MTNL Defaults on Sovereign-Guaranteed Bonds: Financial Repercussions Loom

State-owned MTNL failed to make interest payments on Rs 6,100 crore sovereign guarantee-backed bonds. A Tri-Partite Agreement required MTNL to fund the interest beforehand, but insufficient funds hindered this. The debenture trustee might invoke the sovereign guarantee, obligating the Indian government to cover the payment.

Financial distress deepens for the state-owned telecom operator MTNL as it defaults on interest payments for sovereign guarantee-backed bonds amounting to Rs 6,100 crore. This default is revealed in a regulatory filing, stating that MTNL could not fund the escrow account with the required sum as stipulated.

MTNL had issued 5,000 unsecured, rated, listed, redeemable, non-convertible, and taxable bonds totaling Rs 6,109.6 crore in November 2022. These bonds, backed by a government sovereign guarantee, had specific funding terms outlined in an agreement between MTNL, the Department of Telecommunications, and Beacon Trusteeship.

According to the filing, if MTNL defaults, the debenture trustee is empowered to invoke the sovereign guarantee. This would compel the Indian government to settle the outstanding interest and principal amounts due. The situation unfolds as a significant financial responsibility looms for the government.

(With inputs from agencies.)