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The PetroChina A Share Float makes us think of Russia
at its oligarchic best
The real story behind the PetroChina A share issue in Shanghai this week is not, contrary
to almost unanimous press reports, that it is now the world’s highest capitalized
company and for a day was worth over $1 trillion. That is nonsense anyway. The value
is extrapolated from the market price of just 2 percent of the company’s shares.
The real story is the massive handout that Communist Party and corporate insiders
have given themselves and how so much of the Shanghai market is rigged to maximize returns
to a favored few.
Although the shares fell 9 percent on their second day of Shanghai trading, at RMB 40
per share they are still more than double their original offer price of RMB16.70.
The Chinese Communist Party has presided over a gift to PetroChina insiders that
could yield them a totaling (on the basis of the current share price) some Rmb25
billion. This is at the expense of the state at large and also of the millions of
frustrated citizens who were unable to get A-share allocations.
The Chinese government claims to want to soak up excess market
liquidity and give citizens a bigger stake in the national economy through share
ownership. In practice it limits the size of issues and under-prices them so that
those in the know clean up. The system is less obvious but only marginally less
abusive than the one which enabled a handful of oligarchs to acquire vast chunks
of the Russian economy through so-called privatizations.
The PetroChina arithmetic is very simple. The company has 179
billion shares in issue, of which 21 billion are H shares listed in Hong Kong since 2000. The remainder are A shares held on the
mainland and until this month they were all owned by the state owned China National
Petroleum Corp. The recent public issue was for 4 billion shares A shares. This
leaves 86 percent in the hands of CNPC, 11.5 percent with the foreign H share holders,
and a miserable 2.18 percent in the hands of the Chinese investing public. And of
those, 25 percent were handed out before the public allotments.
Given the tiny number of shares made available to the public
it was hardly surprising that, in a bull market, they would more than double when
trading opened. That indeed is what happened, repeating a pattern that has been
the norm with most A and H issues.
Those favored with the prior allotment have a lock-in period
during which they cannot sell their shares. However, that lasts for just three months
so there is every likelihood that they will be able to cash out with huge profits.
For the sake of argument one must assume that the remaining 3 million shares offered
to the actual public were fairly allotted. But the list of the favored would make
very interesting reading.
The artificially contrived shortage of shares for the mainland
public is ensured by CNPC’s undertaking not to release any more of its A shares
for at least 36 months. (It may however release more H shares).
CNPC’s motives in selling such a tiny number of shares during
a raging bull market are, to put it mildly, questionable. But don’t expect questions
from the local media, or indeed from foreign financial sector players who claim
to be keen to buy A shares one day. As it is, the state, via CNPC, is losing by
failing to take advantage of the high price by selling a small number at a huge
discount to prevailing A shares values. Local small investors will lose out by paying
a huge premium for the doubtful privilege of owning PetroChina. But this way the
insiders reap stupendous profits.
In almost any other market in the world, regulations would prohibit
the listing of a stock in which only 10 percent of shares are in public hands. But
in the PetroChina mainland listing the public float is a little over 2 percent.
But the western investment banks are the fellow travelers in this communist sleaze.
Nor is it surprising that nationalist sentiment is on the rise
in China when the local small
investors find themselves paying 25 times the price that foreigners paid (HK$1.49)
when the H shares were first listed in Hong Kong.
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Economics/Business 
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A new report by International Risk says it's a jungle out there
Rocket-rattling over a Taiwanese arms package isn't doing anybody any good
No block size requirements, no discrimination against purchasing property or owning businesses.
Go to Asia and you need to have one of their citizens own 51% or more and can't invest in certain companies unless your wealthy.