The company’s management team says 2021 is an “inflection point” and it will soon begin paying down debt. First up, the remaining half of a $103 million commercial loan from General Electric. In November, the company has $25 million in principal due, the first amortization on $250 million of bonds maturing in 2024. The company’s benchmark notes are $600 million in bonds that mature in February 2025.
Still, never far from investors’ minds will be the possibility the company could see its contracts to produce power, known as PPAs, ripped up by the government. Cutting all of Argentina’s thermal-power PPAs by 25% could save the government $800 million a year, according to Ezequiel Fernandez, an analyst at Balanz Capital Valores in Buenos Aires.
“There’s more risk than the bond price reflects,” Fernandez said. He cited comments by President Alberto Fernandez in March about the need to de-dollarize energy prices.
And MSU already faces payment delays, with the government-run off-taker Cammesa running 80 days behind, on average. MSU has enough working capital to manage, and has about $40 million in credit lines from local banks to cushion the impact, Walker says.
“Messing with the dollar PPAs wouldn’t be the rational thing to do,” said Roger Horn, a senior strategist at SMBC Nikko Securities America in New York. “But then again I’ve stopped expecting rational decisions from the current administration.”
Power Surge
There’s also no precedent for reneging on a PPA in Argentina, even under far more expensive contracts struck in the last decade. And in a country where public utility prices are kept artificially low by government subsidies, there may not be political will to pass higher utility prices to the people ahead of the legislative elections in October, Horn added.
“We have no indication, or have ever had any conversations or messages that broached this topic,” Ferrero emphasizes.
Argentina’s Energy Secretariat declined to comment.
MSU executives are keeping their eyes open for the next time the government tenders for additional power generation contracts. That might not be for another two or three years, said Ferrero, as the economic downturn and the pandemic have curbed electricity needs. Still, when that time comes the company will look to participate. It’s also on the lookout for opportunities to grow through mergers and acquisitions.
“We’re local and we want to stay in the sector and be a part of the future,” Ferrero said. “We want to be at the dinner table and be the ones that eat, not the ones that are eaten.”
—With assistance from James Crombie.
This article was provided by Bloomberg News.