PetroChina Surges as Zhou Yongkang Probe Diminishes Graft Shadow
The company at the center of China’s anti-corruption offensive may be set to reward investors who stuck with it.
Shares in PetroChina Co. (857) surged the most in five months in Shanghai trading today, after a report in state media that China’s campaign against graft had claimed its highest-ranking target was interpreted by investors as welcome news for the country’s biggest oil and gas producer.
PetroChina, a unit of state-owned China National Petroleum Corp., has seen a raft of officials purged during the past year in the anti-graft campaign of President Xi Jinping. The biggest of them is Zhou Yongkang, the former chairman of CNPC.
The probes left investors in PetroChina looking at large opportunity costs. PetroChina’s Hong Kong-traded shares gained 14.1 percent in the past year, while its peer China Petroleum & Chemical Corp. (386), which avoided investigation, surged 34 percent.
Signs that the worst may be over for PetroChina emerged last night when China’s ruling Communist Party announced that former Politburo Standing Committee member Zhou, who hasn’t been seen in public since October, was under investigation, according to a Xinhua News Agency report.
“The announcement may potentially signal a milestone in ending the anti-graft investigation affecting the oil services sector, thereby removing an overhang and sending a positive boost to the sector,” Wu Fei, an energy analyst at Bocom International, said in an e-mailed research note today.
Fall From Grace
Zhou’s fall was preceded by at least six current and former CNPC chiefs who were placed under investigation between August and December. They included the former chairman of both CNPC and PetroChina, Jiang Jiemin, and two chairmen of PetroChina’s gas unit, Kunlun Energy Co.
The investigations will lead to better corporate governance and efficiency gains in the energy industry, said Gordon Kwan, head of oil and gas research at Nomura International Hong Kong Ltd. “If the government follows through with the right domestic fuel pricing policies, we believe PetroChina can deliver much better profitability.”
PetroChina’s stock rose as much as 4.5 percent, the biggest gain since Feb. 20, to 8.14 yuan, compared with a 0.1 percent drop in the benchmark Shanghai Composite Index. In Hong Kong, it rose as much as 0.4 percent.
PetroChina’s valuation will improve as the anti-graft campaign at oil companies seems to have achieved its goal with Zhou Yongkang’s probe, analysts Huang Lili and Zhang Xixi at Citic Securities Co. said in report today. Oil service and engineering industries will also benefit, they said.
Mao Zefeng, PetroChina’s Beijing-based spokesman, did not answer two calls to his office seeking comment.
Other potential benefits for PetroChina include proceeding with internal business plans put on hold by the corruption crackdown.
Kunlun Energy Co. (135), PetroChina’s natural gas business, had to put off purchase of assets after the graft investigation ensnared two of its chairmen in succession, according to people familiar with the situation.
Investors also favor plans by current PetroChina Chairman Zhou Jiping to the company’s capital expenditure by 7.1 percent to 297 billion yuan in 2014. He said he would keep investment at the level for the next couple of years in search of better returns.
The corruption investigation had a positive impact on shareholder value, as less spending and higher returns will make PetroChina a better performing company, Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC., said in an e-mailed note yesterday
While the worse may be over in China, the company’s operations overseas are still under scrutiny.
Executives at CNPC’s Canadian operations are being investigated, media including Beijing-based Caixin magazine and the Wall Street Journal have reported. The officials identified include Li Zhiming, who led CNPC’s Brion Energy Corp. unit, and Margaret Jia, CNPC’s chief representative in Canada, the reports said, citing unnamed people.
A person familiar with the matter confirmed to Bloomberg News that Zhiming and Jia are under government investigation, without giving details.
Neither executive has been charged with any crime, the Journal reported yesterday. Li couldn’t be reached for comment and Jia declined to comment, the newspaper said.
Attempts to contact Li and Jia via two calls outside normal business hours to PetroChina International (America) Inc., which oversees Canadian operations, were unsuccessful.
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