China Merchants signs two agreements with the Government of Sri Lanka
Following discussions between Mr. Xi Jinping, the President of China, and Mr. Mahinda Rajapaksa, the Prime Minister of Sri Lanka, in Colombo of Sri Lanka, a series of bilateral cooperation agreements were entered into between China and Sri Lanka on 16 September 2014, which were followed by the signing of two agreements, under the witness of both Mr. Xi and Mr. Rajapaksa, between China Merchants (Holdings) International Co., Ltd. ("CMHI") and the government of Sri Lanka, including an agreement on key terms in relation to the Supply, Operate and Transfer ("SOT") of Phase II of the Hambantota Container Port Project, which was executed by Mr. Li Jianhong, the President of China Merchants Group Limited and the Chairman of the Board of CMHI, Mr. Chen Fenjian, the President of China Communications Construction Company Ltd. ("CCCC"), and Dr. Priyath Bandu Wickrama, the Chairman of the Sri Lanka Ports Authority, on behalf of the respective parties; and a framework agreement on the development of an international maritime centre in Sri Lanka, which was executed by Mr. Hu Jianhua, the Assistant General Manager of China Merchants Group Limited and the Managing Director of CMHI, and Mr. R.W.R. Pemasiri, the Secretary of the Ministry of Highways, Ports and Shipping of Sri Lanka, on behalf of the respective parties.
Hambantota Port is situated in south Sri Lanka, or 240 km to the south-east of the Port of Colombo. Located only 10 knots away from the Europe-Far East line, one of the world's busiest international sea lanes, Hambantota Port is provided with a long term development potential in becoming a deep sea port for international transshipment. The Phase II of Hambantota Port has a total project cost of approximately US$601 million, to be equipped with 4 container berths (comprising two 100k-dwt berths and two 10k-dwt berths) on a 1,298m-shoreline, and with an annual design capacity of 2 million TEUs.
The investment in the development project of Phase II of Hambantota Port involves the formation of a joint venture (the "China JV") between CMHI and China Harbour Engineering Company Limited, a subsidiary of CCCC, with the shareholding structure of the China JV and the investment cost by each party subject to further negotiations.
According to the agreement, a project company (the "Hambantota Phase II JV") will be established jointly by the China JV and the Sri Lanka Ports Authority for the purpose of development in the Hambantota project, with the China JV providing capital contribution of approximately US$391 million in cash for a 64.98% stake in the Hambantota Phase II JV, and the Sri Lanka Ports Authority injecting assets, including civil engineering works and equipments, worth approximately US$210 million for a 35.02% stake. An SOT agreement with detailed terms and conditions to be negotiated, based on the foundation set up through the execution of the agreement on key terms of the Hambantota project, will be signed between the government of Sri Lanka and the Hambantota Phase II JV, whereby a 35-year concession right, extendable for another 5 years upon expiry, for Phase II of Hambantota project will be granted to the Hambantota Phase II JV.
The execution of a framework agreement between CMHI and the government of Sri Lanka in relation to the development of an international shipping centre in Sri Lanka, on the other hand, following the overall strategic framework of the governments of China and Sri Lanka in establishing an international shipping center in the region, and based upon the already established relationship between the two through co-investing in the Colombo South Container Terminal ("CICT"), allows CMHI to capitalize on its distinctive edges in the region and the unique advantages of Sri Lanka, and to expand CMHI's investment in the country. The parties involved will explore the feasibility of a series of investment projects surrounding the set-up of an international shipping center in Sri Lanka, balancing long-term development goals and near term benefits of Sri Lanka, with preparatory work of two preliminary projects initiating in the near future, including, firstly, the core functional area of the international shipping center with a proposed size of 60 hectares, to offer integrated bonded logistics operations and commercial services, such as bonded warehousing, export processing, entrepot trade, e-commerce distribution and exhibition services; and, secondly, an agglomeration of high-end maritime related services, with a proposed size of 20 hectares, providing a concentration of complimentary facilities and infrastructures supplementary to the international shipping center.
Mr. Li Jianhong, Chairman of the Board, indicated, "The two agreements that CMHI signed during the time when Mr. Xi Jinping, the President of China, visited Sri Lanka, and under the witness of the most senior leaders of both China and Sri Lanka, will bring positive impact to CMHI in strengthening its already existing ties with, and facilitate the development of its business, in Sri Lanka. The execution of these agreements is another milestone of CMHI in further expanding its investment in Sri Lanka, following its successful commencement of operations of the Colombo South Container Terminal. These projects fit into CMHI's established overseas investment and development strategies, and synergizing with the existing operation in Colombo of Sri Lanka, these projects in Sri Lanka will have significant and positive contributions in shaping Sri Lanka into an international shipping hub in South Asia."