Government to Pay Interest for MTNL Bonds so as to Avoid Default

The Indian government will pay MTNL's bond interest due on July 20, 2024, averting default. This intervention comes as MTNL faces financial struggles, with mounting losses and declining revenue. The move highlights ongoing challenges in the state-owned telecom sector.

The Indian government is now preparing for an intervention and even for the payment of the next bond interest of the debt-laden state-owned telecom operator, Mahanagar Telephone Nigam Limited (MTNL), insiders from the Department of Telecommunications (DoT) revealed. In light of this, MTNL has revealed that it has insufficient funds to meet its obligations hence the move.

MTNL is one of the major telecommunication companies operating in Delhi and Mumbai which is experiencing growing problems with its finances. The company incurred total losses of Rs 3,267. 5 crore for the fiscal year 2024 from Rs 2,915 crore for the previous year. 1 crore in the previous year and 32,405 in the current year. Its revenue from operations also reduced by 14. 6% to Rs 798. 56 crore.

The immediate focus is the 7. Interest payment No. 2, 59% semi-annual interest payment due on July 20, 2024. According to the tripartite agreement between MTNL, the Department of Telecommunications (DoT), and Beacon Trusteeship Ltd. , the company was to deposit an amount to an escrow account ten days prior to the due date. However, MTNL stated that the issue could not be addressed in this regard because the company lacked sufficient capital.

Some DoT sources have said that the government will intervene and clear the dues before the deadline to ensure that it does not default. This intervention is important as it prevents a possible crisis for the telecommunication company which is burdened with so much debts.

India Ratings and Research had raised this concern earlier; the non-funding of the escrow account was considered an event of default. The rating agency also said that if the account is not funded by July 12 then the trustees would trigger the government guarantee.

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The government’s decision to cover MTNL’s dues reveal the struggles of the telecom operator and has thrown serious doubts over its long term viability. The losses are mounting, subscriber numbers continue to decline, and these are just some of the challenges that MTNL faces now that the company needs a clear and effective turnaround plan.