BlackRock (BLK) CEO Larry Fink orchestrated the Panama Canal port takeover that made President Trump happy, but the cost may be an angry Xi Jinping.
The Wall Street Journal reported this week that the Chinese leader is not happy with a $22.8 billion deal giving a BlackRock-led investment coalition control of two key ports on either end of the vital shipping lane currently owned by Hong Kong conglomerate CK Hutchison.
CK Hutchison, which is controlled by the family of 96-year-old Hong Kong billionaire Li Ka-shing, didn’t seek preapproval from Chinese government leadership, according to the Wall Street Journal.
What’s more, Chinese leaders hoped to use the ports as a bargaining chip with the Trump administration as part of larger talks between the two countries, the Wall Street Journal reported.
Chinese Vice Premier He Lifeng, right, meets with BlackRock CEO Larry Fink in Beijing on Dec. 5. (Yin Bogu/Xinhua via Getty Images) ·Xinhua News Agency via Getty Images
Other signs of displeasure emerged in articles and commentary published in pro-Beijing newspaper Ta Kung Pao, arguing that Chinese ships would now face restrictions in the canal and accusing CK Hutchison of “prioritizing profit over everything, disregarding national interests and national righteousness.”
The deal deserves “serious attention,” Hong Kong’s leader, John Lee, added earlier this week, without directly criticizing CK Hutchison.
The rumblings from Beijing add a new layer of complications to what appeared to be a big win for BlackRock’s Fink, who himself reached out to the White House after Trump alleged Chinese interference in the canal and said he wanted to “take it back.”
Fink argued to the White House that there would be no need to forcibly take the ports if BlackRock were to arrange a purchase on its own.
Trump referenced the deal during his address to Congress earlier this month while still reiterating that “my administration will be reclaiming the Panama Canal” and “taking it back.”
It’s not immediately clear what steps Hong Kong or Beijing could take to block the transaction, which isn’t yet final and still requires consent from various regulators. The companies hope to sign a definitive agreement by April 2.
President Trump, right, talks with China’s President Xi Jinping during a welcome ceremony at the Great Hall of the People in Beijing in 2017. (AP Photo/Andy Wong, File) ·ASSOCIATED PRESS
BlackRock’s stock price would likely “see a little hit” if the pact falls through, according to CFRA analyst Cathy Seifert, but the bigger threat would be to the credibility of BlackRock’s newly bolstered infrastructure group.
Last year, BlackRock paid $12 billion to buy private equity firm Global Infrastructure Partners — a major investor in energy, transportation, and infrastructure projects — and GIP was part of the consortium that agreed to buy the ports at either end of the Panama Canal.
“There may be some pressure for this group to spin out or announce another deal to sort of regain some marketplace credibility,” Seifert added.
The deal negotiated by BlackRock and GIP involves much more than just the Panama ports — it includes a total of 43 ports in 23 countries.
“My kids called me and said, ‘BlackRock bought the Panama Canal? Can we go on it?’ And I said, ‘We did not buy the Panama Canal.'”
He also said the “far left” and “far right” didn’t mention that there were many other ports in the deal, including six along the Suez Canal. “They mentioned we bought two” — the ones along the Panama Canal.
Those two ports, he said, represent 4% of the total value of the transaction.
He noted that ports do offer a great business for BlackRock, which will now have 100 in its portfolio if this deal goes through. They can produce returns of 15% to 16%, he said.
“Even with tariffs and other things, it means the ports will be quite active,” he said.
Read more: The latest news and updates on Trump’s tariffs
This is not the first time CK Hutchison or Li Ka-shing, nicknamed “Superman” for his business prowess in Hong Kong, have faced criticism from Beijing.
When Li served at the conglomerate’s helm in 2015, CK Hutchison faced backlash for diversifying its business to European assets. That’s where the bulk of its revenue now currently comes from, according to Nikkei.
Hong Kong tycoon Li Ka-shing in 2018. (AP Photo/Kin Cheung, File) ·ASSOCIATED PRESS
In an earnings statement on Thursday, CK Hutchison did not mention the ports deal but said that “geopolitical and trade tensions have … risen significantly.”
Victor Li, chair of CK Hutchison and son of Li Ka-shing, said in a statement Thursday accompanying the earnings release that the environment for CK Hutchison’s businesses could be “both volatile and unpredictable” this year.
David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.
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