Government likely to intervene for MTNL bond payments, say bankers

Bond market participants anticipate government intervention to assist Mahanagar Telephone Nigam Ltd (MTNL) in paying interest and principal on its bonds, following the invocation of a guarantee for one issue, according to four merchant bankers.

MTNL raised Rs 2,480 crore through 10-year government-guaranteed bonds in July 2023, with a semi-annual coupon of 7.59 per cent. An interest payment of around Rs 94.1 crore is due on July 20.

The state-run telecom services provider also faces an interest payment obligation of Rs 141 crore on other bonds over the next two months.

"Considering MTNL's current financial state, there is little expectation of improvement, raising concerns about future payments," said a senior banker.

Other bankers indicated that while investor sentiment is shaky, there is no expectation that the government will fail to honor the dues.

"There is no fear of a sovereign default, but further issuance of such bonds may become rare," another banker noted.

All sources requested anonymity as they are not authorized to speak to the media. MTNL did not respond to a Reuters request for comment.

The bonds are rated AAA (CE) by India Ratings and Careedge, due to the federal government's guarantee of interest and principal payments.

India Ratings stated it will monitor developments, considering the "breach of condition of the debenture trustee deed as an event of default."

According to the deal terms, MTNL must deposit the semi-annual interest in a third-party escrow account 10 days before the due date, but it failed to do so. "Due to insufficient funds, MTNL could not fund the ESCROW Account with the adequate amount," the company disclosed in a notice to stock exchanges last week.

In case of default, the government is required to transfer the funds three days before the actual payout date, as per the agreement.

(With Reuters inputs)