COLOMBO (Reuters) - Sri Lanka will sell to a Chinese company 80 percent of a $1.5-billion port in its south, where China has also been offered an investment zone, in a bid to cut the country’s debt burden, Finance Minister Ravi Karunanayake said.

Sri Lankan traditional dancers perform as seawater gushes from pipes on the ground during the launch of Hambantota port in Hambantota, about 240km (149 miles) south of Colombo August 15, 2010. REUTERS/Dinuka Liyanawatte

The move follows an offer made by Prime Minister Ranil Wickremesinghe during a visit to China in April, to swap equity in Sri Lankan infrastructure projects against some of the $8 billion in debt the Indian Ocean island owes to China.

The Hambantota port was built with the help of Chinese loans and contractors in 2010 under former leader Mahinda Rajapaksa, as part of efforts to boost development of infrastructure after the conclusion of a 26-year-long civil war in 2009.

But the port, and a nearby airport, also Chinese-financed, had been seen as a white elephant because it was not financially viable, the current government has said.

“For somebody like the Chinese, it is the silk route transit point,” Karunanayake told a meeting of the country’s Foreign Correspondents Association late on Thursday.

China’s interest in the port is seen as part of its ambitions to build a “Maritime Silk Route” to the oil-rich Middle East and onwards to Europe.

That makes some countries, including India and the United States, nervous, with Sri Lanka sitting near shipping lanes through which much of the world’s trade passes en route to China and Japan.

“The value will be more than $1 billion and the deal will be signed around the second week of November,” Karunanayake said, adding that a Chinese port operator would get 80 percent of the port stake. He declined to identify the company involved.

“The money from the deal will be used to repay expensive foreign loans,” Karunanayake said, adding that the government was also in final talks over a 15,000-acre (6,100-hectare) investment zone near the port.

The investment zone deal would be signed as “soon as possible”, Karunanayake said.

President Maithripala Sirisena suspended most of the Chinese infrastructure projects in Sri Lanka, including a $1.4-billion luxury property deal, allegedly because the proper procedure had not been followed, or costs had been inflated under his predecessor.

However, faced with a debt and balance-of-payments crisis, the new government eventually allowed all the projects to go ahead.