India Ratings to monitor MTNL as interest payment default triggers government guarantee

Mahanagar Telephone Nigam

15/07/2024 04:54

MUMBAI, July 15 (Reuters) - Indian credit rating agency
India Ratings will monitor developments at Mahanagar Telephone
Nigam Ltd  MTNL.NS  as a government guarantee for a bond issue
was invoked after the state-run telecom services provider failed
to transfer funds for interest payment.
    The bonds are rated AAA (CE) by India Ratings as the
interest and principal payment are guaranteed by the federal
government.
    According to an agreement, MTNL has to put the semi-annual
interest in the third-party escrow account 10 days ahead of the
due date, but it failed to do so due to "insufficient funds".
    "Due to insufficient funds, MTNL could not fund the ESCROW
Account with the adequate amount," the company said in a notice
to the stock exchanges last week.
    Escrow refers to a neutral third party holding assets or
funds before they are transferred from one party to another in a
transaction.
    Rating agency Brickwork Ratings earlier said it continued to
factor in the complete erosion of MTNL's net worth, continuous
weak financial and operational performance, its categorisation
as an "incipient sick CPSE (Central Public Sector Enterprise)"
by the Department of Public Enterprises and the Department of
Telecommunications, and the fact that it is considered to be a
going concern only on account of government support.
    In July 2023, MTNL raised 24.80 billion rupees ($296.97
million) through 10-year government-guaranteed bonds at a
semi-annual coupon of 7.59% and the interest payment is due on
July 20. 
    In case of a default, the government has to transfer the
funds three days before the actual payout date, according to the
agreement.
    India Ratings said it will monitor the developments and take
appropriate rating actions. The "breach of condition of the
debenture trustee deed is considered as event of default", the
ratings agency added.
    MTNL had defaulted on the interest and principal payment of
another loan worth 3.29 billion rupees earlier this year. 
    India Ratings and Brickwork Ratings then downgraded the
independent or unsupported rating of the company to D.
    

($1 = 83.5090 Indian rupees)

 (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
 ((Dharamraj.dhutia@tr.com))