Panama court voids CK Hutchison port contracts, clouding sales plan
The lawsuit to cancel the contracts was brought before the Panamanian high court last year on allegations that it was based on unconstitutional laws and that the Hong Kong business was not paying taxes.
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PANAMA CITY: Panama's Supreme Court late on Thursday (Jan 29) 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, 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 arrangement had been automatically renewed in 2021 for another 25 years.
The 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 port terminals at Balboa and Cristobal - two of the canal's five ports - were unconstitutional.
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).
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CK Hutchison did not immediately respond to a request for comment from Reuters on the court's decision.
The conglomerate's Hong Kong-listed shares dropped 5.5 per cent on Friday following the ruling, its largest one-day percentage fall in nine months.
The lawsuit to cancel the concession was brought before the Panamanian high court last year on allegations that it was based on unconstitutional laws and that the Hong Kong business was not paying taxes.
The ruling comes amid a growing US-China rivalry over global trade routes and is seen as a win for Washington, where President Donald Trump has pushed to curb Chinese influence and boost US control over the Panama Canal, which carries about 5 per cent of global maritime trade.
Trump had threatened just days into his second term last year to take back the canal - built by the United States and handed to Panama in 1999 - as he said China was effectively "operating" it.
CK Hutchison Holdings is one of Hong Kong's largest conglomerates, spanning finance, retail, infrastructure, telecoms and logistics.
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 US ownership.
However, China had threatened to block the deal for not being in its national interest. It had 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, argued they disadvantaged Panama, in addition to being unconstitutional.
The Supreme Court's decision could force Panama 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 that Panama Ports will lodge an arbitration complaint after losing the case.
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