MTNL defaults on Rs 37.5 crore Punjab & Sind Bank loan instalment

State-owned telco told exchanges it owed Rs 5,480 cr to Punjab and Sind Bank

Mahanagar Telephone Nigam Limited (MTNL) has defaulted on a Rs 37.5 crore loan repayment owed to Punjab and Sind Bank, the state-owned telecom operator informed the exchanges on Friday. The financially beleaguered telco stated it defaulted on the repayment of the latest instalment of the principal loan amount on July 10.

The total unpaid principal amount stands at Rs 5,480.2 crore, it said. The company told the exchanges that its total outstanding borrowings from banks and financial institutions were Rs 7,780.2 crore. The company's total indebtedness stood at Rs 31,851.2 crore.

Telecom Minister Jyotiraditya Scindia said on Thursday that the Department of Telecommunications (DoT) was closely monitoring MTNL. The latest incident is the second in a week for the telco. The government on Wednesday stepped in to pay MTNL bondholders the guaranteed semi-annual interest.

In July 2023, MTNL raised Rs 2,480 crore ($296.97 million) through 10-year sovereign-guaranteed bonds at a semi-annual coupon rate of 7.59 per cent. While the latest interest payment is due on July 20, MTNL informed the exchanges last week that it was unable to make the interest payments due to insufficient funds.

The tripartite agreement (TPA) signed among MTNL, DoT and Beacon Trusteeship Ltd, which is the debenture trustee, mandates that MTNL fund the semi-annual interest into the escrow account with adequate funds 10 days before the due dates. As the company announced it was unable to make the payments, the government stepped in and deposited the necessary funds in the designated trust and retention account at least three days before the due date, which was July 17.

Interestingly, MTNL's share price rose to an all-time high of Rs 64.08 on Thursday after this development. The share price rose nearly 10 per cent to Rs 70.48 on Friday.

Set up in 1986, the public sector undertaking (PSU) under the Ministry of Communications was tasked with providing telephone services in Delhi and Mumbai circles. The company had stayed profitable till 2008-09. Since then, it made losses every year, barring 2013-14.

The government in October 2019 approved a Rs 68,75 crore revival package for loss-making telecom sector PSUs - BSNL and MTNL. The package envisaged merging the entities and raising funds via the issuance of sovereign-backed bonds. But MTNL’s huge debt, pegged at Rs 23,500 crore in FY23, has held up the merger with its relatively stable sister firm BSNL.

DoT officials have said MTNL won't be shut down, but its operations will be shifted to BSNL, a process that has already begun.