Hong Kong conglomerate CK Hutchison said on Tuesday Panama authorities had threatened its employees with criminal prosecution if they defied orders to leave two strategic canal ports at the centre of a legal battle that has embroiled Beijing and Washington.
CK Hutchison said Panama's decision to cancel key port contracts and grant temporary licences to Maersk and the Mediterranean Shipping (MSC) was “unlawful” as it considers national and international legal action against the country.
Panama on Monday published in its official gazette a Supreme Court ruling cancelling key port contracts held by a subsidiary of CK Hutchison, known as Panama Ports Company (PPC).
The publication finalises the legal annulment of concessions for the Balboa and Cristobal terminals near the Panama Canal, which Panama Ports Company, a subsidiary of CK Hutchison, had operated for nearly three decades.
The ruling, issued in late January, came amid growing US-China rivalry over global trade routes and marks a win for Washington. US President Donald Trump has pushed to curb Chinese influence over the Panama Canal, which carries about five per cent of global maritime trade.
CK Hutchison said Panamanian authorities made "direct physical entrance" to the Balboa and Cristobal ports on Monday to remove PPC employees who were threatened with criminal prosecution if they defied orders. CK Hutchison said PPC staff were told not to make contact with the company.
"CKH considers the ruling, the executive decree, the purported termination of PPC’s concession, and the takeover of the terminals to be unlawful," CK Hutchison said in a statement to the Hong Kong Stock Exchange. "The actions by the Panama State also raise serious risks to the operations, health and safety at the Balboa and Cristobal terminals."
CK Hutchison said it was liaising with its legal counsel on pursuing national and international legal action against Panama and third parties. Hong Kong's government expressed strong dissatisfaction and opposition to Panama's takeover in a separate statement on Tuesday, urging Panama authorities to respect the spirit of contracts and provide a fair and just business environment.
The company's Hong Kong-listed shares were down 1.9 per cent on Tuesday as Hong Kong's broader Hang Seng Index was also off 1.9 per cent.
The Hong Kong conglomerate said on February 12 it had notified Panama of an investment-protection treaty dispute that it would pursue after Maersk signalled its interest in running the ports. It said that such a takeover would result in legal recourse against APM Terminals Panama, a Maersk subsidiary, unless it is done in agreement with the firm.
The Panama Maritime Authority (AMP) has taken possession of both ports by decree to ensure uninterrupted operations, said Alberto Aleman Zubieta, head of the technical team overseeing the transition, after the ruling became final upon publication.
The government said it approved two temporary concession contracts with AMP, lasting up to 18 months, for the operation of the Balboa and Cristobal terminals.
APM Terminals Panama will operate the Balboa port, while TIL Panama, part of MSC, will run operations at Cristobal. APM Terminals confirmed on Tuesday that it has begun temporary operations at the Balboa port for up to 18 months.
The move could disrupt CK Hutchison's proposed $23 billion sale of dozens of ports worldwide, including the Panamanian terminals, to a consortium led by BlackRock and MSC.
Panamanian President Jose Raul Mulino said the temporary contracts had been issued as, "a legitimate tool that respects asset ownership."
"Let me be clear, this does not imply an expropriation of those assets, but rather their use to ensure the operation of the ports until their real value is determined for the corresponding actions. I repeat, this is not an expropriation,” Mulino said in a televised address on Monday afternoon.
Early in February, Mulino had said the government would move forward to formalise an agreement with APM Terminals Panama to manage and control the ports once the ruling became legally binding.
Mulino said the arrangement would remain in place while the state develops a new "competitive" concession framework to be awarded in the future, "with the humility not to repeat the mistakes of the past."
He said neither port operations nor employment will be affected throughout the process. The Panama president’s office did not immediately respond to request outside office hours for comment on CK Hutchison's statement.
Maersk and MSC did not immediately have a comment on the matter.
(Reporting by Elida Moreno and Clare Jim; Writing by Natalia Siniawski and Scott Murdoch; Editing by Aida Pelaez-Fernandez, Sarah Morland, Chris Reese and Lincoln Feast.)