CK Hutchison steps back from global ports as Trump vows trade tariffs on ‘friends and foes’

CK Hutchison Holdings (CKH) is stepping back from the business of seafaring commerce, as rising US-China tension and an unfolding worldwide trade war signal choppy times ahead for the port operator.

The company announced overnight that it would sell 80 per cent of Hutchison Port Group which owns 43 container ports in 23 countries, including a 90 per cent stake in two Panama ports that have been the target of US President Donald Trump's ire.

The surprise sale came amid an unfolding trade war that Trump seems to be encouraging on multiple fronts as he vowed to slap reciprocal tariffs on America's " friends and foes " alike, from China to South Korea. An estimated 80 per cent of global commerce is shipped by sea, and CKH has been one of its biggest beneficiaries for several decades, operating 53 ports in 24 countries.

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The disposal of the majority of CKH's port business is "a surprise, given (that) most of the other ports are not in regions directly exposed to current geopolitical tensions", JPMorgan's analyst Karl Chan said.

"We think this might be an opportunistic deal where the initial discussion of disposing of Panama ports may expand to most remaining ports", said Chan, who has an "overweight" recommendation on the stock. "Based on our understanding of the management philosophy of CKH, any deal is possible as long as the price is right."

The sales proceed of US$23 billion would generate US$19 billion in cash for CKH, substantially higher than Morningstar's US$10.5 billion valuation of its port assets. CKH shares jumped by almost a quarter in Hong Kong trading on Wednesday, their biggest intraday surge on record, to as much as HK$48.20 per share.

CKH announced at 11 pm last night that it had entered an in-principle agreement with Blackrock, Global Infrastructure Partners and Terminal Investment on the preliminary terms of the sale, excluding its stakes in 10 harbours across mainland China and Hong Kong.

The sale will be subject to separate due diligence and approvals: Panama's government for the sale of the ports in that country, and regulatory approvals for the disposals of the remaining ports in Mexico, the UK, the Netherlands, Pakistan, Indonesia and South Korea.

The disposal of CKH's Panama business was understandable, most analysts concurred, given its small returns compared with its role as the lightning rod of US-China tensions. The ports in Panama, which handle maritime trade from the Atlantic Ocean to the Pacific Ocean, accounted for merely 1 per cent of CK's earnings before interest, taxes, depreciation and amortisation (Ebitda), according to JPMorgan.

After the proposed sale, CKH would still own stakes in three of the world's 10 busiest container ports: Shenzhen's Yantian port, Ningbo's Beilun terminal, and the Mingdong and Pudong terminals in Shanghai. The company also owns the Kwai Tsing port in Hong Kong.

The sale would swing CKH into a "net cash position" that would justify any calls for "returning cash to shareholders", according to a research note by CLSA, forecasting the stock to rise to HK$61 per share.

"The disposal target accounts for 13 per cent of CK Hutchison's Ebitda, and will substantially reduce the contribution of the ports business from 15 per cent to 1 per cent, by our estimates," said JP Morgan.

While there was no indication yet from management on how the cash proceeds might be deployed, JP Morgan said capital allocation might be geared towards the infrastructure segment, based on the company's acquisitions in the past few years.

JP Morgan said even though CKH did not declare any special dividend post key disposals, investors would expect a share buy-back and special dividend from the deal.