Tuesday, November 06, 2007

A Trillion is a Thousand Billion? Why Wasn't I Informed of This?

With the title of this post, I am paraphrasing another favorite New Yorker cartoon (again).

As I toil away trying to raise a million here or a million there for some great cleantech companies (see the side bar of this blog), PetroChina made its debut on the Shanghai stock market, tripling in value, and becoming the world's first trillion-dollar market cap company.

Certainly, PetroChina cannot qualify as a Cleantech company, despite some notable important activities. So this boom is just a reminder of the importance traditional energy continues to play in our global economy, and the extent to which demand for it is now driven by China and other developing nations.

I guess investors were not concerned by the strong non-market forces which affect the stock price. Chinese regulators just announced a delay in the expected lowering of restrictions on capital flows from mainland investors. These restrictions have driven an unsustainable difference between the Shanghai-listed shares and Hong Kong-listed shares of several comapnies.

Also (coincidentally?), Chinese regulators raised the mandated price of retail gasoline last Friday by 10%. These higher prices substantially aid PetroChina's financials, since they buy crude on the world's open market, but sell refined gasoline into a price-controlled market in China.

With all these non-market influences, it is difficult to see how this trillion-dollar threshhold could be long maintained. (This also raises broader questions about goverment fiat in China which I intend to address in a separate post.)

But for the time being, a new milestone deserves recognition and reflection. Interestingly, we at Bessemer Venture Partners are forever tied to the world's first billion dollar market cap company. In 1901, J.P. Morgan purchased Carnegie Steel, merged it with Federal Steel and several other companies to form U.S. Steel. The combined company's $1.4 billion capitalization set a new mark.

Henry Phipps, a childhood friend of Andrew Carneigie, was the second-largest shareholder of Carnegie Steel. He had contributed to Carnegie Steel's success by being the first to commercialize the Bessemer steel-making process in the U.S. Phipps' share of the acquisition proceeds were worth about $67 million...in 1901 dollars! Subsequently, Phipps created Bessemer Trust and Bessemer Securities Corporation to manage these funds. The high-risk group of BSC made private equity and venture capital investments throughout the century, and was spun off in 1981 as Bessemer Venture Partners. (Thank you, Henry Phipps!)

How little the world has changed over 106 years and three orders of magnitude. From steel for the booming U.S. economy to oil for the booming Chinese economy. But do these milestones often indicate a peak? According to the Wikipedia entry, U.S. Steel was at its peak influence at its creation. Competition, commoditization and new technologies immediately started chipping away at its dominance. Does this new 13-digit milestone mark an apex for PetroChina as well? For oil itself? Will Cleantech innovations make massive national oil conglomerates as irrelevant as early 20th century steel conglomerates? For an answer, check back here in 106 years.