HONG KONG -- A billion-dollar deal by China Merchants Port Holdings, a state-owned enterprise that has been a leading investor in overseas ports, to acquire half of a French-owned portfolio of shipping terminals has been stalled by authorities in India and Vietnam.
China Merchants -- perhaps best known for taking over the Sri Lankan port of Hambantota on a 99-year lease under the umbrella of Beijing's Belt and Road Initiative -- set up a joint venture in 2013 with French shipping company CMA CGM to share ownership, 49% to 51%, over a global portfolio of 15 terminals. Last December, the two reached a $955 million deal for their Terminal Link venture to take on an additional 10 port assets.
On Friday, China Merchants Vice President Lu Yongxin said the venture's acquisition of two of the 10 ports had been held up "because of the influence of the epidemic, as the examination and approval process of the local governments was delayed."
Both India and Vietnam have been at odds with Beijing in recent months. A Himalayan border clash in May resulted in the deaths of 20 Indian troops, setting off a flurry of measures by New Delhi to restrict the activity of Chinese companies as well as the revocation of procurement contracts and investment approvals. Hanoi has been at odds with Beijing over activities in the South China Sea, including a Chinese military drill this week in an area claimed by Vietnam as its territorial waters.
The acquisition of the other eight terminals, including 47.3% of Vietnam International Container Terminals in Ho Chi Minh City as well as assets in Singapore, Thailand, China, Iraq, Jamaica and Europe, closed on March 26. Under the agreement reached in December, remaining assets were to be transferred within three months, with the deadline extendable by another three months.
Speaking of the two remaining ports, Lu said at China Merchants' online results briefing: "We will work hard to complete the transaction before the year end."
One of the outstanding assets is a terminal at Mundra port in the western Indian state of Gujarat. The terminal is co-owned by India's Adani Group. It is also the overall operator of Mundra, which emerged as the country's busiest container port in the April-June quarter.
The other remaining asset is a 25% stake in Gemalink, a new terminal being developed at the Cai Mep-Thi Vai container port south of Ho Chi Minh City.
Asked whether geopolitical tensions were holding up the two terminal purchases, Lu said the company's fundamental investment policy relies on "commercial feasibility" and hence, "we believe we should not be receiving any influence from bilateral diplomatic frictions." He added that he expected existing tensions to last only for a "short period of time."
Asked more broadly about the impact of political tensions, China Merchants Managing Director Bai Jingtao said, "We have not yet encountered any special examinations and evaluations."
CMA CGA did not respond immediately to a request for comment. A spokesman for Adani referred questions to CMA CGA, saying: "This thing has nothing to do with us." Gemadept, the majority owner of Gemalink, and government officials in Vietnam and India could not be reached for comment.
The eight terminals already acquired have provided a silver-lining for China Merchants Port's dismal results for the first half of the year. The company reported revenue of 4.08 billion Hong Kong dollars ($526.4 million), a 9% drop from the year before, while net profit slid 76% to HK$1.55 billion. Last year's bottom line had been boosted by a one-time asset-sale gain.
Total container throughput for the company's ports increased 0.6% year-on-year, however, which the company linked to the Terminal Link purchase.
China Merchants Port is a Hong Kong-listed unit of China Merchants Group, one of the elite state-owned conglomerates directly controlled by Beijing. China Merchants, which boasts total assets of 9.1 trillion yuan ($1.33 trillion) as of the end of last year, is one of the few such companies headquartered in Hong Kong.
Additional reporting by Nikkei staff writer Kiran Sharma in New Delhi and contributing writer Jens Kastner in Hamburg, Germany.