Panama Canal ports deal faces uncertainty as CK Hutchison seeks new consortium composition
On Monday, CK Hutchison announced ongoing discussions with a consortium regarding its $22.8 billion ports business.
The talks involve incorporating a significant Chinese strategic investor into the bid, according to a Reuters report.
The development follows Beijing’s indication of a probe into the deal, prompted by escalating Sino-US tensions.
The Hong Kong-based conglomerate issued this statement a day after the conclusion of exclusive negotiations with a consortium.
This consortium was spearheaded by BlackRock, a US investment firm, and MSC, the family-operated shipping company owned by Italian billionaire Gianluigi Aponte.
In March, a preliminary agreement was reached between the parties for 43 ports located in 23 countries, notably including two ports situated along the strategically important Panama Canal.
China COSCO Shipping Corp, a ports operator, intends to join the consortium, according to the Reuters report.
On Monday, CK Hutchison’s shares increased by 1.6%, outperforming the Hang Seng Index’s 0.9% gain.
Adjustments
CK Hutchison stated that adjustments to the consortium’s composition and the transaction’s structure would be necessary to obtain regulatory approval, and they would dedicate sufficient time to achieve this.
CK Hutchison said in a filing to the Hong Kong Stock Exchange on Monday:
The company has stated on several occasions that it will not proceed with any transaction that does not have the approval of all relevant authorities.
With the exclusivity period now concluded, CK Hutchison is reportedly open to considering acquisition offers from various interested parties.
The decision to entertain other bids suggests a strategic shift following the expiration of the previous exclusive negotiation window.
This development could potentially lead to a more competitive bidding process for CK Hutchison’s assets or operations, attracting a wider range of potential suitors from different sectors or regions.
Uncertain future
The deal’s future is now uncertain due to this development. It was initially proposed after US President Donald Trump called for the Panama Canal to revert to US control, a suggestion that angered both Panama and China.
Trump declared the agreement a “reclaiming” of the Panama Canal, following his administration’s earlier demand for the removal of what it had identified as Chinese ownership of the canal’s ports.
The State Administration for Market Regulation in China announced its intention to review the deal.
This review will be conducted in accordance with the law, with the goals of protecting fair competition and safeguarding public interests.
State-backed media, generally reflecting the government’s views, criticised the deal. They argued that China held substantial national interests in any such transaction, and proceeding with the deal in its current form would constitute an act of betrayal.
New member
CK Hutchison’s statement indicated that a new investor would need to be a “significant” member of the consortium.
“This is an interesting development. A PRC (China) investor with majority control of the consortium sounds like a non-starter in my view. An investor with a less than 50% stake you would think should keep everyone happy,” strategist David Blennerhassett of Ballingal Investment Advisors, who publishes on SmartKarma, was quoted in the report.
JPMorgan noted in a client brief that adding COSCO to the consortium could alleviate some Chinese government concerns, thereby increasing the chances of regulatory approval.
The US brokerage also suggested that a new deal might not encompass all ports, specifically mentioning the two Panama ports.
Furthermore, the buyer composition could shift due to geopolitical considerations, which might subsequently influence the final pricing.
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