MTNL on the brink of debt default, knocks on Govt door for funds

A section in the government is concerned since most MTNL debt is backed by a sovereign guarantee, any default would leave the government with little choice but to fund it by the exchequer.

Three government officials confirmed to The Indian Express that the telecom operator, already classified as a sick public sector unit (PSU ), has asked for funds to the tune of Rs 1,000 crore till March-end to meet its debt liabilities.

“Over five years ago, MTNL had sought Cabinet approval for restructuring its debt and had got a nod for sovereign guarantee on its debt. The proposal had included assurance from MTNL of raising around Rs 17,500 crore through monetisation of assets. However, since 2019, the monetisation has resulted in proceeds of only Rs 1,500-1,600 crore,” an official told The Indian Express.

MTNL had informed the stock exchanges on Thursday that due to insufficient funds in the escrow account, it was unable to pay semi-annual interest to a bondholder. On July 12, the T-8th day, as per the payment structure mechanism, the trustee invoked the Government of India (Gol) guarantee by sending a notice of invocation.

The government has to deposit requisite funds in the designated trust and retention account as per the notice of invocation served by the trustees by T-3rd day (July 17) and last by July 20, failing which it would be classified as a sovereign default.

The company was accorded sovereign guarantee for raising bonds to the tune of Rs 10,910 crore in FY23 and Rs 6,661 crore in FY24.

But given the situation now, it may default on more loan repayments this year due to a severe paucity of funds.

For immediate relief, an official said MTNL sought Rs 90-100 crore, but the amount will only go up during the rest of the year. Between July and October, MTNL is scheduled to make installments for long-term loans to State Bank of India, Union Bank of India, Andhra Bank, Corporation Bank, and Punjab & Sind Bank, among others.

In 2022, MTNL had defaulted on an interest payment of Rs 35.15 crore to the Union Bank of India, but paid the amount after a delay of 41 days.

“One interest payment has already been defaulted by MTNL. Another default is about to happen. There is an urgent need to plan cash flows properly by MTNL and to bring the asset monetisation plan proposed earlier fully into force. Otherwise, a series of defaults is likely, all to be honoured by the government,” another person in the know said.

The immediate concern stems because payments are due before July 20 on debt raised through debentures as per a tripartite agreement signed between MTNL, Department of Telecommunication and Beacon Trusteeship Ltd.

The second semi-annual interest payment was to be credited in an escrow account.

“This breach of condition of the debenture trustee deed is considered as an event of default, as per the intimation received by the agency,” India Ratings said in a note. The Department of Telecommunications (DoT) and MTNL did not respond to a request for comment by The Indian Express.

The government had also formed a Committee of Secretaries to decide the merger of MTNL with its other telco BSNL after restructuring the debt of the former. However, sources said this may be tedious given MTNL’s losses, and instead an agreement for BSNL to manage MTNL’s operations could be explored. The decision is yet to receive a nod from the committee.

As per MTNL’s annual report 2022-23, the company has borrowed Rs 28,883 crore from banks, financial institutions and bond holders up to March 2023 to meet operational expenses, capex needs and spectrum charges. Its total borrowings from banks and others have an effective weighted average rate of 7.95 per cent per annum calculated using the interest rate effective as on March 31, 2023.

“The substitution of bank debts with low cost Sovereign Guarantee bonds has improved the situation in FY 2022-23 and the same is expected to continue in FY 2023-24. However, the spiralling interest costs can undo the gains made out of the revival plan affecting the capability of the company either to raise further loans or to service the debts and interest costs leading to a defaulting scenario,” it said in its annual report.

In FY23, MTNL posted Rs 2,910 crore losses, up from Rs 2,602 crore losses in FY22. Its revenue from operations also slumped from Rs 1,069 crore in FY22 to Rs 861 crore in FY23.

In March 2023, former Minister of State for Telecom, Devusinh Chauhan had informed Parliament that MTNL’s total assets were worth a little over Rs 12,000 crore. At the time, he had also said that until March 2023, MTNL had not sold or leased any of its properties. It holds a land area of 334.36 acre.