By Dharamraj Dhutia
MUMBAI (Reuters) -Indian bond market participants are expecting the government to help towards the payout of the interest and principal for Mahanagar Telephone Nigam Ltd bonds after a guarantee was invoked for one issue, four merchant bankers said.
MTNL had raised 24.80 billion rupees ($296.97 million) through 10-year government-guaranteed bonds in July 2023, at a semi-annual coupon of 7.59%. Interest payment of around 941 million rupees from that is due on July 20.
The struggling state-run telecom services provider also has to clear an interest payment of 1.41 billion rupees from other bonds over the next two months.
“Looking at the current state of MTNL, there are no expectations of improvement in its financial conditions, so questions arise over future payments,” a senior banker said.
Other bankers said investor sentiment has turned jittery, though no one was expecting the government to not honour the dues.
“There is no worry of a sovereign default, but further issuance of such papers may become a ‘rare occurrence,” another banker said.
All of them requested anonymity, as they are not authorised to speak to media. MTNL did not respond to a Reuters request for comment.
The bonds are rated AAA (CE) by India Ratings and Careedge because the interest and principal payment are guaranteed by the federal government.
India Ratings said it will monitor developments as the “breach of condition of the debenture trustee deed is considered as event of default.”
MTNL has to put the semi-annual interest in the third-party escrow account 10 days ahead of due date, according to the terms of the deal, but it failed to do so. “Due to insufficient funds, MTNL could not fund the ESCROW Account with the adequate amount,” the company said in a notice to the stock exchanges last week.
In case of a default, the government has to transfer the funds three days before the actual payout date, according to the agreement.
($1 = 83.5090 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami and Nivedita Bhattacharjee)
