PetroChina Suffers $800b in Market Value Loss

It’s going to take more than the biggest stock slump in world history to convince analysts that PetroChina Co. has finally hit bottom. Ten years after PetroChina peaked on its first day of trading in Shanghai, the state-owned energy producer has lost about $800 billion of market value—a sum large enough to buy every listed company in Italy, or circle the Earth 31 times with $100 bills.

In current dollar terms, it’s the world’s biggest-ever wipeout of shareholder wealth. And it may only get worse. If the average analyst estimate compiled by Bloomberg proves right, PetroChina’s Shanghai shares will sink 16% to an all-time low in the next 12 months, Bloomberg reported.

The stock has been pummeled by some of China’s biggest economic policy shifts of the past decade, including the government’s move away from a commodity-intensive development model and its attempts to clamp down on speculative manias of the sort that turned PetroChina into the world’s first trillion-dollar company in 2007.

Throw in oil’s 44% drop over the last 10 years and Chinese President Xi Jinping’s ambitious plans to promote electric vehicles, it’s easy to see why analysts are still bearish. It doesn’t help that PetroChina shares trade at 36 times estimated 12-month earnings, a 53% premium versus global peers.

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

Out of Company's Control

Of course, many of the factors behind PetroChina’s slump have been outside the company’s control. When it listed in Shanghai in 2007, bubbles in both oil and the Chinese equity market were primed to burst, while the global financial crisis was just around the corner. Measured against the 73% drop in China’s CSI 300 Energy Index over the past decade, PetroChina’s 82% retreat doesn’t look quite so bad.

And as Citigroup Inc. analyst Nelson Wang points out, most of PetroChina’s shares are owned by the Chinese government, so the hit to minority investors hasn’t been as big as the loss in total market value might suggest.

On Hong Kong’s exchange, where PetroChina first listed in April 2000, stockholders have enjoyed strong long-term gains. The company’s so-called H shares have returned about 735% since their debut, outpacing the city’s benchmark Hang Seng Index by more than 500 percentage points. (Dual listings are common among Chinese companies, which often sell stock to international investors in Hong Kong.)

The H shares, which account for less than 12% of PetroChina’s total shares outstanding and trade at a discount to their Shanghai counterparts, may rise 31% over the next year, according to the latest price target from Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC. PetroChina could return a “huge” amount of cash to shareholders if it decides to start spinning off pipeline assets, Yu said in an interview last week.

Debt Level Climbing

It used to be that when America sneezed, the world caught a cold. This time around, it’s the risk of debt-riddled China that poses a bigger threat.

The world’s second-largest economy is now trying to ward off the sniffles. While output is still growing at a pace that sees gross domestic product double every decade, the problem remains that much of that has been fueled by a massive buildup of credit.

Total borrowing climbed to about 260% of the economy’s size by the end of 2016, up from 162% in 2008, and will hit close to 320% by 2021 according to Bloomberg Intelligence estimates. Economy-wide debt levels are on track to rank among "the highest in the world," according to Tom Orlik, BI’s Chief Asia Economist.

That path may be what prompted outgoing People’s Bank of China Governor Zhou Xiaochuan to warn of the risk of a plunge in asset values following a debt binge, or a "Minsky Moment," earlier this month. Given that China is forecast by the International Monetary Fund to contribute more than a third of global growth this year, controlling China’s debt matters far beyond its borders.