Problems mount up for India’s state-owned telecom firm MTNL

Problems mount up for India’s state-owned telecom firm MTNL

Mahanagar Telephone Nigam Limited (MTNL), the loss-making state-owned telecom firm that provides fixed line telephones, WLL services and mobile connectivity in the cities of New Delhi and Mumbai, has defaulted on an interest payment of Rs35.15 (about US$4.4  million crore) to Union Bank of India (UBI) – and has stated this fact in a regulatory filing.

The payment was due in July. More worrying is the fact that this is an interest payment on an outstanding UBI loan of some Rs5,849.71 – that’s US$734.2 million. MTNL also owes a total of Rs 16,930 crore to other banks and financial institutions – approximately US$2.1 billion.

Auditors of MTNL have made the startling statement that the company's net worth has been fully eroded. India’s Department of Public Enterprises describes the company as an incipient sick Central Public Sector Enterprise – that is, with a net worth in the negative.

What does this mean for MTNL’s future? The Indian government has sent out mixed messages in the past few months. Back in April the central government stated that the proposed merger of MTNL operations with the much bigger state-owned telecoms company Bharat Sanchar Nigam Limited (BSNL) had been deferred for “financial reasons including high debt of MTNL”. In August Telecommunications Minister Ashwini Vaishnaw reportedly said MTNL has “no future”. And yet in July, the Union Cabinet approved the raising of sovereign guarantee bonds for MTNL to the tune of Rs17,571 crore (over US$2.2 billion) for the next two financial years. 

Of course BSNL, which is soon going to launch homegrown 4G networks, got an even larger infusion of cash recently – but it could also be seen as having more potential than MTNL as a company with more assets and a much greater reach.

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