Chinese firm pays $584 million in Sri Lanka port debt-to-equity deal

COLOMBO (Reuters) - China Merchants Port Holdings 0144.HK has made a $584 million payment as part of a $1.12 billion deal to operate Sri Lanka's deep sea Hambantota port, a state-run agency said on Wednesday.

Under the deal, signed in July 2017, China Merchants Port (CM Port) will run the $1.5 billion Chinese-built port on a 99-year lease. The $1.12 billion total price is to be used to reduce the Sri Lankan government’s debt to China.

“With this payment, CM Port fulfils the $976 million investment ... CM Port has agreed to deposit a further sum of $146 million being investment to be utilized for port and marine-related activities,” the Sri Lanka Ports Authority (SLPA) said in a statement. The port is near the main shipping route from Asia to Europe and likely to play a major role in China’s “Belt and Road” initiative. But since it opened in 2010, it has been incurring losses due to a lack of commercial activity.

Sri Lanka also received $292 million in December and another $97 million in January under the deal.

An initial plan to give the Chinese firm an 80 percent stake triggered protests by trade unions and opposition groups. That forced the government to limit China’s role to running commercial operations while Colombo retained responsibility for broader security issues. The Chinese firm will now hold 70-percent stake in a joint venture with the SLPA, part of a plan to convert $6 billion of loans that Sri Lanka owes China into equity. Sri Lanka has said the Chinese firm will invest an additional $600 million to make Hambantota operational. Government and diplomatic sources have told Reuters that the United States, India and Japan had raised concerns that China might use the port as a naval base. The Sri Lankan government and Chinese embassy in Colombo deny this.

Reporting by Ranga Sirilal; Editing by Shihar Aneez and David Stamp