Nov. 4 (Bloomberg) -- Morgan Stanley is soliciting bids for its stake in China International Capital Corp., the first Sino- foreign investment bank, said three people familiar with the matter.

Potential bidders for the 34.3 percent holding in CICC, formed in 1995, include U.S. private-equity firms, said the people, who spoke anonymously because the bidding process is confidential. The stake could be worth $1 billion, according to one of the people.

It is the second attempt by Morgan Stanley to dispose of its stake in CICC after talks with buyout firms fell apart in early 2008 on disagreements over valuation, people familiar said at the time. Morgan Stanley Chairman John Mack is seeking to sell the CICC investment to build a brokerage in China that it controls.

“Morgan Stanley wants to sell CICC because it can’t control the business and they’d prefer a smaller securities firm they can exert management influence over,” said Wei Tao, a banking analyst at China Securities Corp. in Beijing.

Morgan Stanley invested $35 million in CICC when it was established in 1995 as the first Sino-foreign bank. The New York- based bank ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.

Wei Christianson, chief executive officer of Morgan Stanley in China, could not be reached for comment. The Wall Street Journal reported the sale plans yesterday.

Securities Ventures

The New York-based investment bank signed an initial agreement in 2007 to take a one-third stake in China Fortune Securities Co. Regulators refused to sign off on that venture partly because Morgan Stanley still owns a stake in CICC, the people said.

Goldman Sachs Group Inc. was the first Wall Street investment bank to gain approval to form a securities venture in China in 2004. It was followed by UBS AG, Credit Suisse Group AG and Deutsche Bank AG. Macquarie Group Ltd. is in the process of getting regulatory approval. CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, formed its China venture in 2003.

CICC is the top manager of Chinese domestic equity offerings this year and second to HSBC Holdings Plc in managing Asian debt offerings, excluding Japan, according to data compiled by Bloomberg. In September, CICC said it plans to open a New York office as early as this year as it seeks to trade Chinese stocks in the U.S.

CIC Investment

Morgan Stanley last year held talks with TPG Inc., CV Starr & Co. and J.C. Flowers & Co. about potential bids for its holding in CICC. General Atlantic LLC and Bain Capital LLC were also interested buyers, the people said.

The buyout funds didn’t table a $1 billion offer sought by Morgan Stanley on concerns the stake will be diluted to 27 percent because of a stock options plan which entitles employees to 20 percent of the company upon exercising the options, one of the people said.

China Investment Corp., the nation’s sovereign wealth fund, bought a 9.9 percent stake in Morgan Stanley for $5 billion two years ago, when the bank reported its first quarterly loss as a public company. Last year, Japan’s Mitsubishi UFJ Financial Group Inc. acquired a 21 percent sake in Morgan Stanley for $9 billion.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net; Cathy Chan in Hong Kong at kchan14@bloomberg.net

Last Updated: November 4, 2009 01:29 EST