PetroChina stake sale restrictions lifting ... again

Get ready for a jittery PetroChina share price. From Friday, strategic investors'' stake sale restrictions are no more.

 PetroChinashareholders should prepare for share price jitters. From Friday, the Hong Kong companies that acquired strategic stakes in PetroChina during its initial public offering (IPO) in April will be free to sell all of the 2.13 billion shares they hold in China's biggest oil company. The strategic investors in question are the listed arms of Hong Kong's top tycoons and are more typically involved in property, telecoms and infrastructure.

Thankfully for the strategic investors involved - Cheung Kong, Hutchison Whampoa, Sun Hung Kai Properties and Chow Tai Fook (controller of New World Development) - what started out as a piece of high level guanxi has turned into a rather big buck, thanks largely to high oil prices. Having launched at HK$1.28 a share, PetroChina last traded at HK$1.75, which, if achievable in a sale, would give the companies involved a 37% return on their money in addition to the invaluable 'connections' they picked up, or improved, in the process.

Whether or not these companies decide to get out remains to be seen. Since mid-August there has been a partial relaxation of the lock-up period for their stakes, which in effect, allowed each company to sell as much as 30% of its holding. However, thus far this has not been used, possibly for fear of signaling too early their plans for the remaining 70%.

It seems likely, however, that these strategic investors will now look to exit PetroChina. Certainly, there is little reason to hang on from a fundamentals perspective.

Oil prices are widely expected to trend lower in 2001, albeit not drastically. BNP Paribas Peregrine says it expects the price of crude oil to remain at around $30 a barrel through to end-2000 and average $25 in 2001. If this happens, earnings will certainly be moving lower next year. In addition, PetroChina has barred itself from selling new shares before March 2001, after which the Chinese government could be reducing its stake to as low as 45% from 90% over the next five years. This being the case, the Hong Kong companies would do well to exit PetroChina while there is still a relatively limited supply of shares.

Petrochina price chart

Oil price chart

One company that may hang on, however, is Hutchison Whampoa, which has other interests in the energy sector and has invested alongside PetroChina in an online oil trading venture.

Of the 17.6 billion shares in public hands, 4.6% are held by Hutchison, 2.3% by Cheung Kong, 3.5% by Sun Hung Kai Properties and 1.7% by Chow Tai Fook.

Around 20% of the free float is held by strategic investor-proper, BP Amoco of the UK, and this is locked up until March 2001.