 "MTNL, telecom")
In case of a default, the government has to transfer the funds three days before the actual payout date, according to the agreement. (Photo: Shutterstock)
Indian credit rating agency India Ratings will monitor developments at Mahanagar Telephone Nigam Ltd 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”.
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 Rs 2,480 crore ($296.97 million) through 10-year government-guaranteed bonds at a semi-annual coupon of 7.59 per cent 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 Rs 329 crore earlier this year.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Jul 15 2024 | 9:55 AM IST
