Despite claims that economics and politics are separate and distinct in Hong Kong and China, the PetroChina IPO certainly would suggest otherwise. In the first week of April, PetroChina finally completed its beleaguered IPO, issuing 10 percent of its share capital. The shares fell immediately afterwards on the New York and Hong Kong stock exchanges, remarkable in an era when issue-day doubles are considered a disappointment. But perhaps even more remarkable is that the poor performance came despite a gaggle of blue-chip investment bankers, and the curious support of a group of Hong Kong property tycoons.
PetroChina is the largest company in China based on revenue, and according to its listing documents the fourth largest oil company globally in terms of proven reserves. Its IPO plans began as China’s most ambitious attempt to sell assets to overseas investors, and was once estimated to raise as much as $10 billion. But the offering was severely hampered by numerous political protests, as well as acute skepticism in the financial markets over Chinese IPO’s in general.
Here’s where I really get suspicious and outraged. With the IPO of PetroChina clearly in distress, a bunch of Hong Kong property tycoons suddenly step up to the plate and threw in cash! Yes, Cheung Kong, Hutchison Whampoa, Sun Hung Kai Properties, Henderson Investments, Hong Kong China Gas, and the parent of New World Development all inexplicably decided they wanted to invest their shareholders’ money in the PetroChina IPO, anteing up $427 million (nearly 15% of the IPO), and helping the offering to avoid total failure.
What’s really weird is the near-silence in the press and financial community regarding the property companies’ investments. Analysts in Hong Kong write report after florid report touting any company that throws a few million dollars into an Internet venture. Yet I couldn’t find any reports from analysts explaining why these property companies were willing to put such substantial sums into a government-run oil company, or what kind of impact this investment would have.
Let’s just say that last night I had a dream in which a little birdie informed me on the subject. The little birdie told me that these Hong Kong property developers were totally dependent upon the Chinese-controlled Hong Kong government for issues like building permits, zoning regulations, land auctions, and so forth. He also told me that, so far, those property developers (and their children) who have been the most “patriotic” to China have just happened to acquire the most valuable properties for the least amount of money.
The politics are plain and simple. On the one hand, the property companies that have already been made richer by the government’s help in past deals should be happy to return a favor to their friends in Beijing. On the other hand, those property companies that have not can certainly help their cause by investing in PetroChina, hoping that their next application to rezone land for development will be seen in a more favorable light.
It’s obvious why Hong Kong analysts don’t want to talk. Why advertise the growing politicization of the market that pays your rent? On the surface, the investments in PetroChina were idiotic, making as much sense as a Cisco buying Philip Morris. But underneath the surface, these analysts ought to be asking the question “If this was a bribe, what will be the payoff?” or, alternatively, “If this was a payback, what deal got squared?”
Chalk it up as further evidence of the creeping influence of the Chinese government on the Hong Kong economy. It may not show up yet in what’s growing on the surface, but I assure you, the roots have become increasingly entangled below.
