Li Ka-shing’s Beijing Rift Threatens His Deal of a Lifetime

By the time word reached Beijing, it was too late to contain the damage.

CK Hutchison Holdings Ltd., Li Ka-shing’s flagship conglomerate, had just clinched a blockbuster deal to offload 43 ports — including two in Panama — that would remove the Hong Kong tycoon from the increasingly heated US-China feud over the Panama Canal.

While officials in the Hong Kong government and China’s Hong Kong and Macao Affairs Office were aware that the deal was in the works, the teams involved in negotiations didn’t think Beijing’s permission was necessary, according to people familiar with the matter. President Xi Jinping found out about the transaction — painted by Donald Trump as a US win over China — alongside the rest of the world.

Li’s strained relationship with Beijing is now threatening to derail the 96-year-old billionaire’s biggest-ever asset sale. China is putting pressure on the company to call it off and officials have instructed state-owned firms to hold off on new collaboration with the family. Panama is accusing CK Hutchison’s local unit of wrongdoings, which the company denies.

“On the surface, and through a Western business lens, the deal looked extremely shrewd,” said Steve Vickers, chief executive officer of political and corporate risk consultancy Steve Vickers and Associates in Hong Kong. “Politically, Li’s established contacts in Beijing may have misread the will of the leadership.”

This account of how Li and Beijing are navigating the drama-filled transaction is based on conversations with seven people familiar with the matter who asked not to be identified given the sensitivity of the situation.

In a response to questions from Bloomberg News, Hong Kong’s government disputed that it knew about the deal ahead of time, saying it found out from CK Hutchison’s public announcement.

The stakes are high not just for Li — whose company stands to bring home $19 billion from the deal — but also for BlackRock Inc. Chief Executive Officer Larry Fink, who pitched the idea directly to Trump. For the US president and Xi, the outcome will factor into an increasingly contentious US-China relationship that’s fueling economic and market turmoil around the world.

For two weeks, bankers working for CK Hutchison had been pulling all-nighters, unusually punishing for a team used to a more languid pace. Deadlines were so tight that parts of the deal documentation were copy-and-pasted wholesale from the company’s annual reports, and a preliminary agreement was — in a rare occurrence for transactions of this size — reached without conducting any due diligence.

And while Trump boasted of BlackRock’s role, it was Italian shipping magnate Gianluigi Aponte’s family business that would play a bigger role in the consortium.

After the announcement of the sale on March 5, CK Hutchison’s stock soared, and the accolades rolled in for Li. It looked like “Superman,” the billionaire’s local nickname, had done it again.

It took nine days for Beijing to make its view clear: by offloading the ports, CK Hutchison was “selling out all Chinese people,” and “China’s shipping and trade here will inevitably be subject to the US,” according to commentary from the pro-Beijing Ta Kung Pao newspaper that was posted by China’s top office on Hong Kong affairs on March 13.

The backlash was in part due to poor timing. The sale was announced at the start of China’s “Two Sessions,” a highly choreographed, key annual event where top leaders set economic goals and strategies.

CK Hutchison, the Commissioner’s Office of China’s Foreign Ministry in Hong Kong and the Hong Kong and Macao Affairs Office did not respond to requests for comment. The Aponte family’s MSC Mediterranean Shipping Co. declined to comment.

That Li and CK Hutchison haven’t already caved to China despite the relentless pressure isn’t surprising for those who’ve followed the tycoon’s career, but is remarkable nonetheless.

In recent years as Beijing has exerted more control over Hong Kong and the city’s tycoons have fallen in line to publicly show their fealty to Beijing, Li has shown notably less deference. During the 2019 protests that shook Hong Kong, for example, Li was blasted by state media for cryptically showing sympathy to young demonstrators in a poetic message.

It also has not gone unnoticed in Beijing that while other tycoons have been stepping up their investments in the Chinese economy, CK Hutchison was doing the opposite by buying up major assets in Western countries. When Li registered CK Hutchison in the Cayman Islands instead of Hong Kong in a 2015 group-wide restructuring, a state-linked think tank famously pronounced, “Don’t let Li Ka-shing run away.”

