WASHINGTON – The United States will provide US$553 million (S$750 million) in financing for a port terminal in Sri Lanka’s capital being developed by Indian billionaire Gautam Adani, as New Delhi and Washington look to curtail China’s influence in South Asia.

The funding from the International Development Finance Corporation (DFC) underscores renewed US and Indian efforts to loosen Beijing’s sway over Sri Lanka after Colombo borrowed heavily to splurge on Chinese port and highway projects before its economic meltdown in 2022.

For the Adani Group, US money may offer a stamp of legitimacy after allegations of fraud by short-seller Hindenburg Research erased billions from the conglomerate’s market value earlier in 2023.

The deepwater West Container Terminal in Colombo is the US government agency’s largest infrastructure investment in Asia, and among its biggest globally.

It will bolster Sri Lanka’s economic growth and “its regional economic integration, including with India, a key partner to both countries”, DFC said in a statement.

The funding is part of a global acceleration of DFC investments that totalled US$9.3 billion in 2023.

“It is a high priority for the US to be active in the Indo-Pacific region,” DFC’s chief executive Scott Nathan told reporters in Colombo on Wednesday. “It is obviously the engine of economic growth for the world.”

China had invested about US$2.2 billion in the island nation as of the end of 2022, its biggest foreign direct investor.

US officials have publicly criticised Sri Lanka’s little-used southern Hambantota port as unsustainable and part of what it calls China’s “debt-trap diplomacy”.

Colombo’s port is one of the busiest in the Indian Ocean, given its proximity to the international shipping routes.

Nearly half of all container ships pass through its waters. The DFC said it has been operating at more than 90 per cent utilisation for two years and needs new capacity.

Adani Group

The US funding may serve as an endorsement for the Adani Group, as well as the controversial port project in which it holds a majority stake.

The conglomerate has been fighting the raft of corporate fraud allegations levelled by Hindenburg and various media investigations, which it has repeatedly denied.

“We see this as a reaffirmation by the international community of our vision, our capabilities and our governance,” Mr Karan Adani, the tycoon’s son and CEO at Adani Ports told reporters in Colombo on Wednesday.

The port project, set to be operational by December 2024, will entail a total capital expenditure of US$1 billion, he said, adding that dredging work was complete.

Shares in Adani Ports advanced as much as 2.7 per cent in Mumbai trading on Wenesday – it is one of the only two Adani Group stocks to have fully recovered from the Hindenburg hit.

The conglomerate is also planning to invest US$750 million to produce 500MW wind energy in Sri Lanka, Mr Karan Adani said.

Adani Group’s energy and port investments in Sri Lanka were criticised in 2022 by some local lawmakers as opaque and closely tied to New Delhi’s interests.

Mr Gautam Adani – a long-time supporter of Indian Prime Minister Narendra Modi, who has challenged China in past public speeches – denied these claims, saying the investments addressed Sri Lanka’s needs.

‘Deep due diligence’

Mr Nathan said the US and DFC “are committed to high standards, that includes transparency, that includes deep due diligence of the partners that we invest with, or that we finance, that is highly progressed on anti-corruption and financial sustainability”.

DFC, a development finance agency launched under the Trump administration, was established to aid developing nations while advancing US foreign policy goals.

It struggled at first to stake out projects around the world due to the Covid-19 pandemic.

But funding has accelerated in recent years and the agency has helped Washington close the development spending gap with China’s much more higher-profile Belt and Road Initiative, according to a new report from the AidData institute at William & Mary in Virginia.

The US is providing countries around the world with a different and more transparent option to China, including through the Biden administration’s Partnership for Global Infrastructure Investment, White House national security spokesman John Kirby told reporters on Wednesday in Washington.

“We believe it is providing them alternative funding to help their own economies and their own people, so that they don’t have to rely on the Belt and Road Initiative, which is pretty high interest and low results so far,” he said.

Mr Nathan said the DFC’s funding will create “greater prosperity for Sri Lanka – without adding to sovereign debt – while at the same time strengthening the position of our allies across the region”. BLOOMBERG