Analysis Of The Impact Of the BlackRock/ TIL – Hutchison Ports Deal

Amongst the news items dominating the maritime and ports sector over the past few weeks has been the deal between a consortium of BlackRock and TIL, with Hutchison Ports, for the acquisition of all of Hutchison’s ports assets (except in Hong Kong and China).

The deal was notable for its financial size and geographical scale, covering as it did 43 ports comprising 199 berths in 23 countries.

Note: Some news articles also mentioned the number of ports as 45 and 48. 

Valued at $22.765 billion, it is the largest deal in the global container ports sector, by a wide margin.

The deal includes the ports of Balboa and Cristobal in Panama, on either side of the Panama Canal, lending some credence to rumours about geopolitical factors influencing the deal.

In essence, the deal covers:

• HPH’s 90% interest in Panama Ports Company (PPC), covering ports of Balboa and Cristobal in Panama (referred to as “PPC Transaction” – to acquire “Panama Terminals”)
• CK Hutchison’s 80% interest in companies covering 43 ports comprising 199 berths in 23 countries, together with all of HPH’s management resources, operations, terminal operating systems, IT and other systems, and other assets appertaining to control and operations of those ports (referred to as “HPH Transaction” for “HPH Ports Sale Perimeter”)
• Excludes interests of the HPH Trust which operates ports in Hong Kong, Shenzhen and South China, or any other ports in China.

It is interesting to note that the Panama Canal Terminals are mentioned separately, and sold under separate agreements – perhaps due to geopolitical sensitivity in the light of US-China tensions, exacerbated post the change in the ruling dispensation in the US

While the ownership split between BlackRock and TIL is not known, conjecture is that TIL with its vast operational experience and expertise in the ports and terminals sector will manage operations.

Parties to the transaction include

• Blackrock: World’s largest asset manager with US$11.5 trillion in assets under management as of 2024
• Global Infrastructure Partners (GIP): Acquired by BlackRock in October 2024. Has equity investments in infrastructure assets in the energy, transport and water & waste sectors. Also has a longstanding relationship with MSC, having acquired a 35% stake in TIL in 2013 (for $1.9 billion). While its stake in TIL was subsequently diluted to 20%, the continued investment has however stretched longer than most other infrastructure funds – indicative of a strong and mutually beneficial relationship
• TIL: Terminal Investment Limited (TIL), which is MSC’s terminal operating arm, with MSC having a 70% stake
• Hutchison Ports: CK Hutchinson owns 80% and PSA International (Port of Singapore Authority) owns 20%. PSA obtained its 20% stake in 2006 for $4.4 billion

Value of the deal and Financial Implications

With an aggregate enterprise value of $22.765 billion, the sale involves CK Hutchison’s 80% stake in Hutchison Ports with an equity value of $14.21 billion.

The equity value of the sale perimeter is $17.765 billion for 100%, and $14.212 billion for the 80% stake.

The company holds approximately $5 billion in debt and is expected to receive more than $19 billion following repayment of some shareholder loans.

Immediately following the announcement of the deal, BlackRock’s shares fell 1.5% by afternoon trading on 04th March, while CK Hutchison’s stock price rose sharply, by 20% on 05th March (due to the high valuation).

Drivers for the deal and Chinese response

Amidst speculation from certain quarters about geopolitical factors, especially American pressure on Panama regarding alleged Chinese control of the Panama Canal, being a factor in the deal, HPH’s press release regarding the transaction sought to refute this, by mentioning that the deal was the result of “rapid, discrete but competitive process in which numerous bids and expressions of interest were received” – implying that this was being planned for some time and wasn’t solely due to American pressure.

HPH’s ownership of the two ports/ terminals in Panama was mired in controversy even prior to the deal, as lawsuits had been filed in Panama seeking cancellation of Hutchison’s concessions (originally granted in 1997 for 25 years, and subsequently extended for a further 25-year period in 2021), on grounds that it was unconstitutional, affecting public welfare and interests, and impeding free competition and demand.

The general consensus is that the deal was driven by a combination of geopolitical factors and HPH’s desire to reduce risks emanating from and exposure to an extremely volatile sectoral environment.

Subsequent statements from sections of the Chinese bureaucracy/ state-controlled media have been critical of the sale, emphasising China’s opposition to “the use of economic coercion to infringe upon the rights and interests of other countries”. 

According to news reports from Reuters and Bloomberg, China has instructed state-owned firms to pause new deals with businesses linked to Hong Kong billionaire Li Ka-shing and his family (who owns HPH).

Furthermore, China’s State Administration for Market Regulation has that they will proceed with reviewing the deal, to ensure fair competition and protect public interest.

Market Concentration concerns and Regulatory approvals required

While the BlackRock-TIL consortium was expected to expedite the deal and proceed with conducting standard due diligence, completing requisite documentation, and requesting necessary regulatory approvals, opposition from China has created considerable uncertainty.

The deal was originally required to obtain anti-trust approvals from 12 jurisdictions, including the US and the EU, besides approval from CK Hutchison’s shareholders.

The transactions for the assets in Panama additionally required confirmation from the Government of Panama.

From the commercial perspective, analysis from Drewry highlighted that the acquisition of certain ports / in certain regions could result in market concentration beyond limits considered conducive to free and fair competition. These ports/ regions included:

• Panama
• Rotterdam 
• Spain

Implications for TIL / MSC

Should the deal go through, it will place TIL/ MSC in a highly advantageous position relative to its competitors in the container shipping and port industry.

With the new acquisitions being largely complementary to its existing portfolio, MSC will emerge as the largest container terminal operator (supplementing its position as the largest container carrier). 

In terms of strategy, MSC has over the past few years aggressively invested in new and second-hand shipping capacity to overtake Maersk as the largest container carrier, which has enabled it to position itself as a standalone container carrier (not part of any Container Alliance), while their massive fleet now enabling them to offer more direct port calls as a competitive differentiator in a commoditised market.

The addition of these new ports in its portfolio will provide MSC with more owned port options to call at, thus controlling both the shipping and the ports.

Besides, with BlackRock as a partner, it is conceivable that they will have easier access to capital, aiding major upgrades in infrastructure, automation, sustainability, and port connectivity.

Implications for HPH

Ports were a significant contributor to the HPH Group, contributing an estimated 30-40% of total operating profit. 

The deal, while reducing their presence and scale in the global ports sector, will improve their financial position and liquidity.

HPH has netted $19 billion from the deal, and its net debt ratio is expected to improve from 23.6% to below 18.0%.

It is the considered opinion of several analysts that the move represents a timely and calculated exit from a geopolitically sensitive and commercially risky asset, to evade the debilitating consequences of the ratcheting up of rhetoric and trade wars between US/ China/ other countries, as well as the subdued prospects for global trade and economy, while also freeing up capital for reinvestment in less contentious markets like South East Asia or in rapidly expanding verticals like digital logistics. 

Implications for the Maritime, Shipping and Ports sectors

The deal marks the continuation of the trend of container carriers expanding beyond their core business and attempting to control other crucial nodes in the supply chain – ports and terminals in this case – albeit on a hitherto unparalleled scale.

MSC’s industry-leading Container and Ports capacity, coupled with its market positioning as stand-alone operator, will result in the reconfiguring of service networks to incorporate their newly acquired terminals, while other Carriers will be compelled to counter this move by redesigning their own networks to shift business to other ports/ terminals.

This could herald potential shifts in global trade flows.

A key takeaway is that geopolitical risks present a tangible cost to businesses, both in the maritime sector and in other industries.

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