“Li’s family case is rare in Hong Kong as it has businesses with diverse sectors and geographical exposure to global opportunities,” said Gary Ng, senior economist at Natixis SA in Hong Kong.

When CK Infrastructure Holdings Ltd., Li’s infrastructure arm, went public in Hong Kong in 1996, all of the firm’s profit was generated from the city and mainland China. Today, these two regions contribute less than 7% together, according to JPMorgan Chase & Co. CK Hutchison relies on Hong Kong and the mainland for about 5% of its profits. CK Asset Holdings Ltd., the family’s property arm, makes more than half of its earnings abroad due to its ownership of UK pub chain Greene King and stakes in utilities.

Even when China’s economy was soaring in the late 2000s through the next decade, Li not only continued to cut exposure to the country, but profited handsomely doing so. The Li family sold at least $14.7 billion of assets in Hong Kong and mainland China between 2013 and 2017, according to data compiled by Bloomberg.

In 2017, Li sold a majority stake in a landmark Hong Kong skyscraper for HK$40 billion ($5 billion), a world record at the time. While some felt had Li mistimed it given Hong Kong’s booming market, in about a year, real estate prices started to plunge.

“Li Ka-shing has been the grandfather of smart deals over the years,” said Richard Harris, founder and CEO of Port Shelter Investment Management in Hong Kong. “He was the principal Hong Kong entrepreneur to start investing globally in ventures that turned out to be fantastic winners. But on a political side, Hong Kong companies are often conflicted between global issues and China issues.”

But the ports deal came as a surprise to many. Brokers who worked closely with Li’s group in the early days of its global expansion said they still remember they were once told by executives that ports would be the only assets that Li would never sell.

“Unlike other Hong Kong tycoons, Li Ka-shing doesn’t have emotional attachment to any asset,” said Vincent Lam, chief investment officer at Hong Kong-based VL Asset Management. “To him everything has a price, and you’d better not be at the receiving end of his deals.”

Beijing’s threats will carry consequences for the family. CK Hutchison has almost erased all of its stock gains since the announcement of the deal. Hong Kong and mainland China account for up to 65% of CK Asset’s net asset value, according to JPMorgan. Li’s elder son Victor now chairs both companies, with Li remaining senior adviser.

His second son Richard, who runs his own business group, is more exposed. FWD Group Holdings Ltd., the insurance unit of his Pacific Century Group, was said to be seeking a listing in Hong Kong. Its operation in the city counts mainland Chinese visitors as an important customer base, and the firm is exploring opportunities to expand into the mainland.

“The Chinese government has clearly indicated that it will impose substantial costs if the company moves forward without Beijing’s approval,” said Christopher Beddor, deputy China research director at Gavekal Dragonomics. “The overriding challenge is that the company will need to secure Beijing’s approval for whatever it does next. That fact is going to shape the entire menu of options.”

Those options may include a modified deal with CK Hutchison only selling the Panama ports to the consortium, or adding clauses in agreements to safeguard Chinese vessels’ rights in the ports that are to be sold to the consortium, JPMorgan said. The company could also sell some of the ports to other buyers such as Chinese state-owned companies after the 145-day period for exclusive talks with the consortium lapses, it added.

“The risk of claims and contract cancellations could boost uncertainty regarding the commercial value of the Panama assets, potentially prompting a reassessment of the sale valuation or a carve-out of the assets from the deal,” said Denise Wong, Bloomberg Intelligence analyst, referring to Panamanian authorities’ accusations against CK Hutchison.

Either way, Li would incur the wrath of a superpower. Pushing on with the deal would deepen Xi’s animosity against him, but pulling out would further stoke Trump’s frenzied rhetoric over China.

“CK Hutchison is damned if they do, and damned if they don’t,” said Vickers. “However, an elegant resolution would require levels of coordination and cooperation between the US and China that seems hard to achieve in the current, combative climate.”