Govt steps in to pay interest on MTNL bond

Mumbai: The government met the debt obligations on behalf of Mahanagar Telephone Nigam (MTNL) for the upcoming semi-annual interest payment on its bonds, due on November 7 in line with the bond structure.

MTNL informed investors that its debt obligations for the upcoming semi-annual interest payment on its 7.80% bond have been made for Series VIII-C (INE153A08170). The funds were transferred into the designated escrow account on November 4, before the November 7 due date.

The telco's total financial indebtedness stands at ₹31,996 crore as of August 30, according to a stock exchange disclosure, as reported. The debt obligations of MTNL are split between bank loans and bonds, with a critical distinction in terms of guarantees. While MTNL's bank loans were not backed by the Union government and were to be repaid from MTNL's own cash flow, the company faced liquidity challenges, leading to defaults on these bank debts. However, MTNL's bonds are explicitly guaranteed by the Union, ensuring timely servicing without risk of default.

"While MTNL has faced difficulties with its bank loans due to internal liquidity constraints, its government-backed bonds remain secure, and payments have been consistently serviced as scheduled," said a debt capital markets head. "This has addressed concerns of a broader default risk and clarifies that Government of India-backed bonds are unaffected by MTNL's bank loan defaults."

In an October 30 letter to stock exchanges, MTNL said the government would meet the debt obligations on its behalf.