Investment bank longing to exit CICC
Morgan Stanley, global financial services giant, is still trying to sell its entire holdings in China International Capital Corp (CICC), the country’s first and most profitable investment bank, confirmed by both the US-based financial advisor and CICC on Nov. 4, 2009.
Citing people familiar with the situation, the report in the Wall Street Journal on Tuesday pointed that Morgan Stanley had asked potential buyers to submit indicative first-round bids for its 34.3 percent stake in CICC.
It reported the deal may obtain more than $1 billion.
Two people work for the US investment band and CICC, who both would like to keep anonymity, confirmed separately the news, saying that the CICC stake sale was a signal to Morgan Stanley setting up another local joint venture.
The Chinese government will not agree with the new joint venture, unless it sells the CICC stake, the sources added.
Morgan Stanley is going to form a joint venture securities firm with Shanghai-based China Fortune Securities Co, which it will have more management say.
Morgan Stanley was the first foreign investment bank who entered the country in the year 1995 when it invested $35 million in partnership with State-owned China Construction Bank to form CICC.
As one of the China’s biggest investment bank, CICC has specialized in clear up Stateowned firms in front of initial public offerings.
However, Morgan Stanley did not have much influence over CICC’s management led by Zhu Yunlai, the president of the enterprise, and had limited control to the operation of the brokerage during the past ten years.
The time that the US firm began to selling its stake was in 2007. Several international private-equity firms all included in the final bidders, such as Bain Capital, TPG and a consortium comprising General Atlantic, Starr International and JC Flowers.
However, early in the year 2008, this process came to an end after offers came in below expectations amid the onset of the global credit crisis.
The Financial Times reported, quoting people familiar with the situation, by the end of the first round, the original offer of more than $1 billion for the stake had dropped to around $600 million.
This followed a due-diligence process when bidders fond that the CICC management was unsatisfied with the current shareholding arrangement.
Under the structure, non-voting shares were allowed by the management which entitled them to paid dividends and could effectively dilute Morgan Stanley’s shareholding to around 27 percent.
But on Nov. 5, 2009, a source from CICC announced that this time around, it was very likely that Morgan Stanley is going sell its 34.3- percent stake for $1 billion since China’s booming stock market could propose considerable bargaining power on the seller’s side.
In 2007 the CICC’s net profit was 1.24 billion yuan, however, in the year 2008, the net profit dropped 49 percent to 627.4 million yuan. Net profit is expected to climb this year amid a rebound in China’s capital markets, one of the few bright spots worldwide. CICC has taken on little debt and has concentrated on fee income, leaving it with a strong balance sheet.
After inheriting the stake originally held by China Construction Bank, China’s sovereign wealth fund, China Investment Corp, became its largest shareholder with a 43.35- percent stake. Government of Singapore In vestment Corp, another sovereign wealth fund, holds a 7.35-percent stake.
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