Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA (CE) /Stable' rating on the Rs 8,446 crore and Rs 8,500 crore bonds of Bharat Sanchar Nigam Ltd (BSNL).

 

The re-affirmation of ratings reflects the 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.

 

The reaffirmation of unsupported ratings at ‘Crisil BBB/Stable’ factors in the track record of support demonstrated by GoI in the past through various revival packages announced in over last few years and expectation that GoI will continue to support the company. Government has infused equity of around Rs 94,000 crores over fiscal 2023 to 2025 for the purposes of capital expenditure (capex), settlement of adjusted gross revenue (AGR) dues and purchase of spectrum. Additionally, GoI over the same period has injected funds to the tune of ~Rs 17,389 crores  under viability gap funding (VGF). Further, the ratings also factor in the the strategic importance of the company to the GoI, and its extensive asset base and nationwide reach, which are crucial for network development in strategically important areas of national importance. Company has reduced its bank debt (term loans) significantly, from ~Rs 24,478 crores (which includes term loans of Rs 21,019 crores and overdraft facility of Rs 3,459 crores) as of March’24 to ~Rs 1,105 crores (which includes term loans of Rs 11 crores and overdraft facility of Rs 1,094 crores) as of January 2025, utilizing the proceeds of funds reveived from GoI, including VGF and issuance of sovereign guarantee bonds (SGBs). Crisil Ratings understands basis discussion with the management that the bank debt of the company is not expected to increase materially because the capex plans and purchase of spectrum are expected to be funded by GoI over medium term.

 

However, rating strengths are partially offset by its weak operational and financial performance given its weak market share in the wireline business, high employee expenses, and exposure to technological risks.

 

Crisil Ratings believes the guarantee from the GoI for the bonds of BSNL, along with the structured payment mechanism, ensure that all debt obligations are met in a timely manner.

Analytical Approach

The rating is fully driven by the unconditional and irrevocable guarantee provided by the GoI and the trustee administered payment mechanism. The rating also factors in full ownership of BSNL by the government.

 

Crisil Ratings has combined the business and financial risk profiles of BSNL and its subsidiary. The entities operate under a common management and have strong business and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Credit enhancement provided by comprehensive, unconditional and irrevocable guarantee from the GoI: The rating is based on the strength of the credit enhancement facility provided by the unconditional and irrevocable guarantee from the central 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 BSNL, the central government and the trustees should ensure timely servicing of interest and principal obligation on the bonds. Furthermore, a designated trust and retention account has been opened exclusively for the benefit of the trustee (on behalf of the bondholders).

 

• Support from the GoI: The GoI has demonstrated continuous support to the company by way of awarding projects and revival plans. On October 23, 2019, the GoI announced the first revival package for BSNL, most of the schemes under which have been successfully implemented including the Voluntary Retirement Scheme (VRS), 4G spectrum allocation and raising SGBs to restructure the existing debt. However, the monetisation of network assets through the Department of Investment and Public Asset Management (DIPAM) is in progress while the merger with MTNL has been deferred. There has been significant traction in the schemes under the second revival package announced on July 27, 2022, aggregating Rs 1.64 lakh crore, aimed at upgrading services, rolling out 4G services, augmenting the telecom network, and de-stressing the balance sheets. Under the second revival package, BSNL has received 4G spectrum amounting to about Rs 48,000 crore which will be utilised for rolling out services in the near term, capex support of Rs 15,664 crore from the DoT and Viability Gap Fund of Rs 17,389 crore. Additionally, the company has been able to settle its pending AGR obligations up to FY23 of around Rs 28,651 crore, raise SG bonds aggregating Rs 6,244 crore, and the merger between Bharat Broadband Network Limited (BBNL) has been approved aimed at augmenting the company’s network. Subsequently, the GoI also announced the third revival package on June 07, 2023, reserving around 910 MHz spectrum in the 4G and 5G bands aggregating Rs 89,047.82 crore, which will be utilised by the company for rolling out these services in the future.

 

Weaknesses:

• Weak operational and financial performance, albeit improving: BSNL has a total wireless subscriber base of 92 million for the month ended November 2024 as per Telecom Regulatory Authority of India. The market share of the company in wireless subscribers has seen a constant decline over FY20-FY24 which fell from 10.4% at the end of fiscal 2020 to 7.6% at end of fiscal 2024.

 

However market share has improved marginally to 8.0% as of November 2024 owing to tariff hikes undertaken by other private telcom operators leading to shift in some consumer base to BSNL.

