The Loadstar Leader: China Merchants tipped to join the Hutch port sale talks – why?

© Graham Harris Dreamstime.com.

One of the more intriguing questions raised by reports that the Chinese government has been arranging for China Merchants to join negotiations over the future ownership of Hutchison Port Holdings (HPH) is simply: why?

Beijing had already forced its way into the negotiations between HPH owner CK Hutchison and the MSC/TiL-BlackRock consortium through its insistence that state shipping line Cosco also take part.

Viewed through the prism of what has subsequently taken place in Panama, and the still-unresolved issue – at least from the Chinese perspective – of the legality of HPH’s contract in the country through its Panama Ports (PPC) subsidiary, it was unsurprising that Beijing wanted a say in what would happen to the other 40-plus ports under the hammer.

But Cosco’s involvement, if it continues, is likely to prompt another issue further down the line – namely, the regulators in many of the regimes HPH currently operates in that are expected to block the transfer of ownership, however partial, in key container terminals to the Chinese state.

The introduction of China Merchants – a centrally administered enterprise under China’s State-owned Assets Supervision and Administration Commission – doesn’t dilute that prospect; if anything, it doubles down on it.

It also makes the sale of HPH look less like M&A in the traditional sense, and more like a state-sanctioned transfer of assets.

There are, of course, some countries in which HPH has operations that may be comfortable with a more overt Chinese presence, Myanmar comes to mind, or possibly some of the African or Latin American locations where Belt and Road projects may be under way.

But the intense public debate over Cosco’s acquisition of a minority stake in Hamburg’s Tollerot container terminal a couple of years ago indicates the sort of opposition it will face in other places, particularly Europe.

This week’s Alphaliner report suggests funding concerns may have prompted China Merchants’ involvement. It says: “According to a report by Bloomberg, China Merchants would join the negotiations as a potential way to help fellow state-owned Cosco Group finance and structure the deal.

“It is thought the development could kickstart negotiations, which appeared to have stalled again after 14 months of talks,” it adds.

Really? Does Cosco not know how to structure a takeover deal of a major Hong Kong-based container transport company? Tell that to OOCL, which it acquired in 2017 for around $6.3bn.

Equally, does Cosco really not have the funds to participate in these talks on its own? If the ultimate controlling interest in both Cosco and China Merchants is the Chinese state, what’s the point of adding the latter?

It could be a delaying tactic, or perhaps Beijing believes China Merchants might be able to exert an influence of its own – it holds a 49% stake in CMA CGM’s Terminal Link portfolio, through which it might try to assuage the worries of EU regulators.

What all this does, though, is increase the likelihood that HPH’s international empire will be carved up.