A stock exchange filing said the hotel will convert into shares 5.
75 billion rupees (52 million US dollars) owed to the parent firm Galadari Brothers Company and 583 million rupees owed to the government's National Insurance Trust Fund.
The proposed debt to equity conversion by Galadari Hotels (Lanka) will be by way of a private placement of shares subject to regulatory and shareholder approval.
The company will also do a valuation of the shares to determine the conversion price and number of shares to be issued, the statement said.
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The company aims to "restructure the balance sheet in a manner which would enable the company to capture to its benefit and advantage the positive growth trends expected in the local tourist industry and to operate competitively and profitably in the hotel sector," it said.
Galadari Hotels (Lanka) faced difficulties in repaying the debt because of the lengthy tourism slump experienced by the island owing to the war, which ended in May 2009, resulting in a