 

Further, BSNL had a total wireline subscriber base of 6.1 million, implying a market share of 15.8% as of November 2024 (March 2024: 19.2%). It also has an enterprise business, where central, state governments, public sector units, banks and defence are its major customers.

 

In terms of financial performance, BSNL’s total revenue increased to Rs 19,481 crore in FY24 (FY23: Rs 19,115 crore; FY22: Rs 16,749 crore), primarily due to the growth in the average revenue per user (ARPU) for consumer mobility business. The company’s interest coverage ratio has however been weak at 0.67 times for fiscal 2024 and 0.30 times for fiscal 2023 owing to lower operating profits. In 9MFY25, the operating perfromance of the company has improved owing to 4G rollout and interest coverage for the fiscal 2025 is expected to be above 1x. Company has reported operating profits of Rs 969 crore for the first nine months of fiscal 2025 against operating losses of Rs 702 crore in the corresponding period of the previous fiscal.

 

• Highly competitive nature of industry, despite favourable industry outlook: Regulatory and policy changes have played a central role in defining the risk characteristics of the Indian telecom sector, which is structurally dynamic. The telecom industry also remains susceptible to technological changes, with capex cycles every 8-10 years. New technology in the telecom industry necessitates fresh investments or overhaul of existing networks. For instance, with the launch of 5G services, players were required to significantly invest in laying networks even after incurring significant capex for 4G networks just few years preceding that.

Liquidity: Superior

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

 

BSNL’s liquidity profile is adequate and is being supported by the GoI. BSNL had unencumbered cash of 220 crore as on December 31, 2024, against which the debt obligations payable in FY26 are around Rs 1,200 crore (excluding payment of lease liabilities). Company has access to additional liquidity buffer of around Rs 3,000 crore in the form of fund-based limits, average utilisation of the same stood at 23% for the 12-month period ended December 2024. Additionally, proceeds from the monetisation of land and tower assets and consideration from the GoI against viability gap funding is expected to aid the company’s liquidity.

Outlook: Stable

The outlook on the rated bonds reflects the credit quality of the GoI, the guarantor to the rated debt.

Rating sensitivity factors

Downward factors:

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

Adequacy of credit enhancement structure

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

Unsupported ratings: Crisil BBB

Crisil Ratings has introduced the 'CE' suffix for instruments having an explicit credit enhancement feature, in compliance with the Securitites and Exchange Board of India (SEBI) circular dated June 13, 2019.

Key drivers for unsupported ratings

For arriving at the unsupported rating, Crisil Ratings has combined the business and financial risk profiles of BSNL and its subsidiary (refer Annexure) as they are in related businesses and have common promoters. The financial risk profile remains modest, however improving, owing to stretched liquidity on account of weak operating performance. However, Crisil Ratings has notched up standalone ratings to factor in government support to the entity.

About the Company

BSNL, incorporated in 2000, took over the business of providing telecommunication (telecom) services and network management from the central government’s erstwhile Department of Telecom Services and Department of Telecom Operations with effect from October 1, 2000, on a going concern basis. It is one of the largest public sector units providing a comprehensive range of telecom services in India. It is fully owned by the government. BSNL has installed Quality Telecom Network in the country and is focusing on improving and expanding the network and introducing new telecom services with ICT applications in villages.

Key Financial Indicators

Particulars	Unit	2024	2023
Revenue	Rs.Crore	19,481	19,115
Profit After Tax (PAT)	Rs.Crore	-5.368	-8,161
PAT Margin	%	-27.6	-42.7
Adjusted debt/adjusted networth	Times	0.19	0.43
Interest coverage	Times	0.67	0.30

These are Crisil Ratings adjusted numbers and may not match the numbers reported by the company.

List of covenants

The material covenants of the bonds amounting to Rs 8,500 crore and Rs 8,446 crore are as follows:

 

• The government would only cover the principal amount and the normal interest.
• The guarantees would not be transferrable to any agency without the 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 from 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 condition above.
• The trustee-monitored payment mechanism for these bonds is listed below:
   

Payment structure for bonds amounting to Rs 8,500 and Rs 8,446 crore:

Trigger date	Action point
(T-30)th day*	Trustees to inform BSNL and the government in writing regarding the due date for payment of interest 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 BSNL to the tune of the interest/ principal obligation on the bonds.
(T-8)th day*	If the Designated Trust and Retention Account is not funded to the requisite extent by (T1-8) th day, the trustees shall forthwith invoke the government’s guarantee by sending a Notice of Invocation to it.
(T-3)th day*	Last date by which the government 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 payment/principal repayment
• 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 the SEBI circular No 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