Thursday, September 01, 2005

PetroChina Sells Big Block of Shares

Firm Raises $2.47 Billion In Offering to Institutions; A Bankroll for Acquisitions?


PetroChina Co., the listed arm of China's largest oil-and-gas producer, sold US$2.47 billion in shares, capitalizing on investor demand for oil-related stocks.

The placement of shares with institutional investors, which could reach $2.7 billion if an overallotment option is exercised, was Asia's largest single-day follow-on offering, not including Japan, according to data provider Dealogic. The sale came a week after PetroChina's parent, China National Petroleum Corp., offered to buy PetroKazakhstan Inc. for US$4.18 billion.

PetroChina confirmed it would place the 3.16 billion H shares, which are traded in Hong Kong, but gave no further details. A person familiar with the deal said the shares were sold yesterday at HK$6 (77 U.S. cents), a 4.8% discount to Tuesday's closing price of HK$6.30. Hong Kong trading was suspended yesterday.

The deal was arranged by Goldman Sachs Group Inc. and sold globally. Citigroup Inc. and Deutsche Bank AG were joint bookrunners.

The company had set a price range for the placement at HK$5.85 to HK$6 a share, according to a term sheet reviewed by Dow Jones Newswires.

Of the shares being placed, 91%, or 2.88 billion, are new shares, while the rest will be from PetroChina's parent company. U.S. investor Warren Buffett's Berkshire Hathaway Inc., which owns 1.34% of PetroChina, isn't among the sellers, according to the term sheet.

Traders said there was strong demand for the placement. "This is not surprising, given that they are selling an oil stock at a discount when crude prices are at record highs," said Andre Clarke, a sales trader with SG Securities.

The placement had been rumored since PetroChina shares closed at a record HK$7.35 on Aug. 2, up 77% since the beginning of the year, swept up by soaring oil prices.

"It's a good time to tap the market. It will strengthen their balance sheet to prepare for future acquisitions," said DBS analyst Gideon Lo.

Chinese oil companies are looking abroad for reserves as the country's energy production lags behind surging consumption growth. Of the country's three major oil companies, PetroChina's parent, CNPC, is the largest, the most aggressive in its overseas strategy and the one most closely aligned with the wishes of policy makers in Beijing, according to industry analysts.

The companies face an uphill battle securing new petroleum reserves, which are critical to determining an oil company's clout, analysts say. The vast reserves of the Persian Gulf states, some two-thirds of the world's total, are mostly off-limits to foreign companies. International oil giants jealously guard choice assets elsewhere, and as the successful effort by the U.S. Congress to block China's Cnooc Ltd. from buying American oil company Unocal Corp. recently showed, even nations that generally support free trade are loath to let oil assets fall into foreign hands. Russian politics have thwarted CNPC in several attempts during the past few years to buy into Russian energy fields.

"If, as I believe, oil prices continue rising, then the overwhelming demand for PetroChina shares isn't surprising," said Kim Eng Securities analyst Eva Chu. She said that if oil prices stay high, she would be "comfortable" with a share price of HK$7 for the shares.

PetroChina said in June that it was considering more than 10 foreign acquisitions, some of which should be completed this year.


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