PetroChina's real market capitalization

After recent declines in PetroChina’s share price, it no longer sports a trillion dollar market capitalization. But at about US$880 million, it’s still the company with the largest market capitalization in the world. The calculation of the company’s market capitalization is no simple matter. And our calculations below leave out the ADRs. Since ADRs are essentially H-shares in disguise, we didn’t want to complicate the issue further.

After, the recent A-share offering, the company’s shareholding structure is as follows:
China National Petroleum Company: 157.9 billion shares (86.3%)
Public Investors (H shares): 21.1 billion shares (11.5%)
Public Investors (A shares): 4.0 billion Shares (2.2%)

Last Friday’s (Nov. 9th) closing share prices:
H-shares: HK$16.14 (US$2.07)
A-shares: RMB38.18 (US$5.17)

Market capitalization:
CNPC ownership: US$817 billion
H-shares: US$44 billion
A-shares: US$21 billion

The H-share and the A-share represent the same percentage of ownership in PetroChina, but the A-share is valued almost 150% higher than the H-share. Because the state-owned holding company, CNPC, owns A-shares, its ownership stake is valued using the higher A-share price. As a result, the market price of 2% of the total shares outstanding is used to value 88% of the shares. Meanwhile, if we used the 12% of the shares in H-share form to value the entire company, the market capitalization would drop to US$380 billion. Still nothing to sneeze at but a far cry from a trillion!

Because retail investors in China can only get direct ownership of PetroChina shares by purchasing the limited number of A-shares available for public trading (given the through-train program allowing purchases of Hong Kong listed shares has not been implemented yet), that 2% of publicly traded A-shares has been bid up to astronomical levels. What would happen to the A-share price if more shares were made available? The answer to that question is a simple equation: more supply=lower price.

So what is PetroChina’s real market capitalization? You be the judge.