BREAKINGVIEWS-Panama ports ruling leaves Hutchison all at sea

By Una Galani and Ka Sing Chan

HONG KONG, Jan 30 (Reuters Breakingviews) - The Panama problem has finally exploded for the Li family, and the consequences will be far-reaching. On Thursday, amid U.S. pressure, the country's top court decided to annul CK Hutchison's 0001.HK port contracts in the strategic waterway. The move may not necessarily kill off the Hong Kong-based conglomerate's plans to sell its operations in 43 global ports in 23 countries. The quasi-expropriation, though, sets a dangerous precedent and will invite China to retaliate.

To win Beijing's approval, the Li's were already in the process of restructuring their proposed $23 billion ports sale to BlackRock BLK.N and the Aponte family’s MSC Mediterranean Shipping Company: China Cosco Shipping Corp was widely expected to join the list of acquirers, potentially picking up larger stakes in ports in regions including Africa that are more friendly with the People's Republic.

The ports sale was never one single deal. U.S. President Donald Trump's agitation to claim back the waterway is one reason the Panama concessions for the development, construction, operation and management of port terminals at Balboa and Cristóbal were carved out as a separate deal within the deal from the day CK Hutchison announced the disposal in March last year. Overall, those contracts, which Panama's Supreme Court has ruled unconstitutional, probably amount to less than 5% of the overall transaction's headline value. The Panama ruling may even accelerate the process for CK Hutchison to carve up the rest of the assets.

The small value of Panama to its ports business also will make it easier for CK Hutchison to dig in through international courts to challenge Panama's decision without worrying about the impact a protracted legal battle might have on $33 billion CK Hutchison's overall value. Plus, even though its Hong Kong-listed shares fell 4% on Friday, they had risen 70% since striking the ports deal, helped by expectations that it will list its retail and telecom assets in London.

Fighting back, though, isn't optional. If the Li's give up the concessions without a fight, it would send a message to governments that their interests in everything from telecoms and energy assets from Canada to Europe are fair game. China may also want to defend its interests too. Besides CK Hutchison, state companies Cosco and China Merchants Ports are among the world's largest ports operators - and there's growing political scrutiny of these investments too. Through Panama, Sino-American relationships are once more all at sea.

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CONTEXT NEWS

Panama's Supreme Court on January 29 annulled key port contracts held by a subsidiary of Hong Kong-based CK Hutchison, ruling that the contracts were unconstitutional and leaving the future of the operations along the Panama Canal unclear.

Panama Ports Company, a CK Hutchison subsidiary, has held contracts since the 1990s to operate container terminals at the canal's Pacific and Atlantic entrances, separate from the waterway's operations.

About 5% of global maritime trade passes through the Panama Canal, and U.S. President Donald Trump has pushed to curb Chinese influence and boost U.S. control over the waterway.

CK Hutchison announced on March 4 it would sell both its 90% stake in Panama Ports Company as well as its 80% holding in its remaining non-Hong-Kong-and-China ports business, which encompasses 43 ports in 23 countries, for an enterprise value of $22.8 billion.

To secure Beijing's approval for a deal, the company was mulling restructuring the deal to sell ports in separate parcels with different ownership structures, Bloomberg reported on January 23, citing unnamed sources. Such an arrangement could give China Cosco Shipping Corp larger stakes in ports in regions more friendly with China, such as Africa, the report added.

Shares of CK Hutchison fell 5% by around midday local time in Hong Kong.