India Ratings and Research (Ind-Ra) has assigned an ‘AAA (Credit Enhancement)/Stable’ rating to Mahanagar Telephone Nigam Ltd’s (MTNL) proposed non-convertible debenture (NCDs) issuance aggregating Rs 6,661 crore.

The credit rating agency said the ratings factor in MTNL’s strong legal and operational linkages with its parent, the Government of India, which has a 56.25 per cent stake in the company.

The rating reflects the absolute, unconditional and irrevocable pre-default guarantee extended by the GoI for the timely repayment of principal and interest on the rated NCDs.

“It is a continuing guarantee and shall remain in force and effect for the tenure of the NCDs. All payments pertaining to the servicing of bonds will be deposited in a designated trust and retention account,” Ind-Ra said.

MTNL’s liquidity for the NCDs is supported by the trustee-monitored pre-default payment mechanism. According to the tri-partite guarantee agreement (signed between the Department of Telecommunications, debenture trustee (Beacon Trusteeship Ltd) and MTNL), the liability of bond constitutes a direct and general obligation of the GoI.

The agency noted that historically, MTNL’s cash flows have not been adequate to support its debt servicing. On a consolidated basis, MTNL had moderate cash levels of Rs 320 crore as on March 31, 2023, and the average utilisation of fund-based bank lines was around 80 per cent for the nine months ended June 30, 2023.

However, the state-owned telecom company has been using financial support received from the GoI by way of either sovereign guarantee or letters of comfort (LoC) to raise debt.

Liquidity is also supported by the company’s latest bond issuances of Rs 10,910 crore in 2HFY23, and the proposed bond issuance of Rs 6,661 crore in FY24.

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