a debt offering comes after Peruvian state development bank Cofide sold US$600mn in 2019 and 2029 dollar-denominated bonds last year.

While Sedapal is battling a lag in water rates compared with countries in the region such as Chile, Colombia and Brazil, the company is one of the few state firms to adapt to current financial regulations, he said.

Sedapal currently charges 2.8 soles per cubic meter, while Chile's Aguas Andinas' water rates are 50% higher, according to Vargas.

State water regulator Sunass is scheduled to approve a 6% increase in water rates in June, agency president Fernando Momiy said last month. The hike will add as much as 2.34 soles to bills of 88% of Lima's 9mn population, according to the agency.

Critics of Sedapal including Lima chamber of commerce economist César Peñaranda and Gonzalo Prialé, president of infrastructure lobby Afin, urged the government to put the company in private hands to improve services, claiming Sedapal lacks financial clout to meet its investment commitments.

"From the beginning this was condemned to failure. Sedapal is not up to the challenge," Prialé told Lima-based newspaper Gestión. "We're condemned to this calamitous water situation, when what we should do is to form public-private partnerships to develop the sector."