India steps in to prevent MTNL bond default

The Indian government will guarantee timely interest payments on a local-currency bond issued by state-owned telecom operator MTNL.

MTNL has reported a funding shortage for the 7.59 per cent July 2033 bond, which is backed by the government.

The 941 million rupees ($11.3 million) interest payment is due on July 20th and must be deposited into an escrow account by Wednesday. Sources suggest the deposit could occur as soon as Tuesday.

Government intervention underscores challenges faced by state-owned telecom companies in competing with private players in India. It also shows commitment to prevent defaults, crucial as India’s bond market attracts global investors.

Sources assured that the government will meet all its obligations and is considering payment options for upcoming bond maturities. Bloomberg data shows that MTNL has 48.1 billion rupees in local-currency bonds due for the rest of 2024.

The Finance Ministry Nirmala Sitharaman has not yet responded to Bloomberg’s requests for comment.

MTNL’s shares have seen gains in eight out of the past twelve trading sessions. The current share price is the highest it has been in over a decade.

The company’s last foray into the local-currency bond market was in March, raising 5.6 billion rupees through notes due in ten years with a semi-annualised coupon of 7.51 per cent.

Attribution: Bloomberg