MTNL might be declared NPA due to loan default
What's the story
Mahanagar Telephone Nigam Limited (MTNL) is facing a severe financial crisis after defaulting on its loan repayments. The company has proposed that state-owned lenders accept a significant reduction (60%) in the repayment amount, also known as a haircut. However, this suggestion has been met with resistance from the banks. As per CNBC-TV18, due to consistent defaults over several months, MTNL's account is anticipated to be categorized as a non-performing asset (NPA) by most of its lenders in Q2 FY25.
Payment
MTNL offered to pay 40% of its dues
Union Bank of India and Bank of India have already classified MTNL's debt as an NPA. Other banks like State Bank of India (SBI), UCO Bank, Punjab National Bank (PNB), and Punjab & Sind Bank are tipped to follow suit in the coming weeks. In June, MTNL proposed a repayment plan that included settling around 40% of its outstanding dues, implying a 60% haircut. However, this proposal was rejected by its lenders.
Restructuring considerations
Lenders explore restructuring options
Lenders have expressed their willingness to consider restructuring options, including a potential debt-to-equity conversion. However, they have categorically rejected the idea of accepting a haircut. "Such a big haircut from a government-owned company is unacceptable," said an executive from a large public bank with exposure to MTNL. The lenders have communicated such concerns to the Ministry of Finance, warning that granting a haircut to a government-owned entity would set an unfavorable precedent for future debt resolution cases in the industry.
Debt details
MTNL's debt burden and default
Banks collectively have an exposure of ₹7,925 crore to MTNL, a figure that will necessitate higher provisions as the company's account transitions into the NPA category. Also, MTNL's debt burden includes ₹27,740 crore in bonds backed by a sovereign guarantee. The company disclosed earlier this month, that it had defaulted on ₹519 crore in repayments to several state-owned lenders between June and August 2024.
Lender apprehensions
Lenders express concerns over MTNL's financial position
MTNL's precarious financial position has raised concerns among lenders. Many believe that government intervention, either via capital support or another form of relief, will be required to help the struggling company meet its debt obligations. A meeting between MTNL's lenders is likely to take place soon, to discuss the next steps in the debt resolution process.