Mahanagar Telephone Nigam Limited's non-convertible debentures worth INR175.71 billion remain under close scrutiny as India Ratings and Research maintains them on Rating Watch with Negative Implications. The rating action, announced on February 19, 2026, reflects ongoing concerns about adherence to structured payment mechanisms despite continued government support.

Rating Details and Current Status

The rating agency has maintained the NCDs with an IND AAA(CE) rating, supported by Rating Watch with Negative Implications. The credit enhancement suffix indicates external credit support through a pre-default guarantee from the Government of India.

Payment Mechanism Challenges

The Rating Watch placement stems from multiple instances of non-adherence to the trustee-administered structured payment mechanism. During August and September 2024, there were breaches of T-3 trigger dates for Series VII-D, VIII-B, and VIII-D bonds, where Government of India funding was delayed by one to two days beyond the required timeline.

Under the structured payment mechanism, MTNL must fund the designated account 10 days prior to due dates. When this fails due to liquidity constraints, the trustee invokes the government guarantee, requiring GoI funding by T-3 days before the payment date. While procedural breaches occurred, all bondholders received timely payments as the government funded accounts before actual due dates.

Financial Performance Deterioration

MTNL's operational challenges are reflected in its declining financial metrics. The company's performance shows continued stress across key indicators:

The revenue decline from INR8.2 billion in 9MFY25 to INR5.5 billion in 9MFY26 primarily reflects the decreasing subscriber base. Operating losses widened to INR2.4 billion in 9MFY26 from INR0.7 billion in the previous year period.

Market Position and Competitive Challenges

MTNL's market presence continues to erode in its core Delhi and Mumbai markets. The company's wireline subscriber base totaled 1.5 million across both cities, with market share declining to 13% in Delhi as of December 2025, down from 21% in March 2025. Mumbai market share stands at 15%, compared to 30% in March 2025.

The wireless subscriber base has contracted more severely, falling to 0.2 million in December 2025 from 1.0 million in March 2025. This decline reflects intense competition from players offering advanced 4G and 5G services.

Government Support Structure

Despite operational challenges, the rating reflects strong government linkages. The Government of India directly owns 56.25% of MTNL and has secured approximately 66% of the company's total debt through pre-default guarantees. The tri-partite guarantee agreement between the Department of Telecommunications, debenture trustee Beacon Trusteeship Ltd, and MTNL provides the foundation for the credit enhancement.

The 2022 revival plan approved INR176 billion in long-term bonds backed by sovereign guarantee, of which MTNL has successfully raised the full amount across FY23-FY24. Additional support includes potential capex of INR19 billion as part of the broader INR225 billion allocation for BSNL and MTNL.

Rating Outlook and Sensitivities

India Ratings will resolve the Rating Watch within six months based on two key factors: confirmation of continued funding and operational status of the designated account, and sustained visibility about adherence to structured payment mechanisms. Further delays in funding beyond due dates would remain a key negative rating sensitivity.

The agency continues monitoring the company's ability to maintain the trustee-controlled payment mechanism while awaiting management confirmation on processes for upcoming bond repayments and steps to ensure mechanism adherence in the near to medium term.

Mahanagar telephone nigam Limited (MTNL) has notified stock exchanges of its inability to fund the escrow account for an upcoming bond interest payment, highlighting ongoing financial constraints at the state-owned telecommunications company.

Bond Payment Default Details

The company disclosed that it could not deposit the required funds for the 6th semi-annual interest payment on its 7.80% Bond Series VIID. The payment structure and timeline are outlined below:

Structured Payment Mechanism

Under the Tri-Partite Agreement (TPA) signed among MTNL, the Department of Telecommunications (DoT), Ministry of Communications, Government of India, and Beacon Trusteeship Limited, MTNL is obligated to fund the semi-annual interest into the escrow account maintained with Bank of India with adequate amounts 10 days before each due date.

The company cited insufficient funds as the primary reason for its inability to meet this funding requirement, representing a significant operational challenge for the government enterprise.

Sovereign Guarantee Protection

Despite the funding shortfall, MTNL emphasized that all its bonds carry sovereign guarantee backing from the Government of India. The sovereign guarantee mechanism provides the following protections:

• Government of India guarantee covers both principal and interest payments
• In case of default by MTNL, the Debenture Trustee can invoke the sovereign guarantee
• Government of India is obligated to make payments to MTNL bondholders upon guarantee invocation
• The invocation process is governed by Tripartite Agreements filed with BSE during bond listing

Regulatory Compliance

MTNL made this disclosure in compliance with Regulation 30 of SEBI (LODR) Regulations, 2015, ensuring transparency with stakeholders regarding the payment default. The notification was simultaneously sent to both BSE Limited and National Stock Exchange of India Limited, where MTNL shares trade under scrip code 500108 and symbol MTNL respectively.

The company's inability to fund the escrow account represents a continuation of financial challenges, though the sovereign guarantee structure provides ultimate payment security for bondholders through government backing.