China threatens to block Panama ports deal unless its shipping giant is part of it

Beijing is threatening to block a deal that would transfer ownership of dozens of seaports to Western investors if Cosco, China’s largest shipping company, doesn’t get a stake.

A cargo ship transits through Panama Canal Cocoli locks in Panama City. Picture; AFP.

China’s government is threatening to block a deal that would transfer ownership of dozens of seaports to Western investors if Cosco, China’s largest shipping company, doesn’t get a stake.

The proposed sale includes two ports at the Panama Canal and more than 40 others around the world, all owned by Hong Kong-based CK Hutchison.

China is pushing for state-owned Cosco to be an equal partner and shareholder of the ports with BlackRock and Mediterranean Shipping Co., a containership operator, according to people familiar with the deal talks. BlackRock and MSC in March reached a preliminary agreement to buy the ports in a deal valued at nearly $23 billion.

Now, BlackRock, MSC and Hutchison all are open to Cosco’s taking a stake, the people familiar with the talks said.

The parties aren’t likely to reach a deal before a previously agreed upon July 27 end date for exclusive talks between BlackRock, MSC and Hutchison, the people familiar with the talks said. The parties can’t strike a deal that includes Cosco until the exclusivity period ends.

Any deal giving a stake in the Panama ports to a Chinese-owned company would likely upset President Trump, who has threatened to take control of the canal and has objected to Hutchison’s ownership of two ports there. The White House didn’t immediately respond to a request for comment Thursday.

Chinese-chartered merchant ship Cosco Shipping Panama crosses the new Agua Clara Locks during the inauguration of the expansion of the Panama Canal in Colon. Picture; AFP.

Hutchison’s initial plan to sell the ports angered Beijing, according to people familiar with the talks. Chinese authorities have told Chinese state-owned companies to freeze any coming deals with Hutchison or other businesses linked to its controlling shareholder, the family of the Hong Kong billionaire Li Ka-shing, these people said.

The proposed sale of the ports has added to the growing tensions between China and the U.S. During U.S.-China trade talks in Switzerland in May, Chinese representatives raised the prospect of China’s involvement in the deal, according to people familiar with the trade negotiations.

Chinese officials have told BlackRock, MSC and Hutchison that if Cosco is left out of the deal, Beijing would take steps to block Hutchison’s proposed sale, according to people familiar with the deal talks.

In past global mergers, China’s Commerce Ministry has asserted rights to review a deal, sometimes insisting on changes that can appear politically motivated. China also has significant leverage over the parties involved in the Panama Canal ports deal. BlackRock and Hutchison have business interests in China, and MSC is one of the biggest movers of Chinese exports around the world.

In 2014, Beijing blocked three Western companies from forming a shipping alliance that could have hurt its trade interests. In that case, China scuttled a deal between MSC, Denmark’s A.P. Moeller-Maersk and France’s CMA CGM in which the companies would have shared vessels and port calls worldwide.

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