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Hutchison deal gives PSA first option

Sale of 20pc of HPH to Singapore firm last month includes right of first refusal on future divestments

The investment arm of Singapore's PSA Corp bought the right of first refusal on all Hutchison Whampoa's future port divestments as part of last month's US$4.38 billion mega deal, according to sources familiar with the contract.

The deal, which saw PSA International acquire a 20 per cent stake in Hutchison's global empire of 42 terminals from Dalian to Buenos Aries, mirrored valuations struck in February during the sell-off of Peninsular and Oriental Steam Navigation (P&O), driving up the prices of port stocks last week.

But while the two huge port deals were similarly priced - 33 and 34 times forward earnings - a senior Hutchison executive said there was more value to be had from their network, dismissing speculation that a further divestment of Hutchison Port Holdings (HPH) may be on the cards.

'There is no emotional attachment to those assets but there is also no immediate plan to sell any part of them,' the executive said. 'But once you have gone through the process the first time, the second time becomes easier.'

Senior PSA sources confirmed the acquisition of the first option this week. Officially, PSA declined to comment and Hutchison did not respond to inquiries.

Hutchison's divestment last month - and its unprecedented $24.38 billion one-off gain from the deal - prompted industry speculation that majority shareholder Li Ka-shing may be preparing to exit the ports sector with valuations at historic highs. Mr Li could pocket $122 billion if he sold HPH in its entirety at last month's valuation.

But the Hutchison executive said that while the P&O deal was used as a benchmark for the mega deal, he did not feel the assets should be viewed as of equal value.

He said investment in P&O's port network had been static for many years, while Hutchison had continued - and would continue - to invest in its terminals. 'Many tens of potential projects' were being assessed, he said.

Group earnings are expected to drop from 5 to 16 per cent over the next three financial years before including the exceptional gain from the disposal, according to a report from Morgan Stanley which advised Hutchison on the deal.

But Rob Hart, the head of the bank's regional conglomerates team, said the new partnership could also benefit Hutchison on an operational level.

'The competitive environment in Asia could improve with the better relationship between the world's two largest port companies, and this makes it less likely in our view the two will bid against each other for new ports,' Mr Hart said in the April 21 report. 'Strategically, Hutchison might be able to use PSA's global relationships to smooth over some of the security concerns it has had from governments in the US and India.'

Mr Li is perceived to be very close to the powers that be in Beijing and as a result HPH has been blocked from bidding for port projects in countries such as India on security grounds.