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Chinese firm tops $1 trillion

It's a world milestone as PetroChina shares begin trading in Shanghai.

November 06, 2007|Dawn C. Chmielewski | Times Staff Writer

SHANGHAI — PetroChina Co. became the world's first company valued at more than a trillion dollars Monday, catapulting over U.S. energy titan Exxon Mobil Corp. as eager Chinese got their first shot at investing in the oil giant when its stock began trading on the Shanghai exchange.

Shares of PetroChina nearly tripled as investors scrambled to get in on the offering. The stock opened at the equivalent of $2.24 and traded as high as $6.52 before closing at $5.90.

That price, plus the value of shares traded on the New York and Hong Kong exchanges and those held by the company's government-controlled parent, gave PetroChina a total market value of $1.1 trillion -- more than double Exxon Mobil, at $486 billion.

But most of PetroChina's stock remains in the hands of state-owned China National Petroleum Corp., and analysts cautioned that Monday's $1.1-trillion valuation isn't directly comparable to the market values of Western companies that are owned entirely by private investors.

Still, the stock sale by China's largest energy producer was a milestone in the dramatic rise of the nation's companies and markets -- and a powerful sign of the hunger of mainland Chinese to invest their new-found wealth.

"The problem with the Chinese stock market is a shortage of supply. It's a major issue," said Andy Xie, an independent economist in Shanghai, who noted that the Chinese government retained ownership of major assets such as land and natural resources.

"With household income rising at double-digit rates, there's only so much you can put into bank deposits."

Monday's IPO raised $8.9 billion, making it the largest ever for China's mainland market. There have been several multibillion-dollar offerings this year, including China Shenhua Energy and China Construction Bank.

Today, China's leading e-commerce site, alibaba.com, is expected to raise $1.5 billion when it debuts on the Hong Kong exchange. It is the first major Asian technology company to snub the U.S. Nasdaq market for its primary stock offering.

Many prominent American financial gurus have warned that China's stock market is a bubble that will end badly. The Shanghai market is up more than 100% this year, and major companies have outsized valuations compared with their American counterparts.

Former Federal Reserve Chairman Alan Greenspan expressed concern last spring about runaway Chinese share prices and warned of a "dramatic correction."

PetroChina has been traded on the Hong Kong Stock Exchange and on the New York Stock Exchange since 2000.

But the Shanghai offering opened the company to direct investment by mainland Chinese, who have been prevented by the government from plowing any of their $2.2 trillion in savings into Hong Kong stocks.

The government in late August said it would begin allowing mainland Chinese to invest in Hong Kong stocks.

But Premier Wen Jiabao suggested Saturday that the government might delay that move. That news helped send the Hong Kong market's main index down 5% on Monday -- and may have helped stoke demand for PetroChina's offering.

The shares were far oversubscribed: Investors reportedly applied for $443 billion of stock -- almost 50 times the amount the company sold.

Analyst Tai Hong of the Bohai Investment Research Institute said the investor frenzy helped drive the stock well beyond what he considered a reasonable range of $4.69 to $5.37 a share. The stock was off about 7% in midday trading today to about $5.53.

Although the market's exuberance sent PetroChina surging past Exxon in stock valuation, by other measures the U.S. firm remains much bigger. For example, Exxon's third-quarter profit was $9.41 billion; PetroChina's profit for the first half of the year was $10.8 billion.

Exxon is the largest Western company by market value. Second is General Electric Co., at $406 billion.

PetroChina was trading at about 60 times analysts' forecasts for this year's earnings per share. That is far above the price-to-earnings multiples on most major global energy companies. Exxon shares, for example, trade at about 12 times this year's estimated earnings per share.

Although Chinese investors clamored for the stock, the company's U.S.-traded shares plunged Monday, falling $32.96, or 13%, to $222.10. Brokerage Bear Stearns & Co. advised clients to sell the stock, saying it was too expensive relative to earnings.

Billionaire investor Warren Buffett, chairman of Berkshire Hathaway Inc., sold his entire stake in PetroChina in mid-October. He has urged investors to be cautious about Chinese stocks.

Tim Condon, head of Asia financial markets research for ING in Singapore, said the government was concerned about a possible investing bubble.

"The authorities want to avoid this becoming a bubble and having to deal with the fallout of a bursting bubble," Condon said.

"So they're injecting good assets -- like PetroChina -- into the equity market."

PetroChina and its parent have come under intense scrutiny in the West lately because of the conflict in the Darfur region of Sudan.

The parent firm drills for and exports much of Sudan's oil, providing funds for the Sudanese government and its military, which the U.S. government alleges has engaged in genocide.

More than 200,000 people have died and millions have been displaced in the Darfur conflict, which pits rebels against militias known as janjaweed, backed by the government. Buffett and other high-profile investors have been pressed by activists to divest themselves of PetroChina shares.

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dawn.chmielewski @latimes.com

Times staff writer Tom Petruno in Los Angeles contributed to this report.

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