Jan. 11 (Bloomberg) -- Morgan Stanley has been approached by TPG Inc., CV Starr & Co. and J.C. Flowers & Co. about potential bids for its 34.3 percent holding in China International Capital Corp., two people familiar with the matter said.

The stake in the Beijing-based securities firm may be worth about $1 billion, the people said, declining to be identified because the discussions are private. New York-based Morgan Stanley invested $35 million in CICC when it was set up in 1995 as the first Sino-foreign investment bank.

Morgan Stanley ceded management control of CICC in 2000, making it unable to participate directly in a market where stock sales reached $65 billion in 2007, up from $5.9 billion seven years earlier. The firm is seeking government approval to form a local investment bank with China Fortune Securities Co., following a strategy employed by Goldman and UBS.

``The Morgan Stanley-CICC venture hasn't worked very well for years,'' said Donald Straszheim, vice chairman of Los Angeles-based Roth Capital Partners LLC. When Morgan Stanley bought into CICC, ``great things should have followed. But they didn't.''

Shan Weijian, a Hong Kong-based managing director at Fort Worth, Texas-based TPG, didn't respond to a call to his mobile phone. A phone call and an e-mail to J.C. Flowers in London weren't immediately returned. A call to CV Starr's New York office outside of business hours wasn't answered. Morgan Stanley spokeswoman Cheung Poling declined to comment.

Morgan Stanley gained a nine-year head start in the country through its CICC investment. It gave up control in 2000 amid friction with local partners. CICC is now run by Levin Zhu, the son of former Chinese premier Zhu Rongji, and Morgan Stanley has a seat on its board.

Firms Line Up

Dow Jones earlier reported the talks, citing people it didn't identify. The Financial Times said CV Starr, headed by Maurice ``Hank'' Greenberg, is interested in CICC, citing President Ed Matthews.

In September 2006, China banned foreign firms from buying into local securities companies and refused to take applications for new licenses, saying the domestic industry needed more time to get ready for overseas competition. Goldman, the world's biggest securities firm, and UBS set up local ventures before the moratorium took effect.

Wall Street firms including Merrill Lynch & Co., Citigroup Inc. and JPMorgan Chase & Co. are also seeking local partners in China so they can profit from initial public offerings and a fivefold increase in stock trading on the nation's exchanges last year.

Disagreements

Credit Suisse Group, Switzerland's second-largest bank after UBS, on Jan. 10 said it plans to take a 33.3 percent stake in a venture with Beijing-based Founder Group and apply for regulatory approval to arrange yuan-denominated share sales.

China's securities watchdog in December announced new rules, effective this month, that allow investors from abroad to buy as much as 25 percent of publicly traded brokerages. For investment banking ventures, the ownership cap is 33 percent.

The government allowed Morgan Stanley to invest in CICC in return for using its expertise to help build China's first investment bank. Elaine La Roche, the last Morgan Stanley-appointed chief executive of CICC, stepped down in June 2000. There had been disagreements between the two firms over management, she said in a 2005 interview.

Zhu, who was hired as a banker in 1998, became CEO of CICC in October 2002. China Jianyin Investment Ltd., controlled by government-owned Central Huijin Investment Co., is CICC's biggest owner with a 43.3 percent stake.

Morgan Stanley was the top arranger of overseas share sales by Chinese companies last year, up from 10th in 2006, Bloomberg data shows. That was the second time it surpassed CICC's ranking in such offerings since it invested in the Chinese firm.

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net;

Last Updated: January 11, 2008 05:55 EST