The government is likely to pay the interest on MTNL bonds, which is a guarantee that there will be no default
In this particular case, where the second semi-annual interest (7.59 percent) on certain bonds falls due on July 20, 2024, DoT sources said “the amounts due will be paid before that date” | Representative Image
The government will pay the bond debts of the ailing Mahanagar Telephone Nigam Ltd (MTNL), a DoT source said. There will be no default and the amount will be paid before the July 20 due date.
The move is significant as it would avert a looming crisis for the telecom company, which is teetering on the brink of collapse over its debts coming due. All eyes have been on MTNL since the debt-ridden company said last week that it was unable to make interest payments to certain bondholders due to lack of funds.
Sources at the Ministry of Telecommunications said that the government will intervene and pay the amounts due. There will be no default.
In this particular case, where the second semi-annual interest (7.59 percent) on certain bonds matures on July 20, 2024, DoT sources said “the amounts due will be paid before that date.”
Amid mounting financial troubles, MTNL said in a regulatory filing last week that it is unable to make interest payments to certain bondholders “due to insufficient funds”.
“The second semi-annual interest in respect of the 7.59 percent MTNL bond series… is due on July 20, 2024. As per the structured payment mechanism of the Tripartite Agreement (TPA) signed by MTNL, Department of Telecom and Beacon Trusteeship Ltd, MTNL is required to deposit the semi-annual interest with sufficient funds in the Escrow Account 10 days prior to the maturity date,” the press release said.
MTNL has indicated that due to the provisions of the TPA and insufficient funds, it could not fund the blocked account with a sufficient amount.
MTNL, which offers telecom services in Delhi and Mumbai, has seen a steady erosion of its subscriber base in the past few years. MTNL’s losses widened to Rs 3,267.5 cr for FY24 from Rs 2,915.1 cr in FY23. Revenue from operations for the year ended March 2024 fell to Rs 798.56 cr, down 14.6 per cent year-on-year.
In an update on MTNL dated July 12, India Ratings and Research said it “has received a notice from the trustee, dated July 11, 2024, confirming that the escrow account has not been funded within T-10 days of the due date of interest payment, which is due on July 20, 2024.
“This breach of the condition of the bond trustee deed shall be deemed to be an event of default, as per the notice received by the agency. Ind-Ra has also received confirmation from the trustee that as per the structured payment mechanism, if the designated trust and retention account is not funded to the required extent by (T-8) day, i.e. end of day 12th July, 2024, the trustees shall forthwith invoke the guarantee of the Government of India by sending an invocation notice to the Government of India by end of day 12th July, 2024,” Ind-Ra said.
The term ‘T’ here refers to the due date for interest or principal payments.
“Ind-Ra has secured an excellent rating of ‘IND AAA(CE)’/Stable on these bonds based on the presence of a pre-default guarantee from the parent, GoI, along with a structured payment mechanism overseen by an external trustee. As per the payment structure mechanism, GoI will deposit the requisite funds in the designated trust and retention account as per the notice of invocation issued by the trustees not later than T-3rd day,” Ind-Ra said.
Ind-Ra further said it will continue to monitor developments in this regard and take appropriate rating actions accordingly.
(Only the headline and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First print: Jul 14, 2024 | 3:50 PM IST