MTNL Bonds' Rating Upgraded By CareEdge On Timely Debt Repayments

CareEdge Ratings has upgraded its rating on the bond issuances of Mahanagar Telephone Nigam Ltd. to AAA from AA+ earlier on the back of timely fund infusion by the government.

It has also removed the rating watch with negative implications and assigned a stable outlook on MTNL's bonds worth Rs 24,071 crore, the ratings agency said in a press release on Tuesday.

"CARE Ratings has observed consistent adherence to the trustee-administrated (structure payment mechanism) SPM towards timely funding of the designated escrow account towards SG (sovereign guarantee) bond payments," the rating agency said.

Upon observing eight consecutive satisfactory instances of sovereign guarantee bond payments to investors, CareEdge reasonably expects that the trustee-administrated structure payment mechanism will continue to be consistently adhered to, it said.

This has come as the state-owned entity had defaulted on its bond repayments owing to cash flow issues.

As on Nov. 30, MTNL's total default amount was Rs 1,383 crore. The delay in making these payments has come because of paucity of funds, considering insufficient cash generation from operations and delay in timely support from the government.

On Sept. 6, the agency had placed the rating on MTNL's bonds under watch with negative implications because of pending clarification on the operational status of escrow account maintained with Bank of India.

Since the company's loan account with Bank of India was classified as a non-performing account in September, the potential risk of adverse action by the escrow lender increased.

"The Debenture Trustees have an absolute lien on funds deposited in the escrow accounts. Thus, basis the aforementioned and discussion with senior officials of BoI, MTNL and DT, CARE Ratings believes that the operational status of the escrow accounts will not be affected if the NPA status of the loan account continues," it said.