RPT-BREAKINGVIEWS-Li clan’s Panama problem epitomises a discount

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Afiq Fitri Alias

LONDON, Feb 10 (Reuters Breakingviews) - History rarely repeats itself, but it often rhymes. Li Ka-shing’s Hong Kong-based infrastructure conglomerate encountered intense scrutiny in Washington over two decades ago after it won rights to operate ports on both ends of the Panama Canal, a critical artery for American trade. Now U.S. President Donald Trump is putting pressure on Panama to cancel those contracts. In doing so, he is shining a spotlight on the struggle by Li’s son, Victor who took over in 2018, to shore up the value of the $19 billion CK Hutchison 0001.HK.

In a Sino-American conflict, policymakers in Washington worry that China could pressure pliant port operators to sabotage the shipment of American military equipment and supplies. Approximately 40% of all U.S. container traffic passes through the Panama Canal annually. Such fears, whether grounded in reality or not, wouldn’t be a headache for the Hong Kong company if the concern was isolated: Panama’s Balboa and Cristobal harbours are just two of 53 ports that contribute to the 9% of revenue the group generates from ports and related services.

Western officials are showing increasing signs of anxiety about CK Hutchison's ties to China, however. The European Parliament detailed the potential risks from Chinese strategic interests in the region’s ports, noting its investments in the Netherlands, Spain, Sweden and Poland. It mentioned the second-largest port terminal operator in the world alongside state enterprises COSCO and China Merchants Port 0144.HK.

Nonetheless, any attempt to forcibly unwind the 25-year Panama concession, renewed in 2021, would probably trigger a protracted legal fight and represent a significant ramping up of the conglomerate’s problems. These will come on top of the business pain that Trump’s tariffs on imports could inflict by reducing throughput at ports CK Hutchison's unit operates in Mexico and elsewhere.

The Li family were once welcomed around the world as Hong Kong’s pre-eminent capitalists and endured much criticism in China for building an infrastructure portfolio overseas spanning telecoms to power assets. Now they are viewed by the United States as a Chinese threat. The worse this perception gets, the harder it will be for Victor Li to deal his way out of a value trap.

A deep valuation discount has prompted the group to consider a second and additional listing on an overseas exchange such as London but it is unclear how much that will help: CK Hutchison has lost over 40% of its market value over the past five years, underperforming the Hong Kong benchmark Hang Seng Index .HSI by a stunning 21 percentage points and it trades at one quarter of its book value, per LSEG data.

One solution may be to sell port assets or hand off concessions to non-Chinese operators for more than they are valued at within the Hong Kong listed entity. Possible bidders could, in theory, include Adani Ports APSE.NS or the Gulf giant DP World, which own ports across South America. Yet it’s unclear what type of buyer the White House would accept, and whether those companies would be comfortable with the whims of the new U.S. administration. For now, perhaps, the best thing the Li clan can do is lie low.

Follow @a_fitri_alias on X

CONTEXT NEWS

Panama is considering cancelling contracts with a subsidiary of Hong Kong-based CK Hutchison to operate ports near the Panama Canal, Bloomberg reported on February 5, citing sources.

The U.S. State Department said on February 2 that Secretary of State Marco Rubio delivered a message from U.S. President Donald Trump to Panamanian President Jose Raul Mulino that China's presence in the canal was a threat to the waterway and a violation of the U.S.-Panama treaty.

Hutchison Ports has run two ports adjacent to the canal under a concession since 1997.