Panama's Supreme Court has annulled key port contracts held by a subsidiary of Hong Kong-based CK Hutchison, leaving the future ownership of some Panama Canal operations unclear and possibly upsetting its plans to sell some terminals.
Panama Ports Company (PPC), a CK Hutchison subsidiary, has held contracts since the 1990s to operate container terminals at the canal's Pacific and Atlantic entrances, separate from the waterway's operations.
The decision could disrupt CK Hutchison's proposed $23 billion sale of dozens of ports worldwide, including the Panamanian terminals, to a consortium led by BlackRock and Mediterranean Shipping Company (MSC).
The ruling comes amid growing U.S.-China rivalry over global trade routes and marks a win for Washington. U.S. President Donald Trump has pushed to curb Chinese influence over the Panama Canal, which carries about 5% of global maritime trade.
U.S. Secretary of State Marco Rubio said Washington was encouraged by the decision, and John Moolenaar, who chairs the U.S. House Select Committee on China, thanked Trump and Panamanian President Jose Raul Mulino.
"This is a win for America, Panama, and all of our allies who recognize the Canal's importance to national security and the world economy," he said in a statement.
"China's malign influence is unwelcome in the Western Hemisphere and it is critical that all ports on the Canal be entrusted to operators who share our common values."
CHINA IRRITATED AT PANAMA PORTS RULING
PPC said on Friday it had not been notified of the court's decision but considered it inconsistent with the legal framework that had allowed it to operate the ports.
"The new ruling ... lacks legal basis and jeopardizes not only PPC and its contract, but also the well-being and stability of thousands of Panamanian families who depend directly and indirectly on port activity but also the rule of law and legal certainty in the country," it said in a statement.
PPC said it had invested $1.8 billion in infrastructure and technology in nearly three decades operating the Panamanian ports, and reserved the right to begin national and international legal proceedings.
Chinese Foreign Ministry spokesperson Guo Jiakun told a briefing China would take all necessary measures to defend the rights and interests of Chinese enterprises.
Hong Kong said it "strongly opposes any foreign government using coercive, repressive or other unreasonable means in international economic and trade relations to seriously harm the legitimate business interests of Hong Kong enterprises".
APM Terminals Panama, a Maersk subsidiary, said on Friday it was willing to operate the Balboa and Cristobal terminals temporarily, to prevent any impact on regional and global trade.
Mulino told reporters that he had instructed Panama's Maritime Authority to meet immediately with PPC to coordinate "the necessary actions", saying ports would continue to operate without disruption or layoffs.
CK Hutchison's shares closed down 4.6% in Hong Kong, while the Hang Seng Index fell 2.1%.
"I would expect near-term weakness in CK Hutchison until such time as they flesh out a new sale structure," said David Blennerhassett, a strategist at Ballingal Investment Advisors who publishes on Smartkarma.
"That new structure could be substantially delayed depending on how they weigh up options on this court decision."
U.S. TRYING TO CURB CHINESE TRADING POWER
Panama's Supreme Court said it had found the laws and acts underpinning the concession contract between the state and Panama Ports Company for the development, construction, operation and management of the two terminals unconstitutional.
The leading contenders to buy Hutchison's ports, BlackRock and MSC, did not immediately reply to requests for comment.
Trump had hailed the proposed deal to sell the ports, especially the Panamanian operations, as a victory since it would move the trading assets under majority U.S. ownership.
However, China had threatened to block the deal as not in its national interest. It pushed for Chinese state-owned shipping company COSCO to take a controlling stake in the buyout deal, sources previously told Reuters.
CK Hutchison had been waiting for the Supreme Court to make a final ruling about the legal status of its contracts after the local attorney general determined them unconstitutional.
Critics of the contracts, which were extended in recent years, also argued they disadvantaged Panama.
The Supreme Court's decision could force Panama to restructure the legal framework for port operations contracts and potentially require new tenders to operate the terminals.
Ensuring uninterrupted port operations is critical for shipping lines that rely on Panama as a transshipment hub, where containers are transferred between vessels serving multiple routes.
In July, President Mulino said public-private partnerships could take over the two ports if the court invalidated the contracts with CK Hutchison.
Analysts have said Panama Ports is likely to lodge an arbitration complaint.
(Reuters)