Mahanagar Telephone Nigam Limited (MTNL), a Government of India enterprise, has informed the stock exchanges about its inability to fund the escrow account maintained for bond interest payments as per the structured payment mechanism.

The disclosure, filed on September 13, 2025, under Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, pertains to the 5th semi-annual interest payment on the 7.75% MTNL Bond Series VII E (INE153A08147). This interest installment is due on 24 September 2025.

As per the tripartite agreement (TPA) signed among MTNL, the Department of Telecommunications (DoT), Ministry of Communications, and Beacon Trusteeship Limited, MTNL is required to ensure that the escrow account maintained with Bank of India is funded with the requisite amount 10 days before the due date of interest. However, the company has now confirmed that due to insufficient funds, it could not deposit the required amount into the escrow account.

MTNL highlighted in its filing that all bonds issued by the company are sovereign guaranteed bonds backed by the Government of India. The disclosure further states that in the event of any default by MTNL in servicing principal or interest payments, the sovereign guarantee will be invoked by the debenture trustee, ensuring that the Government of India fulfills the payment obligations. This safeguard is enshrined in the tripartite agreement, details of which were submitted to BSE at the time of bond listing.

This latest disclosure underscores the financial stress faced by MTNL, which has long been battling operational and revenue challenges amid stiff competition in the Indian telecom sector. While the sovereign guarantee assures bondholders of repayment, the reliance on government backing highlights the fragile state of the company’s balance sheet.

Bondholders of the 7.75% MTNL Bond Series VII E will closely monitor whether the invocation of the sovereign guarantee will be necessary to ensure timely servicing of the upcoming interest installment.

The filing, signed by Ratan Mani Sumit, Company Secretary, reiterates MTNL’s compliance with SEBI disclosure norms while acknowledging the company’s inability to independently fund the escrow account as required under the structured payment arrangement.

Going forward, the focus will be on how MTNL addresses its debt servicing obligations and whether further instances of escrow funding shortfalls may occur. Analysts also point out that repeated reliance on sovereign guarantees could impact market sentiment around such instruments, even though the Government of India’s backing remains a strong assurance of repayment.

This development comes at a time when telecom PSUs are under close watch, given ongoing reforms in the sector and the government’s push for financial restructuring. For MTNL, the reliance on sovereign guarantees underlines the need for deeper structural support to ensure long-term financial stability.

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