A good deal for Li Ka-Shing but a less certain outlook for global shipping

[SINGAPORE] You’ve got to hand it to Li Ka-Shing. At the age of 96, the Hong Kong tycoon manages to ink a US$22.8 billion deal at a generous valuation.  

Last week, BlackRock and Terminal Investment Limited (TIL) announced that they would be buying CK Hutchison’s ports business. The Hong Kong conglomerate is owned by the Li family.

The deal includes Hutchison Ports Holdings’ (HPH) 90 per cent interests in Panama Ports Company, which owns and operates the ports of Balboa and Cristobal in Panama. The deal also includes CK Hutchison’s 80 per cent stake in 43 ports comprising 199 berths in 23 countries, together with all of HPH’s management resources, operations, terminal operating systems, IT and other systems.

There is no impact on Singapore-listed HPH Trust, which operates ports in Hong Kong, Shenzhen and South China. These ports are not part of the deal. Ratings agency S&P Global Ratings notes that the trust’s Yantian and Kwai Tsing port operations are independent of the other ports except for certain back-office support functions.

This blockbuster transaction was triggered by US President Donald Trump who has been calling for the key Panama Canal ports, which sit along a critical trade route, to be removed from what it says is Chinese ownership.

What could have been a challenge for CK Hutchison to run its business amid a fraught relationship between the US and China, and potentially have issues operating its Panama ports, has instead turned into an extremely profitable result for Li Ka-Shing.

The tycoon has largely been out of the limelight in recent years. He handed over the reins of the business to his son Victor Li in 2018.

After the deal was announced CK Hutchison’s co-managing director, Frank Sixt, was quoted as saying that the transaction is “purely commercial in nature and wholly unrelated to recent political news reports concerning the Panama Ports”. Still, the news only reinforces the senior Li’s reputation as a savvy dealmaker.

This is especially as some industry observers note that CK Hutchison has not been paying much attention to the ports in the last decade or so.

TIL’s main shareholder is Mediterranean Shipping Co (MSC). While the deal significantly strengthens MSC’s position as a major global port operator, some analysts reckon it could cause some uncertainty in terms of the outlook for the shipping industry.

Singapore’s PSA International has been top globally in terms of TEU, or containers shipped, but analysts say that the latest deal will propel MSC to the top of Drewry’s Global Terminal Operator rankings.

Still, PSA International retains its 20 per cent stake in CK Hutchison’s ports business, which it had bought in 2006 for US$4.4 billion. There were earlier reports that it planned to sell the stake, with a price tag of some US$4 billion, but nothing came of it.

Remaining a minority shareholder in the business could be a plus depending on what the new owners plan to do with the ports once the acquisition is completed. 

All in all, while it is clear that Li Ka-Shing walks away with a handsome cash pile, the shipping industry will have to see how this mega-deal plays out for them.