Rating Rationale
August 29, 2023 | Mumbai
Mahanagar Telephone Nigam Limited
Rating Reaffirmed
 
Rating Action
Rs.6500 Crore BondCRISIL AAA (CE) /Stable (Reaffirmed)
Rs.1000 Crore Non Convertible DebenturesCRISIL AAA (CE) /Stable (Reaffirmed)
Rs.3533.97 Crore Non Convertible DebenturesCRISIL AAA (CE) /Stable (Reaffirmed)
Rs.1995 Crore (Reduced from Rs.3000 Crore) Non Convertible DebenturesCRISIL AAA (CE) /Stable (Reaffirmed)
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities

Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL AAA (CE)/Stable' rating on the Rs 6,500 crore bonds and Rs.6,528.97 crore NCDs of Mahanagar Telephone Nigam Ltd (MTNL). CRISIL Ratings has also withdrawn its rating on Rs 1,005 crore non-convertible debentures of MTNL as the same has been redeemed. The withdrawal is in line with CRISIL Ratings' policy on withdrawal of ratings.

 

The rating reflects strength of the credit enhancement provided by the unconditional and irrevocable guarantee from the Government of India (GoI) through the Department of Telecommunications, Ministry of Communications, and the trustee-administered payment mechanism.

 

GoI's guarantees for all the aforementioned bonds and NCD programmes of MTNL, together with the structured payment mechanism, should ensure that all repayment obligations of the company are met in a timely manner.

 

Furthermore, GoI's guarantees for all CRISIL Ratings-rated bonds and NCD programmes of MTNL are expected to remain unaffected by any change in ownership of MTNL.

Analytical Approach

The rating is fully driven by the unconditional and irrevocable guarantee provided by the government and the trustee-administered payment mechanism. The rating also factors in GoI’s majority stake in MTNL.

Key Rating Drivers & Detailed Description

Credit enhancement provided by comprehensive, unconditional and irrevocable guarantee from GoI

The rating is based on the strength of the credit enhancement facility provided by the unconditional and irrevocable guarantee from the government through the Department of Telecommunications, Ministry of Communications.

 

Trustee-administered payment structure, designed to ensure full and timely payment to investors

A well-defined payment T-structure between MTNL, GoI and SBICAP Trustee Company Ltd (trustee) should ensure timely servicing of interest and principal obligations on the bonds and NCDs. Furthermore, a designated trust and retention account has been opened exclusively for the benefit of the trustee (on behalf of the bondholders).

Liquidity: Superior

The rated bonds and NCDs derive comfort from the liquidity based on the guarantee structure (unconditional and irrevocable guarantee from the GoI through the Department of Telecommunications, Ministry of Communications), which should ensure timely servicing of debt.

Outlook: Stable

The rating outlook on the rated bonds and NCDs reflects CRISIL Ratings’ outlook on the credit quality of GoI, the guarantor to the rated debt.

Rating Sensitivity Factors

Downward Factors

  • Non-adherence to terms of the transaction guarantee structure/payment mechanism
  • Delays in receipt of funds in the designated account
  • Any change in support philosophy of GoI

Adequacy of credit enhancement structure

GoI has provided a comprehensive, unconditional and irrevocable guarantee for the rated bonds and NCDs. The guarantee shall not be transferrable to any agency without prior approval of the Ministry of Finance (budget division). The well-defined T-structure should ensure timely payment of the interest and principal obligations.

Unsupported ratings: CRISIL B-

CRISIL Ratings has introduced the 'CE' suffix for instruments with an explicit credit enhancement feature, in compliance with Securities and Exchange Board of India's circular dated June 13, 2019.

Key drivers for unsupported ratings

CRISIL Ratings has reaffirmed its unsupported rating for MTNL to ‘CRISIL B-’. The rating reaffirmation continues to reflect continued deterioration in operating performance of the company and sustenance of weak finacial risk profile. MTNL continues to raise funds through Sovereign Guarantee bonds which provides sufficient liquidity to the company to service its interest and principal payments. Moreover, CRISIL Ratings also takes note of the proposed merger of MTNL with BSNL, which is expected to conclude in the near term. Same would remain a key monitorable.

 

For arriving at the unsupported rating, CRISIL Ratings has combined the  business and financial risk profiles of MTNL and its subsidiaries (refer to the annexure), as they are in related businesses and have common promoters. The financial risk profile of the company remains weak because of accumulated losses, high debt levels and negative networth.

