Crikey yesterday reported on the precarious nature of the Chinese stockmarket – led by the Shanghai composite exchange, which rocketed from 1,000 to 6,000 in little more than a year (before easing back to 5,200). The irrational exuberance of China however is best exhibited by the recent float of two percent of PetroChina on the Shanghai market. PetroChina remains majority (86 percent) owned by the Chinese Government’s China National Petroleum Corp. It does however, have other listings in Hong Kong, New York, and for the last few weeks, Shanghai.
After it listed in Shanghai on 5 November, PetroChina became the world’s first trillion dollar company (after its shares listed at a 163 percent premium). Unfortunately, the glory didn’t last too long. PetroChina closed yesterday in Shanghai at 36.82 Yuan per share – giving it a market capitalisation of around US$750 billion. (It should be noted though, the capitalisation of PetroChina based on its New York and Hong Kong listings is far less than based on the Shanghai listing).
While commentators continue to gasp over the potential size of BHP Tinto, if that merger is ever consummated, the Anglo-Australian company would be capped at around $400 billion (on today’s figures) – just over half the size PetroChina is valued in Shanghai.
PetroChina represents that face of China’s share bubble. US giant, and the world’s former number one company, Exxon Mobil, has a market capitalisation of around US$480 million – less than two-thirds the value of PetroChina. However, Exxon Mobil earned US$39.5 billion last year – by comparison, PetroChina earned US10.8 billion for the first half of 2007- around half of what Exxon earned. In fact, PetroChina earned less than the Royal Dutch Shell, which is capped at only US$262 billion — around a third of its the size.
As for reserves, Exxon has reserves of 22.7 billion barrels of oil and gas, compared with only 20.5 billion for PetroChina.
There seems to be no logical reason why a Chinese oil and gas company would trade at an approximate 70 percent a premium to a United States-based company which has greater reserves and a proud history of delivering industry-leading return-on-equity. However, in a boom, logic is an evil.
The best reason to suspect PetroChina is overpriced – Warren Buffett, recently sold his holding in the company. Buffett originally invested US$488 million for a one per cent stake in PetroChina in 2003. The sage of Omaha recently announced that Berkshire had offloaded its stake for a US$3.5 billion profit. And Buffett is not one to horse trade ownership positions – he has held an equity interest in the Washington Post since 1973. If the Oracle is selling, you don’t want to be holding.
It seems everyone except Chinese investors think that PetroChina is overpriced. However, it shouldn’t be too long until the bubble bursts.