MTNL is broke. But that’s not its biggest problem.
₹2,480-crore loan it had raised last year. The loan was for 10 years with a semi-annual coupon rate of 7.59%. MTNL has long erased its net worth.
The department of public enterprises categorised the company as “sick" in 2015. MTNL had already run losses for three years before that. Yet the only reason MTNL found subscribers for its debt issue was that each rupee of it was backed by a sovereign guarantee.
These were clearly government of India papers, which is why they were priced so fine close to other 10-year gilts. And yet, this listed company went ahead and told the bourses it would renege on the interest payment. “Due to insufficient funds.
MTNL could not fund the escrow account with the adequate amount," it said in its notice to the stock exchanges. The company that once lorded over the telecom business of Mumbai and Delhi in both fixed and mobile telephony, and was the poster boy of the Indian telecom revolution, and had once also been listed on NYSE, had no business sending out the notice since it effectively meant telling the world that the government of India was either unable or unwilling to service its debt. Despite this shocker there was no larger panic in the market, possibly because in February MTNL had defaulted on the payment of interest and principal on another debt of ₹329 crore.
Realising the scale of the goofup, government mandarins this week put out unattributed media reports to say that they will not renege on the payouts. There can only be two reasons leading up to this blunder by MTNL. Either at some level in the government, such as in the department of telecom, the idea went round that they could get away with a debt default once again, or someone at MTNL had jumped the gun.
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