Morgan Stanley Sells CICC Stake - Analyst Blog

Morgan Stanley (MS) has received approval from the Chinese regulators to sell its 34.3% stake in China International Capital Corp. (“CICC”) to Kohlberg Kravis Roberts & Co., TPG Capital, Singapore's Great Eastern Holdings Ltd. and Government of Singapore Investment Corp., Bloomberg reported on Wednesday. The entire stake is valued at about $1 billion.

Morgan Stanley has been involved with CICC for about 15 years. Though the company had attempted to dispose of its holding in CICC for the first time in early 2008, the deal had fallen through due to price disagreements.

Of the total CICC stake owned by Morgan Stanley, about 10% each will be bought by Kohlberg Kravis Roberts & Co. (KKR) and TPG, and about 5% will be bought by Great Eastern, the insurer controlled by Oversea-Chinese Banking Corp. The rest will be acquired by Government of Singapore Investment Corp., the source said.

In 2000, Morgan Stanley relinquished the administrative control of CICC, in which the company invested $35 million when it was established in 1995. Morgan Stanley was allowed by the Chinese government to invest in CICC as it has the expertise to build China's first investment bank. Levin Zhu, son of the former Chinese Premier Zhu Rongji, now operates CICC.

Morgan Stanley is selling its CICC holdings as it plans to form a partnership with Shenzhen-based China Fortune Securities Co. by taking a third of its stake. Under the Chinese regulations, a foreign firm can own as much as 33% of a stock-and-bond underwriting venture with a local partner. As Morgan Stanley already had ownership of CICC, it was prohibited to associate with China Fortune Securities Co.

Goldman Sachs Group Inc. (GS) and Credit Suisse Group (CS) are among the major non-Chinese investment banks that also have underwriting ventures in China.

Morgan Stanley currently retains a Zacks #4 Rank, which translates into a short-term ‘Sell' rating. However, considering the company's business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.

 
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