November 05, 2007

Oversubscribed

PetroChina shares went public today in Shanghai to Chinese domestic investors who have been unable to buy the stock which trade in NYC and HK. The offering was so massively oversubscribed that at one point the company had a valuation of more than $1 trillion, double that of Exxon.

It was a record-setting day for PetroChina (PTR). With an $8.9 billion debut in Shanghai, the state-controlled oil-and-gas producer laid claim to raising the greatest amount of money of any new listing globally this year. By the end of the first day of Shanghai trading on Nov. 5, PetroChina's share price had more than doubled, to 59¢, up 163%.

The Beijing-based company first went public in New York and Hong Kong in 2000, but until the Shanghai debut its stock was largely off-limits to China's huge pool of retail investors, who can't legally trade shares outside the mainland. Now PetroChina is no longer out of reach. The euphoria that greeted the Chinese debut left the company with a market capitalization of $1 trillion, leaving second-ranked Exxon Mobil (XOM), valued at a mere $488 billion at the Nov. 2 close, in its dust.

However, on a normalized EPS multiple (13 for Exxon which has almost double the profit of PC which trades at a 55 multiple), the company is still substantially smaller than Exxon and the major global oil companies. In other words, the market cap is more a function of investor demand than corporate performance.

But looking at PetroChina by market cap alone grossly overstates its relative size and importance in the global oil industry. The company's displacement of ExxonMobil is a reflection of just how overheated China's stock markets have become. PetroChina may have a market cap more than twice the size of ExxonMobil, for instance, but when measured in profits the Chinese company is still a pip-squeak compared to the U.S. giant: PetroChina saw earnings rise a mere 1.4% to $10.9 billion in the first half of this year, compared with Exxon Mobil's $19.54 billion.

Regardless of the mechanics behind the valuation, on paper this is the first company in the world capitalized at more than $1 trillion. Pretty impressive for an economy that 30 years ago was widely viewed as just another third world basket case.

Posted by mcblogger at November 5, 2007 01:18 PM

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