Investors revive interest in CK Hutchison despite deal delay
Shares of CK Hutchison, which oscillated between gains and losses since the company first announced the deal on Mar 4, reached its highest this year on Friday (Jul 25) after state-owned China Cosco Shipping emerged as a potential new member of the buyer consortium that includes American asset manager BlackRock.
Although a 145-day exclusivity window for talks between CK Hutchison and the buyers' group lapsed on Sunday, the possible involvement of China Cosco is boosting expectations that it would nudge the transaction forward. Beijing has so far viewed the deal as a threat to its interests because it would transfer two ports along the strategically important Panama Canal to the BlackRock-backed group, which China sees as a proxy for American influence.
'Ongoing negotiations and the reported inclusion of Cosco Shipping in the consortium have likely eased concerns over Chinese regulatory hurdles, strengthening investor confidence in the deal's viability,' according to Bloomberg Intelligence analyst Denise Wong.
China separately warned the parties involved not to bypass antitrust reviews, so as to prevent them from rushing into a deal. As at last week, the buyers' group was considering China Cosco's demand for veto rights to secure Beijing's interests, Bloomberg News reported.
CK Hutchison's shares, which shot up 37 per cent in the days following the sale announcement in March, saw political pressure wipe out all the gains in the space of a month. The stock started rallying again last month as investors flocked back after China Cosco came into play.
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The share price recovery shows investors are increasingly betting on Li Ka-shing, the 96-year-old founder of CK Hutchison, to seal the deal of his lifetime. If it goes through, the sale will net the group more than US$19 billion in cash. The renewed optimism is largely due to China Cosco's interest in playing a role in the buying consortium, alongside BlackRock and Italian billionaire Gianluigi Aponte's Terminal Investment.
Smart move
Initially hailed as a smart move by Li to exit a business caught up in global trade tensions, the deal quickly drew the ire of Beijing. With US President Donald Trump billing the transaction as the return of Panama Canal back to American influence, that did not help.
Challenges remain even as Cosco enters the discussions, David Blennerhassett, an analyst at Quiddity Advisors, wrote on financial analysis platform SmartKarma. That could reverse the current rhetoric and upset Trump, who has a handful of issues already on his plate, he said. CK Hutchison's share price could also be under pressure should talks on the sale drag on, he added.
Even with an extended timeline, revised terms or a partial agreement, uncertainty around the deal's value and timing would increase, said Bloomberg Intelligence's Wong. The delay may also fuel concerns about regulatory and policy challenges, she said.
Investors will be watching out for more answers to questions surrounding the deal, including what role the Chinese side will play in the consortium, said Gary Ng, a senior economist at Natixis.
The controversial deal has also weighed on Li and his family's other businesses. Younger son Richard's talks to expand his insurance business into mainland China have stalled after the ports deal upset Beijing, Bloomberg reported earlier this month. That followed another Bloomberg report in March that China told its state-owned firms to hold off on any new collaboration with businesses linked to the Li family.
The original structure of the buyer consortium was designed to give the Aponte family-controlled Terminal Investment ownership of all the ports except the two in Panama, whose control will go to BlackRock's Global Infrastructure Partners unit. BLOOMBERG
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