Li Ka-shing’s ports deal is shrewd in all respects except for the timing. Beijing has warned the Hong Kong tycoon’s CK Hutchison 1 against bypassing its antitrust probe on the $23 billion disposal to a group including BlackRock BLK and Swiss-Italian shipping giant MSC. Officials may want to use the assets as leverage in U.S. trade talks. Poor timing aside, China has good reason to like this sale.
On Sunday, China’s antitrust watchdog sent a rare warning to the Hong Kong group and potential buyers on changing the terms of the sale without its approval. Earlier this month, the Wall Street Journal reported that two Panama port assets – which emerged as a geopolitical lightning rod between Washington and Beijing – may be carved out from the rest of the deal, according to unnamed sources. The official warning effectively scuppers any attempts to fast-track the transaction spanning 43 ports in 23 countries.
Blame the unfortunate escalation on U.S. President Donald Trump’s trade war with China. After unveiling the deal in March, CK Hutchison had hoped to sign “definitive documents” regarding the Panama disposal by April 2. That date coincided with Trump’s infamous Liberation Day when he unleashed a barrage of tariffs on U.S. trading partners including China, which now faces additional levies of 145%. No wonder state-linked newspapers accused the Li clan of betraying Chinese national interests.
Intriguingly, CK Hutchison shares have given up large gains but remain 11% above their pre-deal price, while the benchmark Hang Seng index HSI has fallen, implying investors think at least part or all of the transaction could go through sooner or later. There are good reasons for this enduring optimism.
First is that BlackRock and MSC are exactly the type of foreign investors Beijing wants to court. Both have strong ties with the country and are heavily invested in China’s economic growth. Funds of BlackRock, which in 2021 became the first foreign asset manager to receive a licence to operate a wholly-owned onshore mutual fund business, own more than 5% in 89 listed firms in Hong Kong, ranging from Alibaba BABA to Bank of China 601988. Similarly, MSC has 28 offices in China; late last year, it placed a $2 billion order with Chinese shipyard Rongsheng, per TradeWinds.
Moreover, there aren’t that many willing buyers for such a diverse portfolio. A Chinese state-owned entity like China Merchants 600036 will face even greater political and antitrust scrutiny, even if port operators have little say on policies like docking fees. And for the state to dictate what companies can and can’t sell will send a chilling message to the private sector.
Ultimately, there is reason to believe some of this logic will eventually prevail and hand CK Hutchison and its shareholders a big payday.
China’s antitrust regulator said on April 27 it was paying close attention to CK Hutchison’s planned sale of most of its port operations to a BlackRock-led consortium. “The parties to the transaction shall not circumvent the review in any way and shall not implement the concentration [of business operators] before approval, otherwise they will bear the legal responsibility,” a spokesman of the State Administration for Market Regulation said in a statement posted on the regulator’s website, in response to a Wall Street Journal report on April 16.
The Wall Street Journal reported on April 16 that MSC, a Swiss-Italian shipping firm which is part of the BlackRock consortium, has held discussions on moving ahead with the bulk of the deal while disputes over the two Panama ports are resolved, citing people familiar with the matter.
CK Hutchison announced on March 4 it would sell its 80% holding in the ports business which encompasses 43 ports in 23 countries, for an enterprise value of $22.8 billion.
Source: Reuters
