Report: China Demands Role for Cosco in Deal to Sell Hutchison’s Port Ops

Chinese officials have reportedly set an ultimatum for the approval of the sale agreement between CK Hutchison, BlackRock, and MSC’s Terminal Investments (TiL) for the Hong Kong company’s global port operations. According to a story in The Wall Street Journal, China has privately told the companies that Cosco must have a role in the deal, or it will move to block the transaction.

Rumors that China was seeking a role for Cosco in the deal have been circulating for months, and it is seen as a face-saving step, especially for the terminal operations at Panama’s two ports. WSJ reports that, “China is pushing for state-owned Cosco to be an equity partner and shareholder of the ports with BlackRock and Mediterranean Shipping Company.”

“Chinese officials have told BlackRock, MSC, and Hutchison that if Cosco is left out of the deal, Beijing would take steps to block Hutchison’s proposed sale, according to people familiar with the deal talks,” writes The Wall Street Journal.

It is unclear how China could block the deal, but days after the agreement was announced, Hong Kong’s Chief Executive John Lee spoke out against the proposed sale. He said at the time there were “concerns” that deserved “serious attention.” Hutchison is Hong Kong-based, and in addition, China in the past has used its Commerce Ministry, asserting its right to review deals and demand alterations in the terms.

This comes just 10 days before the end of the exclusive lock-up period Hutchison granted to BlackRock and MSC. The company had announced the “in principle” agreements on March 4, saying they expected to complete definitive documentation for the part of the deal for the two terminal operations in Panama by April 2, while due diligence and exclusive negotiation were proceeding.

WSJ speculates that the parties cannot strike a deal on revised terms that include Cosco until the exclusivity period ends on July 27. It is unclear what portion of the deal, valued at nearly $23 billion, Cosco would participate in or at what level.

The wildcard is the Trump administration, which used Hutchison’s terminal operations at each end of the Panama Canal to assert “China runs the Panama Canal,” and to threaten that the U.S. would take back the canal. Panama has repeatedly asserted its sovereignty over the canal and denied Chinese domination.

Hutchison has remained mostly silent in the face of China’s attacks, which ranged from the loyalty of its founder tycoon Li Ka-shing to the legality of the deal, and assertions that it was all driven by the U.S. In early April, Hutchison’s Panama company issued a long list of responses refuting many of the claims that it was in violation of the concession to operate the terminals. Panama, however, has threatened under pressure from the U.S. to review and possibly terminate the concession for the terminals.

Under the terms of the “in principle” agreement, Hutchison would sell its 90 percent interest in the Panama operation (Panama holds 10 percent of the company) to the consortium between BlackRock and TiL. They would also acquire 80 percent of the global operations, which include 43 ports comprising 199 berths in 23 countries. Hutchison would retain its interests in China. Later reports revealed that the investment group would largely be owned by MSC.