Commentary: Why Li Ka-shing’s Panama Ports Sale Is a Good Deal

Hong Kong's stock market showed resilience in early March, maintaining its position above the 24,000 points mark. This stability was largely influenced by China’s Two Sessions revealing economic stimulus measures, a softening U.S. market, and the major announcement by CK Hutchison Holdings Ltd. to sell its port operations.[para. 1][para. 2] The company, controlled by tycoon Li Ka-shing’s family, announced its plan to sell 43 ports across 23 countries to a consortium led by BlackRock, excluding ports in mainland China and Hong Kong.[para. 3]

CK Hutchison’s stock saw a significant rise, increasing by 33% in two days following the announcement. The deal is notable for three key reasons. Firstly, it achieved a high valuation, selling the port business for $14.2 billion, 11 to 13 times EBITA, above the industry average of 9 to 10 times. Notably, the Panama port operation, which contributed minimally to earnings, was included in the sale, while high-performing Hong Kong and Shenzhen ports were retained.[para. 4] Secondly, the deal will provide CK Hutchison with $19 billion in cash, exceeding its previous market cap by $1.5 billion. This highlights how the market undervalued CK Hutchison's port business, which contributed only 9% to overall revenue.[para. 5] Thirdly, CK Hutchison's international port locations provide insulation from China's economic conditions and U.S.-China trade tensions, contributing to their higher valuation in contrast to other Hong Kong-listed companies.[para. 6]

The swift closing of the transaction in just two months reflects the parties’ understanding of changing geopolitical dynamics.[para. 8] The transaction allows CK Hutchison to gain more cash for investment and demonstrates Li Ka-shing’s strategic prowess. The deal ensures CK Hutchison trades a less profitable asset for a larger gain, showcasing Li's business acumen.[para. 10] However, there are critics who argue that retracting from the Panama Canal compromises China's national interests.[para. 11] Alternatively, they should consider China’s flagship Belt and Road project at Peru’s Chancay Port, due to become a major shipping hub for China in South America by late 2024.[para. 12]

There are other factors in South America that may reduce dependency on the Panama Canal. The Bi-Oceanic Railway planned by Brazil will cut down the shipping time to Shanghai significantly, offering a more stable route and resistance to geopolitical risk.[para. 13] Historically, Hutchison Whampoa, acquired port operations in Panama but faced increasing U.S. political pressure over the years, especially during Trump’s presidency. This climate might have contributed to CK Hutchison’s declining stock value over the decade.[para. 15][para. 16]

In the broader aspect, as Trump’s infrastructure and decoupling policies continue, opportunities for China’s infrastructure expertise are increasing, drawing foreign investment potential.[para. 24] Li Ka-shing's legacy as a business “superman” is reinforced with his strategic operations and his success in navigating U.S.-China relations.[para. 25] Background information shows that Li Ka-shing built his business empire starting from humble beginnings in 1950 and has consistently made strategic acquisitions, such as the purchase of Hutchison Whampoa in 1979, showing mastery in leveraging economic situations to expand his holdings globally.[para. 27][para. 30]