Panama cancels China-linked port deal, hands canal terminals to Maersk, MSC

Panama annulled key port contracts held by a subsidiary of Hong Kong-based CK Hutchison in its official gazette Monday, transferring interim operations of the ports to Danish shipping giants A.P. Moller-Maersk and Swiss-based Mediterranean Shipping Co.

The notice formalized a Supreme Court ruling last month that the concessions for the Balboa and Cristobal terminals near the Panama Canal, which Panama Port Company (PPC), a subsidiary of CK Hutchison, had held for more than two decades, were unconstitutional.

The Panamanian government on Monday formally assumed control of the port facilities, including cranes, vehicles, computer systems and software under a decree aimed at ensuring uninterrupted operations until a new concession is awarded within 18 months.

Under the interim arrangement, APM Terminals, a unit of Maersk, will operate the Balboa port on the Pacific side of the canal, while MSC’s port operating subsidiary, Terminal Investment, will run the Cristobal port on the Atlantic side.

Shares of CK Hutchison fell 0.9% at the open Tuesday. The stock has climbed over 20% so far this year.

In a statement to CNBC Tuesday, CK Hutchison said PPC had ceased all operations at the terminals on both sides of the canal on Monday, while describing the executive decree “unlawful.”

The Hong Kong conglomerate said it would continue to consult legal advisors regarding the ruling and takeover.

CNBC reached out to Maersk and MSC for comment but did not receive a response by publication.

The simmering dispute has become a geopolitical flashpoint between Washington and Beijing, with Panama caught in the crossfire.

After U.S. President Donald Trump alleged last year that China was “running the Panama Canal,” CK Hutchison negotiated a $23 billion deal with a BlackRock-led consortium to sell its non-Chinese port assets. Beijing swiftly intervened, describing the sale as  “kowtowing” to American pressure and stalling the transaction.

The Hong Kong conglomerate has pushed back since the ruling last month and initiated arbitration proceedings against Panama. On Feb. 12, CK Hutchison said that “any steps” that Maersk or its subsidiary takes to operate the ports without its agreement will likely “result in legal recourse.”

Beijing also warned that the Central American country will “pay a heavy price both politically and economically” unless it changes course.

The Panama court’s ruling was seen as a major victory for the U.S., given that the White House has made blocking China’s influence over the global trade artery one of its top priorities.

China has reportedly directed state firms to halt talks over new projects in Panama and urged shipping companies to consider rerouting cargo through other ports, Bloomberg reported last week.

— CNBC’s Emily Chan contributed to this story.