As MTNL turns NPA for several banks, govt asks lenders to hold off on insolvency

Instead, the government has assured banks that it is working on a restructuring plan, the first person told Mint.

MTNL reported a consolidated net loss of ₹890 crore for the quarter ended September 2024 after posting a consolidated net loss of ₹774 crore in the previous quarter. In Q2FY25, revenue was ₹174 crore, 5% lower than ₹184 crore a year ago. Ebitda (earnings before interest, taxes, depreciation, and amortization) loss stood at ₹119 crore for the quarter, slightly higher than ₹111 crore in the previous year.

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Banks and financial institutions have a cumulative exposure of ₹8,026 crore to MTNL, as per an exchange filing by the telecom company in November. MTNL said it has defaulted on total repayment of ₹5,726 crore, comprising a principal amount of ₹5,492 crore and interest of ₹234 crore. Including long-term and short-term bonds, the company’s total financial indebtedness stood at ₹32,097 crore.

Tagged as bad loan

MTNL’s major lenders include Union Bank of India, Bank of India, State Bank of India, UCO Bank, Punjab National Bank, and Punjab & Sind Bank—most of which are expected to have tagged MTNL as a bad loan in the second quarter of the current financial year, according to the persons.

Ashish Pyasi, partner, Aendri Legal, said, “Since the government is directly involved (in MTNL) and the intentions clearly appear to be for reviving it, Insolvency Bankruptcy Code (IBC) will not be the preferred route. There is no embargo or restriction under IBC, so public sector companies can be taken to the National Company Law Tribunal (NCLT). In the past, too, there have been instances of companies where the government holding was over 25%. The government seems to be working on a restructuring plan and if it doesn’t work out, lenders could explore this option at a later stage."

Also read | MTNL is broke. But that’s not its biggest problem.

Earlier in the year, reports had suggested that lenders had rejected an MTNL offer to settle 40% of its dues, indicating a 60% haircut for lenders. Lenders are then believed to have proposed exploring restructuring options, including a debt-to-equity conversion, given the government’s reluctance to refer MTNL under the IBC for fear of setting a bad precedent for other loss-making public sector companies.

However, the situation seems to be getting worse for the government-backed telecom operator and lenders may be running out of options.

Banks and financial institutions are estimated to have a cumulative exposure of ₹8,026 crore to MTNL, as per an exchange filing by the company in November.

Recovery not the problem

“MTNL has so many real estate assets that these bank payments are nothing in front of that, so recovery is not the problem. The issue is that banks may want the money immediately whereas the government’s restructuring is taking a lot of time, which is why banks may be exploring options such as claiming or attaching some of these assets and selling them to recover their money," said the former head of recoveries at a state-owned lender.

“Those possibilities are definitely there and banks may also prefer to explore those before taking the account to NCLT as asset sales take some time. It’s then a question of NPV (net present value) because resolutions under NCLT also take 2–3 years on average. IBC should ideally be the last resort but ultimately it has to come from the government and right now it doesn’t seem like they have the money to bail it out because they just did it for Air India," he added.

Also read | MTNL seeks shareholders' nod to raise ₹3,126 crore via bonds

Net present value (NPV) is the difference between the present value of cash inflows and outflows over a period of time. Banks use NPV as one of the measures to ascertain the worth of a resolution proposal where they may be required to take a haircut for immediate repayment versus delayed repayments over a period of time.

Telecom minister Jyotiraditya Scindia last month said the uncertainty around MTNL’s debt is unfounded as it is backed by sovereign guarantee, adding that the company’s business will soon be transferred to BSNL.

The comments came after plans to merge MTNL with BSNL fell through owing to MTNL’s high debt. In August 2024, the two operators signed a service agreement with BSNL to allow a pan-India presence for both.

Limited ability

Therefore, some believe that despite the burgeoning debt and their shrinking options, financial creditors may be limited in their ability to drag MTNL to the NCLT given the significant involvement of the government and its preference for traditional resolution options such as bond purchases, part loan repayments or privatization for debt-laden state-owned companies.

“Nothing prohibits the lenders to take MTNL to NCLT as it is a fully owned subsidiary of BSNL incorporated under the Companies Act. Government companies are ordinarily not taken to NCLT under Insolvency and Bankruptcy Code. Recently, Hindustan Newsprint Ltd was admitted under CIRP. Interestingly, in that case the Government of Kerala-owned-KINFRA was the successful resolution applicant," said Mukund P. Unny, advocate on record, Supreme Court of India.

Also read | Instead of merger plan, MTNL operations to be given to BSNL, says report

“In cases where restructuring of the government companies are on the anvil, the government exercises its discretion to either privatize it or opt for fresh capital infusion. MTNL has prime properties in Delhi and Mumbai and the Government will be able to tap the value only if MTNL avoids the CIRP route. Even the lenders will suffer a haircut if MTNL is led to NCLT," he added.

The Department of Public Enterprises is reportedly working to monetize the land assets of Bharat Sanchar Nigam Limited (BSNL) and MTNL to help these companies manage their debt.

Emails sent to the ministry of telecommunications and MTNL remained unanswered.