Morgan Stanley Said to Sell Its 34.3% CICC Stake to TPG, Singapore's GIC

Morgan Stanley is selling its 34.3 percent stake in China International Capital Corp. to Kohlberg Kravis Roberts & Co., TPG Capital, Singapore’s Great Eastern Holdings Ltd. and the island nation’s sovereign-wealth fund, four people with direct knowledge of the deal said.

Morgan Stanley plans to sell stakes of about 10 percent each to TPG and KKR, and about a 5 percent stake to Great Eastern, the insurer controlled by Oversea-Chinese Banking Corp., said the people, who declined to be identified because the matter isn’t public. Government of Singapore Investment Corp. will buy the remainder, the people said. The 34.3 percent stake is valued at about $1 billion, two of the people said.

The sale will end Morgan Stanley’s 15-year involvement in CICC, the first Sino-foreign investment bank and the top-ranked underwriter of share sales in the country. The U.S. firm, which ceded management control of CICC a decade ago, plans to form a partnership with Shenzhen-based China Fortune Securities Co.

CICC is 43.35 percent owned by Central Huijin Investment Ltd., the investment arm of China Investment Corp., the nation’s $300 billion sovereign fund, according to CICC’s website. GIC and closely held Mingly Corp. each own 7.35 percent while China National Investment & Guaranty Co. has 7.65 percent.

Photographer: Nelson Ching/Bloomberg

A China International Capital Corp. branch stands in Beijing. Close

A China International Capital Corp. branch stands in Beijing.

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Photographer: Nelson Ching/Bloomberg

A China International Capital Corp. branch stands in Beijing.

A shareholder of Shenzhen-based China Fortune Securities Co. said this week it approved a plan by the Chinese brokerage to set up a venture with Morgan Stanley.

Blocked Purchase Plan

Great Eastern was originally in discussions with CICC to buy Morgan Stanley’s entire stake and the plan was blocked by Chinese regulators, said one of the people.

It’s Morgan Stanley’s second attempt to dispose of the holding in CICC. Talks with leveraged-buyout firms fell apart in early 2008 on disagreements about price, according to a South China Morning Post report at the time.

Morgan Stanley invested $35 million in CICC when it was established in 1995. It ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji. Singapore’s GIC also bought CICC shares in 1995 and has been one of the founding shareholders, according to CICC’s website.

The Chinese government allowed Morgan Stanley to invest in CICC in return for the expertise required to build China’s first investment bank. Elaine La Roche, the last Morgan Stanley- appointed head of CICC, stepped down in June 2000.

Regulator’s Approval

Mark Lake, a Morgan Stanley spokesman, declined to comment. TPG spokesman Owen Blicksilver and Kristi Huller of KKR declined to comment. Great Eastern spokeswoman Tan Seck Geok didn’t return telephone messages left outside of normal business hours in Singapore and an e-mail seeking comment wasn’t immediately answered.

The China Securities Regulatory Commission said in a Nov. 29 statement on its website that it approved CICC’s application for a shareholding change involving a more than 5 percent stake, without elaborating.

Under Chinese regulations, a foreign firm can own as much as 33 percent of a stock and bond underwriting venture with a local partner. Morgan Stanley was barred from setting up such a company because of its ownership of CICC.

Goldman Sachs Group Inc., UBS AG and Credit Suisse Group AG are among non-Chinese investment banks that have underwriting ventures in China, the world’s biggest market for initial public offerings.

CICC has been the top underwriter of stock sales on China’s two exchanges for four of the past five years, and is on course to keep the No. 1 position in 2010, according to data compiled by Bloomberg. UBS Securities Co. is the biggest foreign-backed underwriter in 18th place, the data show.

To contact the reporters on this story: Cathy Chan in Hong Kong at kchan14@bloomberg.net; Katrina Nicholas in Singapore at knicholas2@bloomberg.net.

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Will McSheehy at mcsheehy@bloomberg.net.

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