BP sells out of PetroChina

The global oil firm makes a 189% return from its three-and-a-half year investment in the Chinese oil major.

BP yesterday sold its 3.516 billion shares in PetroChina at a price of HK$3.70 raising some HK$13 billion ($1.7 billion). The stake - 2% of PetroChina's outstanding share capital and 20% of its free float - was acquired for HK$1.28 in the Chinese company's April 2000 IPO.

BP has therefore made HK$8.5 billion from its investment. Goldman Sachs was sole bookrunner on the deal. Fees were not disclosed.

The sale was priced at an 8% discount to yesterday's (Monday) closing price of HK$4.025, at the tight end of an indicative range of an 8% to 11% discount. According to sources close to the sale, the book was covered in 40 minutes and finally closed nearly four times oversubscribed.

The book for Asian and European clients closed at 8pm Hong Kong time and the US book closed at 9pm. Some 60% of the deal went to Asian accounts with the remainder equally split between European and US accounts.

The sale amounts to roughly 34 times the average daily trading volume of PetroChina stock. Sources at BP stressed last night that the sale was not due to any misgivings about the Chinese oil industry nor specifically about PetroChina.

Rather the stake was considered non-strategic and was always going to be sold. "BP does not usually make these types of direct equity investments in partner companies, it is not generally part of our strategy" says Steve Lawrence, a spokesman for BP in Hong Kong.

"Four years ago BP did feel that it was appropriate to support the IPO and support China generally and PetroChina specifically. In those four years PetroChina has delivered a strong performance and so we felt the time was now right to sell."

Nervertheless the decision to sell comes at a time when analysts are looking into BP's strategy in the region. Just last week it was announced that the company was looking to offload its retail businesses in Malaysia and Singapore as well as sell a refinery in Singapore.

According to analysts who cover the stock, BP has been shifting its focus of attention east from Asia in recent years, more into Russia and Africa. One project the firm is fully committed to in Asia is the massive Tangguh LNG development in Indonesia. That project is still seeking offtake partners without which it cannot raise full project finance to complete the development.

Lawrence at BP denies that the sales of the PetroChina stake and the service stations in Asean are in any way linked and are not a sign that Tangguh needs more equity finance. "And this definitely does not imply any diminished level of interest on behalf of BP in China."

He points out that the firm is looking to invest $3 billion in China alone over the next five years. However the stake sale comes one trading day after a similar move saw Standard Chartered Bank sell its 0.4% in Bank of China (Hong Kong).

That deal was the first time one of the strategic corporate investors that feature heavily in the mammoth privatizations of Chinese companies had sold out of its stake. That successful exit might well have been the catalyst that BP was looking for with its own stake sale.

Sources reveal that BP had been looking at doing this trade for a number of months. If so it would undoubtedly have seen the volatility in PetroChina's stock price in recent weeks. The stock passed HK$4 on December 29 and hit it all time high last Monday of HK$4.85.

A sharp sell off in recent days has led some to suspect that news of the deal was leaked. However research reports by both HSBC and Morgan Stanley in recent days urging investors to take profits and sell the stock probably helped contribute to the fall.

One banker close to the deal said that an analysis of the short selling patterns reveals no discernible increase in activity in recent days. With two strategic stake sales in as many days, investors could see some pressure on other China plays that have major corporate shareholders as they look to monetize their stakes at the top of the recent rally in China stocks.

If so, it will give IPO strategists pause for thought as they start pitching for a role in the forthcoming China bank IPOs in which strategic stake sales to foreign banks are being offered. The Chinese banks might decide that having that overhang might cause undue selling pressure somewhere down the line and forego the option to place shares with those strategic buyers.

For those banks and companies looking to get in on the IPO, the returns that BP has made will make them very attractive deals to be involved in.

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