PetroChina plans to tap a red-hot market to raise US$6 billion in a Shanghai listing, sending its Hong Kong shares up 8% to a record and leapfrogging Royal Dutch/Shell in value.
The planned share sale, intended to bankroll overseas acquisitions and exploration, heralds a flood of listings this year that could restrain a mainland market that has quadrupled in the past year.
Shanghai's market closed more than 2% lower on Wednesday as wary investors cashed out.
PetroChina's Hong Kong-listed shares surged as much as 8% to a record high, boosting its market value by over US$21 billion to US$273 billion and ranking it the world's second-largest oil major, behind ExxonMobil.
The shares closed up 5.2% at HK$11.74.
"Theoretically, the huge number of new shares will be negative for the market. But the listing of large, quality firms will itself be a stabiliser," said Zheng Weigang, senior stock analyst with Shanghai Securities.
"So the listings are actually positive news. They will help slow the market's rise, but will not stop a long-term bull run supported by China's strong economy."
PetroChina said it will sell up to 4 billion shares -- with a value of HK$47 billion (US$6 billion) based on Wednesday's Hong Kong close -- and use the money to buy oil and gas, fund exploration, and build refineries and pipelines.
Chinese oil titans -- including top Asian oil refiner Sinopec and CNOOC -- are scouring the globe for resources to feed an economy that has grown at double digits for the past four years.
But the pace of that quest depends on whether crude oil prices remain at multi-year highs and inflate asset prices.
"For overseas acquisitions, the difficulty now is that due to their size, overseas assets of meaningful value relative to their current asset base are very expensive," said Bradley Way, a Beijing-based BNP Paribas analyst.
And they would "attract competition from large-scale international players."
Championing A Cause
Many of China's biggest listed companies now trade in Hong Kong, which is off-limits to most mainland investors. Beijing is now encouraging national corporate champions to list shares in Shanghai or Shenzhen, heeding investors' calls for access to the country's largest firms, boosting quality on mainland bourses, and, hopefully, deflating a potential bubble.
For their part, Chinese firms are more than willing to raise funds in a market where stocks trade at nearly double the price of their Hong Kong-listed counterparts.
The capitalisation of the Shanghai and Shenzhen markets has now reached nearly 19 trillion yuan (US$2.5 trillion) -- four times what it was a year ago. In comparison, Tokyo's main Nikkei 225 Index is worth around US$3.1 trillion.
Chinese companies raised a combined 107 billion yuan in Shanghai and Shenzhen in January-May alone, versus a record 165 billion yuan in the whole of last year.
Bankers think 2007 will be another high watermark as the likes of China Mobile hit up the Shanghai market. The world's top wireless provider plans to raise up to $10 billion.
Some global investment banks fear the mainland offerings will cut into the lucrative fees they charge for underwriting Chinese share sales in Hong Kong.
One senior investment banker in Hong Kong reckoned mainland share sales could raise $40-$50 billion this year. "At least half of that would have gone to Hong Kong," he lamented.
Last week, No.3 lender China Construction Bank and top shipper China COSCO Holdings unveiled plans to raise a combined US$7.7 billion in Shanghai.
"The slew of mega IPOs is designed to help cool the market, but the supply would be absorbed due to huge liquidity in the country," said Yan Zhenghua, chief strategist at China Asset Management Co.