Safe? Dredging Corp Decides That Even Government Debt can be Bad Debt

In it’s quarterly results, Dredging Corp (a public sector undertaking) has said this:

Basically it is owed some Rs. 84 cr. from Sethusamudram Corporation which was supposed to oversee the creation of a canal between the waters of India and Sri Lanka. This has had some religious and environmental opposition – being that they shouldn’t hurt the Ram Setu (the Ramayana-mentioned land bridge that is potentially submerged) or that there is environmental damage to corals or such.
Whatever it is, the project hasn’t paid Dredging Corporation. The project’s owned by the government. And the government is delaying this payment.
So Dredging Corp, also owned by the government, got sick of this and decided to provision the whole thing as a “bad debt”. If they do get paid, they’ll reverse it, but otherwise, it’s a loss that’s been taken. To do this, it’s likely they’ve had many meetings and requested their money and decided that the government won’t pay.
Many investors might be happy to see government debt in their debt funds, or “PSU” debt, because hey, the government will always pay.
Dredging Corp just showed you how this trust can be overvalued. Oh yes, the government can also delay or not pay.
Also see: Wait, the Government can default too?