PetroChina's Ascent, CNPC H.K.'s Ties
Oct. 16 (Bloomberg) -- PetroChina Co., which supplanted General Electric Co. as the world's second-largest company by market value yesterday, is almost a lock to take over the top ranking from Exxon Mobil Corp. next month.
The timing stems from Chairman Jiang Jiemin's comment yesterday that shares of PetroChina, the largest Chinese oil company, may start trading in Shanghai in November. The Beijing- based company is done with ``all procedures'' needed to sell the equivalent of $5 billion in stock on the mainland, Jiang said.
PetroChina was valued at $422.1 billion at yesterday's close and trailed Exxon Mobil, the biggest U.S. oil company, by $103.8 billion. The pending share sale may instantly erase this gap and then some.
The yuan-denominated A shares that PetroChina plans to sell presumably will cost more than its H shares, listed in Hong Kong and the U.S. since 2000, once they begin trading.
Seven other companies in the Hang Seng China Enterprises Index, an H-share benchmark, have debuted on the mainland this year. Their shares all change hands at higher prices in China, according to data compiled by Bloomberg.
Premiums range from 28 percent for Ping An Insurance (Group) Co. of China Ltd., China's second-biggest insurance company, to 257 percent for China Oilfield Services Ltd., the country's largest offshore-oil explorer.
Mainland investors pay these kinds of prices for two reasons: the number of A shares available for trading tends to be relatively small and they generally can't buy stock in Hong Kong because of government restrictions.
China National Stake
PetroChina plans to sell 4 billion shares in China. That amounts to less than a fifth of the 21.1 billion H shares now outstanding. And while China's currency regulator announced a pilot program in August that would allow individuals to buy H shares, the proposal is on hold after other agencies objected.
Once the A shares begin trading, they will replace the H shares as the basis for valuing stock owned by China National Petroleum Corp., PetroChina's state-controlled parent.
China National has 157.9 billion A shares, equivalent to an 88 percent stake before the sale. The stake was valued at $382.5 billion as of yesterday's close.
Build in a 28 percent premium to the H shares, matching Ping An's, and the figure would be $107.1 billion higher. Then add $12.8 billion for the new A shares at the potential premium and $51.1 billion for the H shares at yesterday's closing price.
PetroChina would wind up with $553.5 billion in market value, 5.2 percent higher than Exxon Mobil's $525.9 billion yesterday. A bigger premium would lead to a wider gap.
Investors may be anticipating this kind of run-up, as PetroChina's H shares gained 33 percent in the last five days. The surge followed disclosures that Warren Buffett's Berkshire Hathaway Inc., the company's largest outside investor, had sold most -- if not all -- of its stake.
Even so, the bottom will have to drop out of the company's shares, the mainland's stock markets or both to keep PetroChina from passing Exxon Mobil in market value.
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PetroChina and a sister company, CNPC Hong Kong Ltd., used to go their separate ways in Hong Kong's stock market. Now they are increasingly moving together.
The correlation between the two stocks has risen to 0.592 in the second half from 0.373 in the first, as measured by the coefficient of determination, or R2. The number can be between 0, indicating they are unrelated, and 1, showing they move in lockstep or in opposite directions consistently.
The second-half reading is the highest since PetroChina, more than 120 times bigger than the Hong Kong-based company by market value, went public in April 2000. For the last six months of 2003, the coefficient was essentially zero.
CNPC Hong Kong is an exploration and production company resulting from a so-called backdoor listing, by way of China National's takeover of Paragon Holdings Ltd. in 1993. The 12 percent jump in its shares yesterday was the biggest in 18 months -- and the fifth consecutive advance, matching PetroChina's winning streak. China National owns a 51 percent stake