Sheraton to build hotel in Sri Lanka's capital Colombo

COLOMBO Sun Nov 6, 2011 12:23pm EST

The financial centre of Sri Lanka's capital is shown in this November 13, 2002 file photo. REUTERS/Anuruddha Lokuhapuarachchi

The financial centre of Sri Lanka's capital is shown in this November 13, 2002 file photo.

Credit: Reuters/Anuruddha Lokuhapuarachchi

COLOMBO (Reuters) - Sheraton Hotels and Resorts, the largest Starwood Hotels and Resorts Worldwide (HOT.N) brand, will build a hotel in the Sri Lankan capital on land originally offered to a Chinese firm, a government official said on Sunday.

The island nation's junior economic minister said the government has completed negotiations with Sheraton to allocate the land, earlier offered to China National Aero Technology Import and Export Corporation (CATIC).

"The negotiations with Sheraton are successfully over and we have agreed to give (the) CATIC land," Lakshman Yapa Abeywardene told Reuters.

However, he declined to comment on the amount of the investment or extent of land the government had agreed to offer Sheraton under a 99-year lease.

Last month, Sri Lanka annulled a $500 million investment deal with CATIC after it refused to sell the beach front land outright to the state-run Chinese conglomerate as agreed earlier.

The CATIC deal was among the largest foreign investments since Sri Lanka won a quarter-century civil war in 2009, and analysts say its cancellation has created concerns among potential investors.

The land deal was cancelled after the main opposition United National Party UNP.L questioned it in a parliament dominated by President Mahinda Rajapaksa's ruling party.

Officially, Rajapaksa questioned why the land for the hotel on the colonial-era Galle Face seafront grounds was being sold instead of given on a long-term lease. CATIC balked at the change in terms, having already paid $54.5 million.

The government says it is negotiating to give CATIC another property, and is in talks to lease the land in front of Galle Face Green it offered earlier to another party, which it declined to name, to build a hotel.

However, the government has not changed the terms of a similar $500 million hotel, shopping and apartment project with Shangri-La Asia Ltd (0069.HK), which paid $125 million to buy 10 acres next to the 6 acres CATIC wanted.

CATIC is primarily a weapons manufacturer, but has other interests, including in hotels.

(Reporting by Ranga Sirilal; Writing by Shihar Aneez; Editing by Ed Lane)

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