Markets were roiled last week when the government-run Mahanagar Telephone Nigam Ltd, or MTNL, informed the stock exchanges that due to insufficient funds it wouldn’t be able to pay interest due on a ₹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.
It is inconceivable, given the way public sector companies are run in India, that anyone in MTNL would have taken such a big step without keeping the government involved.
So the former remains the only plausible explanation. If so, this leaves a huge question mark on the debt-management capacity of the government as far as state-owned companies are concerned. It is worth reminding at this stage that up north in China, some of the country’s recent market meltdowns are due to state-owned companies not being able to stick to their debt deadlines.
Since the MTNL saga began on Friday there has been another strand of media reports. These reports note that the government is planning to either merge the company with sister BSNL, or strip down its assets, basically spectrum.
Whatever maybe the provenance of those reports, they would have mattered little to the markets since MTNL by any reckoning has been defunct for a long time.
In India, there are 402 Union government-run enterprises. Of these, only 193 made profits in 2022-23. Mergers of loss-making state-owned companies into another have rarely been anything other than a means to help employees with their salary and bondholders, including banks, protect their dues.
This, too, would have passed unnoticed.
But the publication of the price-sensitive information followed by a possible retraction and then the rumours of a merger with BSNL has sent MTNL share prices soaring by 31% in just four days, like those random penny stocks floated by quirky companies whose price speculation India’s markets regulator frowns upon.
All of these could have been avoided if the government had simply written a cheque to MTNL on time instead, as it will do now. And if along with the MTNL notice to the stock exchanges a government release had been issued, assuring the debtors that their investment was safe.
Not doing so in time has made a government-owned stock jump around—not an unedifying spectacle and certainly not just after India debt papers have got included in the global league.