Bank of China beats local lenders to finance £100m luxury London hotel

Loan agreement for InterContinental Westminster shows growing attraction of UK for investors

The Bank of China has swooped to fund a landmark hotel in London's West End, in the latest sign that the capital has become the darling of Far East investment.

The Bank of China has agreed terms with the Splendid Hotel group to provide a £50m development loan to build a 254-room hotel near New Scotland Yard. The six-storey hotel, which will have a final value of at least £100m, will occupy the freehold site of the 19th-century former Queen Anne's Chambers.

Splendid's managing partner, Shiraz Boghani, secured InterContinental as an operator for the hotel on a 20-year contract in October. The InterContinental London Westminster hotel will open in 2011 and will be the operator's second London hotel after its Park Lane flagship.

It is thought Lloyds and Barclays were considering financing the hotel, whose construction costs will be roughly between £180,000 and £200,000 a room, but Bank of China swooped on the deal.

Construction finance has been in short supply since late 2008 and news of the funding arrangement will be an encouraging sign for the hotel sector, particularly in London which does not have enough hotel rooms.

This is Bank of China's first substantial hotel investment in the UK. One of the country's four state-owned commercial banks, it has had a London presence since 1929 when it opened its first overseas branch – the first formed by a Chinese bank.

In October 2007, it became a wholly owned UK subsidiary of Bank of China in a move which paved the way for it to expand its lending further into Britain and continental Europe.

The bank made another big commitment to the UK in November when it bought One Lothbury near the Bank of England for around £100m as its new HQ. Its parent bank has carried out two big fund-raisings this year to strengthen its capital base by $8.9bn.

China's government is looking to increase its British investments. Last year its sovereign wealth fund, the China Investment Corporation, debuted dramatically when it bought a 20 per cent shareholding in Songbird, the AIM-listed company which owns a majority stake in Canary Wharf.

PricewaterhouseCoopers will issue its Summer 2010 Debt Market Update tomorrow stating that borrowers are "looking East" for loans from the Asia-Pacific region.

There are also streams of equity flowing from countries such as Norway. Norges Bank Investment Management, which manages the £280bn Norwegian Government Pension Fund Global, has set up a UK real estate arm.

Norges is headed by Karsten Kallevig. Former Merrill Lynch banker Paul Golding, the interim head who set up the business, left on Friday.