About the Issuer

MTNL was set up by the GoI in April 1986 to improve the quality of telecommunication (telecom) services, expand the telecom network and introduce new telecom services in Delhi and Mumbai. MTNL has a large backhaul capacity of transmission cables, towers and optical fibres in the two circles. The company had 2.14 million subscribers for mobile services and 2.29 million subscribers with fixed-line telephone connections as on April 30, 2023.

Key Financial Indicators

Particulars

Unit

2023

2022

Revenue

Rs.Crore

935

1157

Profit After Tax (PAT)

Rs.Crore

-2915

-2603

PAT Margin

%

-311

-225

Adjusted debt/adjusted networth

Times

-1.26

-1.28

Interest coverage

Times

-0.19

-0.20

These are CRISIL Ratings-adjusted numbers and may not match directly with the numbers reported by the company

List of covenants

The material covenants of the bonds & NCDs are as follows:

  • The GoI would only cover the principal amount and the normal interest.
  • The guarantees would not be transferrable to any agency without prior approval of the budget division, Department of Economic Affairs, Ministry of Finance. In case of default, the lending agency shall invoke the guarantee within a time limit not exceeding 60 days of the default. In case the guarantee is not invoked within the stipulated period, the guarantee would cease to exist for that portion of the tranche/loan/liability for which guarantee has not been invoked.
  • The government guarantee shall reduce periodically equivalent to the repayment that ought to have been made by the borrower as per the terms and conditions of the loan agreement. This will be subject to the consition above.
  • The trustee-monitored payment mechanism for the listed instruments are as follows:

 

Payment structure for NCDs amounting to Rs 4,533.97 crore (to be serviced by GoI)

Trigger date

Action point

(T-30)th day*

Trustees to inform MTNL and the GoI in writing regarding the due date of the payment of interest and/or principal amount so that the necessary arrangements could be made for meeting the interest payment / repayment of obligations on the instrument.

(T-10)th day*

The designated Trust and Retention account is to be funded by government to the tune of the interest/principal obligations on the Bonds.

(T-8)th day*

If the designated Trust and Retention account is not funded to the requisite extent by (T-8)th day as above, the Trustees shall forthwith invoke the GoI Guarantee by sending a Notice of Invocation to GoI.

(T-1)th day*

Last date by which GoI to deposit requisite funds in the designated Trust and Retention Account as per the Notice of Invocation.

NOTE: “T” refers to the due date for interest payments/ principal repayments.

If any coupon payment date falls on a day that is not a business day, the payment shall be made by the issuer on the following working day, in line with SEBI circular number CIR/IMD/DF-1/122/2016 dated November 11, 2016.

If the redemption date (also being the last coupon payment date) of the bonds falls on a day that is not a business day, the redemption proceeds shall be paid by the issuer on the immediately preceding business day along with interest accrued on the bonds until but excluding the date of such payment.

 

Payment structure for NCDs amounting to Rs 2,980 crore (to be serviced by MTNL)

Trigger date

Action point

(T-30)th day*

Trustees to inform MTNL and the GoI in writing regarding the due date for payment of interest and/or principal amount so that the necessary arrangements could be made for meeting the interest payment/principal repayment obligations on the bonds.

(T-10)th day*

The designated trust and retention account is to be funded by MTNL for the interest/principal obligations on the bonds.

(T-8)th day*

If the designated trust and retention account is not funded to the requisite extent by (T-8)th, the trustees shall forthwith invoke the GoI guarantee by sending a notice if Invocation to GoI.

(T-1)th day*

Last date by which the GoI shall deposit requisite funds in the designated trust and retention account as per the notice of invocation served by the trustees.

NOTE: “T” refers to the due date for interest payments/ principal repayments.

If any coupon payment date falls on a day that is not a business day, the payment shall be made by the issuer on the following working day, in line with SEBI circular number CIR/IMD/DF-1/122/2016 dated November 11, 2016.

If the redemption date (also being the last coupon payment date) of the bonds falls on a day that is not a business day, the redemption proceeds shall be paid by the issuer on the immediately preceding business day along with interest accrued on the bonds until but excluding the date of such payment.

 

Payment structure for bonds amounting to Rs 6,500 crore (to be serviced by MTNL)

Trigger date

Action point

(T-30)th day*

Trustees to inform MTNL and the GoI in writing regarding the due date for payment of interest and/or principal amount so that the necessary arrangements could be made for meeting the interest payment/principal repayment obligations on the bonds.

