Dialling Trouble MTNL’s bond rating stays on watch as delays ring alarm

MUMBAI: If telecom drama ever needed a sequel, MTNL has delivered one with enough twists to keep investors glued to the screens. CRISIL Ratings has once again kept the state-run operator’s government-guaranteed bonds on ‘Rating Watch with Negative Implications’, citing repeated lapses in the structured payment mechanism despite New Delhi’s unconditional and irrevocable guarantee propping up the debt.

The latest rationale, dated 28 November 2025, maintains the watch on MTNL’s Rs 6,500-crore bonds and Rs 20-crore NCDs, both rated CRISIL AAA (CE). While payments have been made on time, the behind-the-scenes funding rhythm has been anything but smooth. Under the T-structure, the Government of India is expected to fund the designated account by T-3, but earlier breaches saw delays of 1–2 days beyond the final trigger date.

CRISIL noted that since 21 September 2024, the government has consistently met the T-3 deadline, even after MTNL failed to deposit funds by T-10 owing to liquidity stress forcing the trustee to invoke the guarantee on T-8. Subsequent payments across multiple ISINs adhered to the structure, and for some November 2024 payments, funds even arrived within T-10, negating the need for guarantee invocation.

But one good streak does not erase earlier stumbles. CRISIL emphasised that any future non-adherence could trigger a downgrade, and it is still awaiting MTNL’s formal plan to ensure ongoing compliance. The watchdog will keep monitoring whether this disciplined phase marks a permanent shift or a temporary patch.

Adding to the complications, MTNL’s loan account with Bank of India slipped into NPA status on 4 September 2024. Fortunately for investors, the escrow accounts used for bond servicing also held with BOI remain operational despite the NPA tag.

The rating continues to lean heavily on the government’s guarantee, which covers principal and normal interest throughout the life of the instruments. Without that support, MTNL’s standalone picture looks far grimmer: CRISIL reaffirmed its unsupported rating at ‘CRISIL D’, citing persistent delays in servicing non-guaranteed debt and severe liquidity strain.

MTNL’s financials only deepen the gloom. The telco’s operating revenue fell to Rs 148 crore in H1 FY26, down from Rs 359 crore the previous year, widening operating losses to Rs 402 crore. The drop follows the 10-year service agreement signed with BSNL, effective 1 January 2025, under which large chunks of MTNL’s Delhi and Mumbai customers migrated to BSNL leading to MTNL no longer recognising that revenue. While BSNL now shoulders MTNL’s operational and capital expenditure, making operations Ebitda-neutral, the top line remains sharply affected.

Despite the troubles, the government has already stepped in with Rs 2,215 crore to meet interest obligations on sovereign-guaranteed bonds. CRISIL notes that the guarantee structure with its T-30 reminders, T-10 MTNL funding requirement and T-3 government deadline should, in principle, ensure timely payments.

Still, the message is unmistakable, the guarantee may ring loud, but the clock must ring louder. If MTNL stumbles again on its T-timeline, the rating could drop and this time, even a sovereign safety net may not cushion the fall.

Meanwhile, the stock exchanges have been formally notified, with MTNL requesting BSE and NSE to take the rating rationale on record.