Just under three weeks after India’s Union Bank froze the accounts of state-run telecom firm MTNL over non-payment of dues, news reports are suggesting that at least half a dozen lenders classified loans to MTNL as non-performing assets (NPA) in August. So what happens now?
In fact MTNL has defaulted on payments to a number of banks from which it had earlier raised about US$664 million in debt, but is said to have borrowings of about US$938 million from banks and financial institutions, and total debt of a staggering US$3.8 billion.
Not surprisingly MTNL has suggest proposed a debt recast plan; this involves the payment of 40% of dues. Lenders have rejected this. However, it’s not clear how MTNL, which for years had a monopoly in fixed line connections in Delhi and Mumbai, will be able to find even these sums. The Economic Times news service suggests that MTNL lost customers rapidly in the fixed line and broadband segment when 4G arrived and doesn’t have the money to invest in its network.
It has issued some U$3.3 billion in bonds, which have unconditional government guarantees. However, the loans are not guaranteed. The government holds a 56% stake in MTNL, while the balance is held by the public.
To improves the fortunes of MTNL and the much bigger state-owned company BSNL, the government has proposed rolling out 4G services, growing the telecom network, and de-stressing balance sheets. BSNL is apparently handling the operations of MTNL and so will launch the 4G spectrum allocated for MTNL in Delhi and Mumbai. Whether that means MTNL will continue or BSNL will absorb all its operations is not clear.
There is the possibility of MTNL monetising surplus land and building assets which the government wants it to do, but this has been a slow process and, given the extraordinary level of MTNL's debt, will it be enough?
