Graffiti on a rock at the depleted Jaguari dam, 54.5 miles from São Paulo, depicts the skeleton of a dead fish and a message in a bottled, titled 'Agua'. Photo: The Independent

By Dimitra DeFotis
4 September 2015

(Barron's) – Moody’s Investors Service said in a note this week that the credit rating of Sao Paulo, Brazil’s drought-starved water utility Companhia de Saneamento Basico do Estado de São Paulo or Sabesp (SBS) is at risk.

As the Brazilian real stumbles lower against the dollar, shares of Sabesp, the company in charge of the water system in the São Paulo metropolitan area, are down nearly 7% this afternoon in U.S. trading. The iShares MSCI Brazil Capped ETF (EWZ) is down 4%.

Moody’s compares Brazil’s State of São Paulo to similarly drought-ravaged Los Angeles, saying L.A. is an example of better infrastructure planning and conservation efforts and has the ability to raise rates. But not so in São Paulo, which could pressure the Sabesp credit rating of Ba1 negative. According to a Moody’s report co-authored by Analyst Paco Debonnaire, a Moody’s analyst, and Michael Wertz, a Moody’s assistant vice president:

“… Conservation will persist for longer in the state of São Paulo … where the population has grown much more rapidly than that of Los Angeles, but its infrastructure spending has not kept pace, leaving the state unable to increase its water storage capacity. As a result, [the Los Angeles utility, Ladwp] has 18 months of stored water supply versus roughly five months for Sabesp. The Ladwphas also greatly increased the efficiency of its water conveyance systems, reducing leakage, while São Paulo’s implementation in 2009 of a 12-year program to reduce water loss will be challenged by Sabesp’s financial stability and will still lose a significant amount of water to leakage.”

[“Levels at Sabesp’s main reservoir were at 15.3 percent Thursday, down from 18.7 percent at the end of July. The Cantareira, as the reservoir is known, supplies water to 5.3 million people in the Sao Paulo metropolitan area, down from about 9 million before the start of the drought.” – Sao Paulo Trails Los Angeles in Handling Drought, Moody's Says]


São Paulo, Brazil Water Utility Sabesp -7%, Credit Risk?

By Julia Leite
28 August 2015

(Bloomberg) – Sao Paulo’s water utility was cut to junk by Moody’s Investors Service, which said the worst drought in decades had weakened the business and eroded the company’s liquidity.

Cia. de Saneamento Basico do Estado de Sao Paulo, known as Sabesp, was downgraded to Ba1, one level below investment grade, Moody’s said in a note Friday. The outlook on the rating is negative.

The utility, which is majority owned by the state government of Sao Paulo, has seen its sales volume crimped as costs climb due to its water-saving program, according to Moody’s. Sabesp’s credit metrics could worsen if it imposes a compulsory reduction in consumption, Moody’s said. Levels at Cantareira, the company’s main water reservoir, were at 15.8 percent of capacity Friday.

"Sabesp’s liquidity position will remain under pressure in the near term, particularly given the potential breach of some financial covenants embedded in most of the company’s outstanding debt," Moody’s analyst Jose Soares wrote. [more]

Brazil Utility Cut to Junk by Moody's Amid Sao Paulo Drought



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