(Jan 30): Panama’s top court has ruled that the contract granted to Li Ka-shing’s CK Hutchison Holdings Ltd to operate two ports near the Panama canal is unconstitutional, dealing a blow to the Hong Kong conglomerate’s efforts to sell off the facilities.
The ruling, announced by the court late Thursday in a short post on Instagram, rattled investors. CK Hutchison’s shares fell as much as 5.5% in Hong Kong trading Friday, heading for the steepest drop since April.
The ports have emerged as a geopolitical flashpoint. US President Donald Trump has criticised what he perceives as Chinese influence over the canal and threatened to place it under American control, while Panama’s President Jose Raul Mulino has repeatedly asserted his nation’s full sovereignty over its operation. CK Hutchison began operating the facilities in 1997, with the contract later extended in 2021.
“It reflects the broad Donroe Doctrine policy direction and the emphasis on security, which will continue to bring headwinds to the US-China relation,” said Gary Ng, senior economist at Natixis SA. “Countries may face greater pressure from the US to screen foreign ownership of infrastructure, and geopolitics will be an even more critical factor.”
The legal challenge was brought last year by Panama’s Comptroller Anel Flores, who alleged the extension cost Panama more than US$1 billion in lost tax revenue and that the CK Hutchison’s local unit, Panama Ports Co, failed to secure proper approvals.
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CK Hutchison has limited options following the verdict. It can file a motion seeking clarification on the court’s ruling, but cannot appeal. The company can also seek international arbitration.
Panama Ports Co will continue operating the facilities until requests for legal clarifications are resolved, a person familiar with the matter said. The process could take several weeks.
CK Hutchison didn’t immediately respond to requests for comment.
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The two ports are part of the Hong Kong conglomerate’s plan to sell its 43 global terminals to a consortium led by Italian billionaire Gianluigi Aponte’s Terminal Investment Ltd and US investment firm BlackRock Inc. While Trump has cast the sale of the two facilities as a win for US influence in the strategic Panama Canal, China saw it as kowtowing to US pressure and selling out the country’s trade and shipping interests. To secure Beijing’s approval, CK Hutchison last year invited state-owned China Cosco Shipping Corp to join the buyer consortium.
Trimmed valuation
If the transaction is completed, it could net CK Hutchison more than US$19 billion in cash. To move discussions forward and reduce potential regulatory risks, parties involved in the deal have been considering splitting the deal into separate parcels with different ownership structures, so Cosco may have larger stakes of ports in regions more friendly with China, people familiar with the matter have said earlier.
“The Panama ruling will trim CK Hutchison’s port-deal valuation and proceeds, though it was largely expected given prior legal and political signals,” said Bloomberg Intelligence analyst Denise Wong. “With Panama contributing under 10% of overseas port throughput and the shift to a parcel-based sale structure, the company can still likely complete most of the port divestment and secure reduced yet meaningful cash inflows.”
It’s not the first time that countries have terminated concessions for private businesses to run public infrastructure projects. Panama last year took back land from a Chinese company after the firm failed to build a port on the site as required by a government concession.
In 2015, Egypt’s Damietta Port Authority terminated a concession agreement awarded to a private consortium to operate a container terminal. An international tribunal in 2020 approved the consortium’s request for damage compensation. While Egypt’s top court rejected the tribunal decision, the case was eventually settled with a partial payout.
“There is a long list of precedents where states clawed back control of ports and other infrastructure from private or foreign operators,” said Winston Ma, adjunct law professor at New York University. “Concession contracts typically reserve to governments the right to terminate for cause or public interest.”
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