Lanka requests equity swap for some of its $8 billion China debt

(Reuters)--Sri Lanka has asked China to swap some of the $8 billion the Indian Ocean country owes Beijing for equity in infrastructure projects and offered to sell stakes in Sri Lankan companies to Chinese ones, Sri Lankan officials said on Saturday.

The ouster of President Mahinda Rajapaksa, who steered Sri Lanka toward China until 2015, was a setback for ties, as his successor reviewed projects to check if they were fair and legal.

Now President Maithripala Sirisena's government, faced with falling foreign reserves, a balance of payments crunch and few, if any, alternative investors, is heading back into China's embrace, albeit asking for better terms.

Speaking to reporters in Beijing, Sri Lankan Prime Minister Ranil Wickremesinghe said his indebted country was suffering because of global economic uncertainty.

"We've been talking with some companies and also the government of China about the possibility of some infrastructure projects becoming public-private partnerships, in which part of the debt will become equity held by the Chinese companies," he said.

International trade minister Malik Samarawickrama said Sri Lanka would also like additional funds from China, though they had not asked for a specific amount.

"We want to reduce the current debt by inviting Chinese companies, Chinese investors, to look at some of the enterprises in Sri Lanka, the state-owned enterprises, with a view to taking at least part of that equity over," he said.

"Then we can reduce the current debt that we have and open up the opportunity for us to take more funds from Chinese banks."

Sri Lanka upset China when it ordered a review of a $1.4 billion Colombo port city project last year, citing irregularities in the award of the contract to state-owned China Communications Construction Company (CCCC) (601800.SS) by the previous government.

Last month, the government, grappling with a difficult economy, ordered the Chinese firm to resume work on the project, the country's biggest foreign investment project, that includes apartments, shopping malls and marinas.

But CCCC, which had estimated that the shutdown would result in losses of more than $380,000 a day, has sought compensation of $125 million, according to Sri Lanka, which has said it can't pay and wants to negotiate.

"The company has asked for additional compensation in view of the fact they say there has been a delay," Wickremesinghe said. "But I think we can talk and settle it."

Chinese projects in Sri Lanka have unnerved India, but Wickremesinghe said there was no security threat from the port. "It's an opportunity for everyone to make money. That's what we do in Asia."