(T-10)th day*

The designated trust and retention account is to be funded by MTNL for the interest/principal obligations on the bonds.

(T-8)th day*

If the designated trust and retention account is not funded to the requisite extent by day T-8, the trustees shall forthwith invoke the GoI guarantee by sending a notice if Invocation to GoI.

(T-3)th day*

Last date by which the GoI shall deposit requisite funds in the designated trust and retention account as per the notice of invocation served by the trustees.

NOTE: “T” refers to the due date for interest payments/ principal repayments.

If any coupon payment date falls on a day that is not a business day, the payment shall be made by the issuer on the following working day, in line with Securities and Exchange Board of India (SEBI) circular number CIR/IMD/DF-1/122/2016 dated November 11, 2016.

If the redemption date (also being the last coupon payment date) of the bonds falls on a day that is not a business day, the redemption proceeds shall be paid by the issuer on the immediately preceding business day along with interest accrued on the bonds until but excluding the date of such payment.

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL Ratings` complexity levels are assigned to various types of financial instruments and are included (where applicable) in the 'Annexure - Details of Instrument' in this Rating Rationale.

CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available.

For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the Customer Service Helpdesk with queries on specific instruments.

Annexure - Details of Instrument(s)

ISIN

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity level

Rating assigned with outlook

INE153A08022

NCDs

05-Dec-13

9.38%

05-Dec-23

1975.00

Simple

CRISIL AAA (CE)/Stable

INE153A08030

NCDs

26-Mar-14

9.39%

26-Mar-24

765.00

Simple

CRISIL AAA (CE)/Stable

INE153A08048

NCDs

19-Nov-14

8.24%

19-Nov-24

1400.00

Simple

CRISIL AAA (CE)/Stable

INE153A08055

NCDs

19-Nov-14

8.28%

19-Nov-24

100.00

Simple

CRISIL AAA (CE)/Stable

INE153A08063

NCDs

19-Nov-14

8.24%

19-Nov-24

0.07

Simple

CRISIL AAA (CE)/Stable

INE153A08071

NCDs

28-Nov-14

8.29%

28-Nov-24

2268.90

Simple

CRISIL AAA (CE)/Stable

NA

NCDs*

NA

NA

NA

20.00

Simple

CRISIL AAA (CE)/Stable

INE153A08089

Bonds

12-Oct-20

7.05%

11-Oct-30

4361.4

Simple

CRISIL AAA (CE)/Stable

INE153A08097

Bonds

21-Dec-20

6.85%

20-Dec-30

2138.6

Simple

CRISIL AAA (CE)/Stable

 *Yet to be placed

 

Annexure - Details of Rating Withdrawn

ISIN

 

Name of instrument

Date of allotment

Coupon rate (%)

Maturity date

Issue size (Rs.Crore)

Complexity level

Rating assigned with outlook

INE153A08014

NCDs

28-Mar-13

8.57%

28-Mar-23

1005.00

Simple

Withdrawn

 

Annexure - List of Entities Consolidated

Names of Entities Consolidated

Extent of Consolidation

Rationale for Consolidation

Mahanagar Telephone (Mauritius) Ltd

Fully consolidated

Strong financial and business linkages

Millennium Telecom Ltd

Fully consolidated

Strong financial and business linkages

MTNL STPI IT Services Ltd

Equity method

Proportionate consolidation

United Telecommunications Ltd (Utl), Nepal

Equity method

Proportionate consolidation
Annexure - Rating History for last 3 Years
  Current 2023 (History) 2022  2021  2020  Start of 2020
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Bond LT 6500.0 CRISIL AAA (CE) /Stable   -- 19-09-22 CRISIL AAA (CE) /Stable 30-09-21 CRISIL AAA (CE) /Stable 14-09-20 CRISIL AAA (CE) /Stable --
Non Convertible Debentures LT 6528.97 CRISIL AAA (CE) /Stable   -- 19-09-22 CRISIL AAA (CE) /Stable 30-09-21 CRISIL AAA (CE) /Stable 14-09-20 CRISIL AAA (CE) /Stable CRISIL AAA (CE) /Stable
All amounts are in Rs.Cr.

  

Criteria Details
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Criteria for rating instruments backed by guarantees
Rating Criteria for Mobile Telephony Services
CRISILs Criteria for Consolidation

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