HONG KONG The Hong Kong-listed shares of China's dominant oil producer PetroChina Co Ltd (0857.HK) and its natural gas distribution arm Kunlun Energy (0135.HK) tumbled on Wednesday after they said several senior executives at the group were being investigated over alleged wrongdoing.
PetroChina shares slid 4.7 percent to HK$8.25 (0.68 pounds) in early morning trade, a day after the company issued a statement saying three executives had resigned.
Shares in Kunlun Energy plunged 12 percent to HK$11.08, bringing its market value down to around $12 billion (7.72 billion pounds).
The news has undermined investor confidence in the state-controlled companies which have been the key beneficiaries of a rapid rise in China's natural gas consumption and market-oriented natural gas and oil product pricing reform.
"Kunlun is the big loser here," said Simon Powell, head of Asia oil and gas research at CLSA in Hong Kong. "There will be no asset injection into Kunlun from PetroChina for a long time."
PetroChina (601857.SS) has injected a combined 24 billion yuan (2.5 billion pounds) worth of pipeline and LNG terminal assets in Kunlun since 2008, Powell estimated.
Among the officials under investigation was Li Hualin, chairman of Kunlun Energy who also held senior positions at PetroChina and PetroChina's parent China National Petroleum Corp (CNPC).
The State-Owned Assets Supervision and Administration Commission (SASAC), which oversees China's top state companies, said late on Tuesday that CNPC deputy general manager Li Hualin, vice-president of PetroChina Ran Xinquan, and PetroChina chief geologist Wang Daofu were also under investigation. It did not detail the accusations against them.
The three senior officials have been put under investigation for "severe breaches of discipline," SASAC said, employing the shorthand the Chinese government uses to describe graft.
Li is also an investor in Kunlun, holding 31.8 million shares in Kunlun as of May 21, 2013, Thomson Reuters data showed. The slide in Kunlun's share price would likely have resulted in a loss of some HK$47 million for Li, assuming no change in the size of the holding. Analysts say Li obtained the shares through stock options granted as management incentives.
Morgan Stanley analyst Andy Meng advised stock investors to switch away from PetroChina to Sinopec Corp (0386.HK) (600028.SS) (SNP.N) and CNOOC (0883.HK) (CEO.N), the other two Chinese national oil giants.
"Given the uncertainty, and the potential for a lengthy legal process to unfold, it is possible that the situation could weigh on PetroChina's stock price," he wrote in a note to clients.
(Reporting by Charlie Zhu and Yimou Lee; Editing by Edwina Gibbs)