MTNL deposits bond interest payout after invocation of govt guarantee

India's Mahanagar Telephone Nigam Ltd (MTNL) has made the requisite payment due to be paid to its bondholders later this week, the state-run telecom operator informed the exchanges on Wednesday.

MTNL had to deposit the interest for the semi-annual 7.59 per cent, July 2034 bonds in the third-party escrow account 10 days ahead of the due date, according to the terms of the bond issue, but it failed to do so.

As a result, the government guarantee was invoked in what is likely the first such case, according to merchant bankers.

The struggling state-run company had received Rs 936 million ($11.21 million) from the government for the interest payment as per the guarantee agreement for the bonds, as it did not have sufficient funds for the payout.

Due to the invocation of the guarantee, the government had to transfer the funds three days before the actual payout date.

"There was not much of a concern of default but possibly the communication could have been better and done in advance. It seems like the government may have wanted to react as per the sequence of the payment structure," a merchant banker said requesting anonymity.

The bonds are rated AAA (CE) by India Ratings and Careedge because the interest and principal payment are guaranteed by the federal government.

Indian bond market participants are also expecting the government to help towards other upcoming interest and principal payments for MTNL bonds.

The struggling state-run telecom services provider has to clear an interest payment of Rs 1.4 billion from other bonds over the next two months.