Shares in PetroChina more than doubled in their market debut on Monday after it raised $9 billion in the world's biggest IPO this year, surging past analysts' expectations as crude prices neared $100.
China's top oil producer became the world's biggest listed company by market value at around $1 trillion, double the capitalization of the second biggest company, rival oil giant Exxon Mobil, at $488 billion.
Government-controlled PetroChina closed at 43.96 yuan in Shanghai, up 163 percent from its IPO price and far above analysts' forecasts of around 35 yuan, underlining investor confidence in China's red-hot economy and PetroChina's status as its biggest oil and gas producer.
But the massive demand for PetroChina shares was partly due to wild speculation that has gripped China's stock market during a bull run that began last year, analysts said. That could hurt the stock and the overall market later on.
The opening price is really too high as far as PetroChina's corporate fundamentals are concerned, said industry analyst Wang Jing at Orient Securities in Shanghai, adding that many investors were piling into the stock as a short-term trade rather than a long-term investment.
Analyst Dong Yong at Haitong Securities said surging global oil prices, which hit an all-time high above $96 a barrel in New York last week, were good news for PetroChina so far. Last week, Beijing hiked domestic fuel prices by up to 10 percent.
But in China, the oil sector is controlled by the state, and if Beijing chooses not to raise prices of oil products, high crude oil prices will actually become negative for PetroChina, which also has large refining operations, he said.
So investors have been too optimistic in pricing PetroChina at such a high level on its debut.
PetroChina executives, investment bankers and brokers cheered at the Shanghai Stock Exchange as the stock's opening price of 48.60 yuan flashed on an electronic screen.
In brokerage trading halls around Shanghai, some of the millions of small investors who have fuelled China's stock market bull run were gleeful.
I won the lottery, said a retiree in his early 60s who identified himself as Old Zhang, adding that he had sold most of his other stock holdings to invest in PetroChina's IPO.
Zhang said he sold half of his PetroChina holdings in the first few hours of trade on Monday to lock in profits, but was keeping the other half in case the stock rose further.
PetroChina raised 66.8 billion yuan ($9 billion) in Shanghai by selling 4 billion shares, or 2.18 percent of its expanded share capital, in the domestic Chinese market's biggest initial public offer.
Proceeds are being used for five domestic projects to develop oilfields and expand ethylene output, as well as to supplement working capital.
The offer drew $456 billion of subscriptions from retail and institutional investors, another Chinese record. Demand for that sum of money, greater than the gross domestic product of Belgium, caused the worst funding squeeze this decade in China's money market last month.
Its closing price valued PetroChina at 54 times analysts' forecasts for its 2007 earnings per share, far above the average of 18 times for oil firms globally, but still below an average of about 80 times for more than a dozen oil and gas stocks in the Shanghai and Shenzhen markets, according to Reuters Estimates.
PetroChina's turnover of $53 billion in the first half of this year lagged far behind Exxon's $179 billion and its net profit of $12 billion was below Exxon's $20 billion.
Local securities houses forecast a 20 percent rise in PetroChina's earnings for 2008, and 15 percent for 2009.
HONG KONG SHARES FALL
PetroChina's Hong Kong-listed shares plunged 8.2 percent to close at HK$18.00 on Monday, suggesting many international investors viewed the company as too pricey.
That left its Shanghai A shares at a 154 percent premium to the H shares, higher even than the 145 percent premium for the A shares of smaller Chinese rival Sinopec Corp.
PetroChina, plus Sinopec and CNOOC, account for over 90 percent of China's crude oil and natural gas output. PetroChina has 71 percent of the big three's oil reserves, and 66 percent of oil output.
PetroChina first floated shares in Hong Kong and New York in April 2000, when China still considered its domestic stock market an experiment.
Now that the market is booming -- structural reforms triggered a rally that boosted the main index fivefold since the start of last year -- authorities are encouraging China's top companies to list domestically.