MTNL Bonds Remain on Crisil's 'Watch Negative' Amid Payment Lapses, Widening Losses

Operating Revenue (9MFY26): ₹547 crore
Operating Loss (9MFY26): ₹241 crore

Reader Takeaway: Government guarantee offers support; widening losses and payment lapses keep rating outlook strained.

What just happened (today’s filing)

Crisil Ratings has maintained its rating on Mahanagar Telephone Nigam Limited's (MTNL) bonds and Non-Convertible Debentures (NCDs) on 'Rating Watch with Negative Implications'.

This action stems from past instances of non-adherence to the structured payment mechanism for government-guaranteed bonds, despite recent improvements in adherence.

The rating continues to be supported by an unconditional guarantee from the Government of India.

Why this matters

This rating watch signals potential future downgrades if adherence issues persist, impacting investor confidence and potentially the cost of borrowing for MTNL.

The BSNL service agreement, effective January 1, 2025, has led to customer migration and a decline in MTNL's reported operating revenue.

The backstory (grounded)

MTNL, a state-owned telecom firm, has a history of financial struggles and has received government revival packages.

A significant 10-year service agreement with BSNL aims to manage MTNL's operations in Delhi and Mumbai towards EBITDA neutrality, avoiding a full merger.

However, MTNL has faced defaults on bank loan repayments totaling over ₹8,300 crore, leading to several loan accounts being classified as Non-Performing Assets (NPAs) starting August 2024.

Its loan account with Bank of India (BOI) specifically slipped into NPA status on September 4, 2024.

What changes now

• The 'Watch Negative' status by Crisil will remain, indicating continued scrutiny on MTNL's debt servicing capabilities.
• The service agreement with BSNL is operational, leading to revenue recognition changes for MTNL, impacting its reported top line.
• MTNL must demonstrate sustained adherence to the structured payment mechanism to alleviate rating concerns.

Risks to watch

• Continued non-adherence to the structured payment mechanism for government-guaranteed bonds could lead to a rating downgrade.
• Persistent liquidity challenges and weak operating performance continue to pose risks to debt servicing, especially for non-guaranteed facilities.
• The operational status of escrow accounts, though expected to be unaffected, remains a point of monitoring following the BOI loan slipping into NPA.

Peer comparison

MTNL operates in a competitive telecom landscape dominated by private players like Bharti Airtel and Vodafone Idea, which hold substantial market shares.

Unlike its listed competitors, MTNL is a state-owned entity with direct government guarantees supporting its bond issuances, a unique credit enhancement factor.

Its peer, BSNL, is also state-owned and has entered into a management agreement with MTNL, indicating a government-led strategy for both entities.

Context metrics (time-bound)

• For the nine months ended March 31, 2026 (9MFY26), MTNL reported operating revenue of ₹547 crore, a decrease from ₹712 crore in 9MFY25.
• The operating loss for 9MFY26 widened to ₹241 crore, compared to ₹175 crore in the corresponding period of the previous fiscal year.

What to track next

• Monitor MTNL's consistent adherence to the stipulated T-structure payment mechanism for its bonds and NCDs.
• Track the financial and operational impact of the BSNL service agreement on MTNL's revenue and expenses.
• Observe any further disclosures or actions by rating agencies regarding MTNL's debt servicing and liquidity position.
• Assess the effectiveness of government support mechanisms in ensuring timely payments and maintaining MTNL's operational viability.