Asia’s top oil and gas producer PetroChina became the world’s largest company by market value Monday, overtaking US giant ExxonMobil as its shares surged on their debut in mainland China.
The milestone underlined the ongoing boom on Chinese markets, which have been flooded with ready cash brought by hungry investors who have disregarded warnings that the China bubble is destined to burst eventually. PetroChina already traded in Hong Kong and New York, but its new shares made their debut Monday on the Shanghai bourse after the largest initial public offering ever on the Chinese mainland.
The shares, priced at 16.70 yuan for the IPO, were trading at 48.62 yuan ($6.50) shortly after opening, an increase of 191% that put the value of the company far past the $487-billion capitalization of ExxonMobil. In terms of earnings, however, PetroChina does not even make it into the top 50 companies of the world, raising a red flag both about the valuation of the firm and the overall sustainability of the Chinese stock boom. The Chinese bourse surged 130% last year and is up around 110% so far this year.
Many companies are trading up to 60 times earnings, much higher than many shares on other international bourses. New stock issues on China’s bourses have a long tradition of posting high gains on their debut but the gains are often speculative rather than a reflection of the firm’s intrinsic worth. Zhu Zhiyong, analyst with Golden Sun Securities based in Shanghai, said investors had chased the price too high. „I think it’s a bit risky for individual investors to buy in at the moment because we don’t see much growing space,” Zhu said.
By midday, the price had slipped back to 43.65 yuan - still up 161%. Wu Feng, an analyst at TX Investment Consulting Co, said a more „reasonable” valuation for PetroChina shares was around 35 yuan. „Its opening price exceeded our estimates,” he said. Despite the massive surge in PetroChina shares on Monday, the Chinese state will maintain a firm hand in the company, controlling an 86% stake. Regulators have encouraged strong Chinese firms to list on home markets in hopes that they can improve the quality of listed companies and deflate prices, looking to cool stock prices this year.
„Through these listings, the intention of the government to try to control the market is quite clear,” Guo Feng, an analyst with Northeast Securities based in Shanghai, said ahead of Monday’s opening. The IPO of PetroChina, which raised nearly $9 billion in its sale of four billion shares, is the world’s biggest this year and the largest in mainland China’s history. It eclipsed the record of China’s top coal company, Shenhua Energy, which raised 66.58 billion yuan last month, while overtaking China Construction Bank’s $7.7-billion listing in September. Chinese companies are responsible for six of 10 of the world’s largest IPOs this year, generating nearly $40 billion. (channelnewsasia)