PetroChina is Charging, not even Buffett can stop it

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Sep 24 2007
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Of all the interest in foreign-stock Call Warrants in Malaysia, none of them has attracted the followers as PetroChina Company Limited (PETROCH-C1, stock-code 0500C1 and PETROCH-C3, stock-code 0500C3) since the oil price hit above $82 a barrel. In fact the volume for these two stocks counters which attracted punters intensified on 19th Sept after Ben Bernanke cut the rate by 50 basis points. You need to read why oil prices soared due to Uncle Ben’s action.

Both PETROCH-C1 and C3’s exercise share price is HKD10.40 with exercise ratio of 5:1 (5 warrants per share), expiry-date is on 29-Feb-2008 (158 days to go). However while PETROCH-C1 was issued by OSK, PETROCH-C3 was issued by CIMB and based on market volume PETROCH-C1 is more actively traded. Stock market talks has it that the difference in volume and even the price is due to the fact that PETROCH-C1 is tightly held by public while PETROCH-C3 shares are mostly within the grip of issuer CIMB itself.

Of course logically shares within public possession will see more volatility, higher volume transacted and easier chased up than if it’s held by institution (in this case CIMB itself). Due to the fact that the issuer, which is also known as market-maker, held most of the shares, the spread between bid and ask sometimes can be huge (you need to closely monitor this) especially when the volume transacted on a particularly day is low. This concept applies in option trading whereby the market makers are trying to make profit out of you because the liquidity of the day is low.

Warren Buffett selling PetroChina Shares

Warren Buffett’s Berkshire Hathaway’s (NYSE: BRK.A, stock) has been selling its shares in PetroChina for the last 3-months with rumors ranging from public pressures to Warren to protest PetroChina’s support for the Sudanese regime to the investors reasoning that Buffett actually taking profit off the table.

Despite the three sales, Berkshire still owns nearly 9% of China’s largest oil company, making it the second-largest shareholder behind the government-backed China National Petroleum, which owns 88%.PetroChina 6-month chart

  • July 12th – sold 16.9 million PetroChina shares at an average price of HK$12.441 – stake reduced to 10.96 percent
  • Aug 29th – sold 92.66 million PetroChina shares at an average price of HK$11.473 – stake reduced from to 9.72 percent.
  • Sept 20th – sold 28 million PetroChina shares

Being an aggressive animal PetroChina plans (pending regulatory approval) to offer as many as 4 billion Class A shares on the Shanghai exchange. The company has indicated it will use the proceeds to boost output and build a pipeline, a justification that was mooted out of national mandate to ensure energy security for the ever-growing China. Money has never been a problem to PetroChina and if it really needs more, the government of China can always extend cheap loans anytime.

It’s time to buy PetroChina stocks?

As can be witnessed, PetroChina stock prices were not affected by numerouos sell-off by Warren. It appears the share might only show weakness if the global oil prices drop to below $80 a barrel. By the rate the company is expanding to feed the hunger of China’s economy, current stock price might be the attractive level to enter since it has breached the resistance of RM0.26 for PETROCH-C1.

PetroChina-C1 Stock ChartNevertheless the risk is always there and its danger lies in the “volatility” of daily oil price. Do not touch the shares if you can stomach any potential losses in stocks investing.

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Buffett (through Berkshire Hathaway) does not own 9% of PetroChina. He may own 9%-10% of the float, but the float is only about 10% of the whole company, so Buffett owns a little more than 1% of the company.

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