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Monday, November 5, 2007

Petrochina's strange fuel

Hello top!

Petrochina’s strange fuel

Petrochina, following its la-la land listing in Shanghai, is now the WORLD’S LARGEST COMPANY. Cue hysterical headlines.

At just over $1,000bn, based on its first day close, Petrochina is more than twice the size of nearest rival Exxon, which weighs in at a puny $487m.

But beware the big numbers.

The mainland A-share float has a free float of about 2 per cent - and such a thin float makes market price a poor guide to intrinsic value. Add to that inbuilt squeeze the weight of institutional money trying to get into the mainland’s largest ever listing, and the tendency to price offerings in China at well below the price that local investors are willing to pay. A huge first day pop was a virtual certainty.

The IPO watchers weren’t disappointed - PetroChina closed at Rmb43.96, versus its list price of Rmb16.658.

That, according to Bloomberg, values China’s largest energy company on a forward p/e of 52.65 in China and on a multiple of 19.95 in near neighbour Hong Kong.

It rather depends which of those ratings you choose as to whether we have a new world leader, or if Exxon maintains its crown.

There’s a Lex note coming later Monday tackling the PetroChina offering, and one already published on the demise of the “through train” of money for Hong Kong’s stock market.


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