MUMBAI: Mahanagar Telephone Nigam Ltd (MTNL) defaulted on the interest payment of a bond due on August 24, 2025.
Specifically, it was the fourth semi-annual interest payment on its 7.61 per cent MTNL Bond Series VIIIB that was due on August 24, 2025. As per the arrangement, MTNL is required to fund an escrow account with the interest amount several days before the final due date.
The company failed to fund the escrow account with the required interest payment for its 7.61 per cent MTNL Bond Series VIIIB. The reason for the default was insufficient funds.
All MTNL bonds are backed by a sovereign guarantee from the Government of India. As a result, the debenture trustee, Beacon Trusteeship Ltd, will now invoke this guarantee.
The government is legally obligated to step in and make the payment to bondholders on behalf of MTNL.
Other defaults
This case is different from most corporate defaults. In 2019, Dewan Housing Finance Corporation Ltd. (DHFL) defaulted on its bond payments, leading to a stock fall of over 97 per cent and widespread investor losses.
Investigations later uncovered financial irregularities and money laundering. The RBI eventually removed the company’s board due to serious governance failures.
However, a recent ruling by the Chandigarh Consumer Disputes Redressal Commission addressed the issue of accountability in such defaults.
The commission fined the debenture trustee and rating agencies for failing to act responsibly and misleading investors in the DHFL case.
They were ordered to pay compensation to a retail investor, setting a precedent for holding market intermediaries accountable.
MTNL’s default highlights the ongoing financial struggles of state-run enterprises. However, the presence of a sovereign guarantee means that the government will directly cover the payment obligations, unlike private sector defaults where such intervention is not the norm.
The incident also occurs in a climate of increased scrutiny and legal pressure on financial intermediaries to protect investors and ensure market integrity.
