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The Oil Company That Lost $800 Billion In Shareholder Value

Tsvetana Paraskova

China’s biggest oil and gas producer PetroChina debuted on the Shanghai stock exchange in November 2007, becoming the first $1-trillion company in the world.  

Ten years later, almost to the date, PetroChina’s Shanghai-listed shares have dropped by a staggering 82 percent since the IPO, wiping out shareholder value of $800 billion, Bloomberg calculated. That’s more than the current market capitalization of Microsoft, or the value of the entire Italian stock market, or the combined net worth of the world’s 12 richest people, or Switzerland’s GDP—take your pick.

Since the end of 2007, several factors—domestic and international—have combined to contribute to the biggest individual stock slump in history. And if that isn’t enough, analysts think that PetroChina’s rout on the Shanghai stock exchange is not at the bottom yet.

On PetroChina’s first day of trading on the Shanghai Stock Exchange on November 5, 2007, its share price almost tripled its IPO price and took its market value beyond the US$1-trillion mark, the first time a company had been valued at more than US$1 trillion.

But back then, cracks in the financial system had already started to emerge; the subprime mortgages market collapsed a few months later, Lehman Brothers filed for bankruptcy in September 2008, and the global financial crisis was in full swing.

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The markets hardly had time to recover before the oil price crash of 2014 hit, which has since wiped out a lot of profits and market capitalizations of all oil and gas companies around the world.

Apart from those international market events, PetroChina’s Shanghai-listed shares also suffered from the 2015 Chinese market collapse, when excessive speculation in stocks led to an unsustainable bubble, which the government then suppressed with extraordinary measures and intervention on the stock market. This also wiped out some of the market value of the Shanghai shares of China’s biggest oil producer (PetroChina is also listed in Hong Kong and New York).

More recently, Chinese policies to boost electric vehicle (EV) use, turn to cleaner energy use, and prevent another stock market bubble from swelling by clamping down on speculative trades have further hurt PetroChina’s shares and made analysts even more bearish on the stock’s Shanghai market performance.

In addition, PetroChina’s stock is expensive in terms of forward price-to-earnings ratio—it trades at a much higher P/E ratio than its peers around the world.

“Why would anyone want to buy the stock when it’s trading for more than 30 times earnings?” Toshihiko Takamoto, a Singapore-based money manager at Asset Management One, which oversees about $800 million in Asia, told Bloomberg.

PetroChina trades at a forward P/E ratio of 32, compared to Chevron’s 25, Exxon’s 22, BP’s 18, or Sinopec’s 13, for example.

Analysts are also surprisingly pessimistic about the forward 12-month performance of PetroChina’s Shanghai shares, expecting a 16-percent downside, while they are typically bullish on large caps. To compare, analysts expect shares in the blue-chip CSI 300 Index to rise by some 10 percent one year from now, according to Bloomberg.

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Not everything is bleak for PetroChina’s shares—the ones traded in Hong Kong have better prospects. The latest price target by Hong Kong-based analyst at Jefferies, Laban Yu, suggests that the stock may gain 31 percent in the next 12 months.

Moreover, the Chinese government, via China National Petroleum Corporation (CNPC), holds the controlling stake in PetroChina and some 12 percent of its shares are listed, which means that the actual impact on minority shareholders may not be as big as the market value loss would suggest.     

Nevertheless, the Chinese policy to curb speculative trading and its aggressive push into EVs adoption don’t bode well for PetroChina’s chances to offset most of the market value loss that its Shanghai stock has sustained over the past decade.  

By Tsvetana Paraskova for Oilprice.com

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