PetroChina, Not Really No. 1

By November 6, 2007Energy, Trade

Read today’s International Herald Tribune (IHT) article [New York Times story here] about the stunning debut of PetroChina on the Shanghai Exchange and it’s a certainty that China’s largest producer of oil and gas just took over Exxon as the world’s largest company by market capitalization.

But not so fast, says Andrew Batson in today’s Wall Street Journal [subscription story here]. A veteran journalist who has lived in China for 10 years and understands the country’s complexities as well as any journalist, Batson (who joined Gov Engler and the ACTPN delegation for breakfast on Tuesday in Beijing) points out:

The soaring valuations put on PetroChina and other Chinese-listed companies seem to say more about the problems and idiosyncrasies of China’s market than the performance of the companies themselves.

In fact, it is very difficult to determine the real value of Chinese government-controlled companies like PetroChina.

[These companies have] complicated corporate structures that keep most of their shares locked up in government hands, with the few that are publicly traded spread across different markets. The scarcity can drive up prices. And the problem is compounded by China’s capital controls, which can cause domestic prices to differ greatly from those on other markets.

Batson points out that only 2.2 percent of PetroChina’s shares were made available during yesterday’s IPO. Those shares nearly tripled in price, from 16.70 yuan to 43.96 yuan, or about US$5.90 each,

If you’re into fuzzy math, like the IHT and apply that price to all of PetroChina’s shares, the company would have a market capitalization of around $1.08 trillion, twice that of Exxon. But Batson (and the Journal) live in the real world, where we calculate the figures we have, not those PetroChina wants!

About 86 percent of PetroChina’s shares are held by its state-owned parent and don’t trade on any exchange, and it is hard to know what price they would fetch if all of them were actually to come to market…

Another way of valuing the company would be to apply prices only to what investors can actually buy and sell — the so-called free float. The total value of PetroChina’s publicly traded shares is about $72.5 billion. That’s still large, but nowhere close to Exxon Mobil.

Thank you for the clarification Mr. Batson, and reminding us the world’s largest company still hails from the good ol’ U.S.A.

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