By Elida Moreno and Natalia Siniawski
PANAMA CITY, Jan 29 (Reuters) – 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).
PPC said on Friday it had not been notified of the court’s decision but considered the ruling inconsistent with the legal framework and laws that had allowed it to operate the ports.
“The new ruling, based on available information, 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.
The conglomerate’s Hong Kong-listed shares were down 5% on Friday following the ruling as Hong Kong’s Hang Seng Index declined 2%.
“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.”
UNCONSTITUTIONAL LAWS
The Supreme Court said that after “extensive deliberation”, it 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 terminals at Balboa and Cristobal were unconstitutional.
The ruling comes amid a growing U.S.-China rivalry over global trade routes and is seen as a win for Washington, where President Donald Trump has pushed to curb Chinese influence over the Panama Canal, which carries about 5% of global maritime trade.
The leading contenders to buy Hutchison’s ports, BlackRock and MSC, did not immediately reply to requests for comment from Reuters.
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 for not being in its national interest. It pushed for 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 the contracts “unconstitutional”.
Critics of the contracts, which were extended in recent years, also argued they disadvantaged Panama.
The Supreme Court’s decision could force the country to restructure the legal framework needed to hold 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, Panamanian President Jose Raul Mulino said public-private partnerships could take over the two ports if the court invalidated the contracts with CK Hutchison.
Analysts have flagged the likelihood Panama Ports will lodge an arbitration complaint after losing the case.
(Reporting by Elida Moreno in Panama, Natalia Siniawski in Mexico City, Anne Marie Roantree and Clare Jim in Hong Kong; Editing by Christian Schmollinger)
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