KKR, Bain, TPG Vie for Morgan Stanley CICC stake

HONG KONG (Reuters) – Three U.S. private equity firms are on a shortlist to submit final bids for Morgan Stanley’s (MS.N) $1 billion plus stake in China’s top investment bank, three sources briefed on the bidding process said on Tuesday.

Kohlberg Kravis Roberts & Co., Bain Capital and TPG Capital are competing to buy a one-third stake in China International Capital Corp (CICC), which Wall Street bank Morgan Stanley bought for just $37 million in 1995 and has been trying to sell for more than two years.

One source and some analysts estimated the deal could be worth up to $1.5 billion, given CICC’s strong business performance last year, potentially giving Morgan Stanley its biggest investment return in China’s financial sector.

The sources declined to be identified as the bidding process is private. Morgan Stanley declined to comment. The private equity firms also declined comment or could not be reached.

Morgan Stanley first tried to unload its CICC stake in late 2007 when it signed a preliminary agreement with Shanghai-based Fortune Securities to set up an investment banking joint venture, in which Morgan Stanley would have had management control.

But it failed to sell the stake, partly because of the worsening financial crisis. Beijing told Morgan Stanley it could not own two investment banking joint ventures in China and the exit from CICC should be a pre-condition for Morgan Stanley to win Beijing’s approval for its new venture with Fortune.

The U.S. firm restarted efforts to sell the stake in late 2008 and a first-round of bidding began in November. More recently, a shortlist from a second round of bids, believed to be the last, were passed to all bidders, according to the sources.

Morgan Stanley does not have management control of CICC, which is headed by Levin Zhu, son of former Chinese Premier Zhu Rongji. Reached by Reuters in Davos, Switzerland, Zhu declined to comment on the matter, saying he was not involved in the process.


The sources Reuters spoke to for this article said Morgan Stanley is the seller but this doesn’t mean it is also the decision maker as a new investor must seek approval from Beijing and, more importantly, convince CICC management they can work well together.

“It’s a very complicated relationship. The marriage is already dead but both want to have a decent farewell,” said one of the sources, referring to Morgan Stanley and CICC’s management team led by Zhu.

Morgan Stanley, partly invested by sovereign wealth fund China Investment Corp in the financial crisis, aimed to pick a winner and close the deal “as soon as it can”, said another of the sources.

However, that source also warned the process may be delayed if a new investor cannot agree on some special terms with CICC.

“I can tell you it’s not just about how much the investor is going to pay Morgan Stanley for the stake. Otherwise, the deal can be done tomorrow. It’s complicated,” said the source.

Morgan Stanley was a founding shareholder of CICC, China’s first investment banking joint venture with special approval and blessing from Beijing about 15 years ago.

Latecomers such as Morgan Stanley’s global rivals Goldman Sachs (GS.N), Credit Suisse (CSGN.VX), UBS (UBS.N) (UBSN.VX) and Deutsche Bank (DBKGn.DE) have all set up investment banking joint ventures in China in the past decade.

Some own de facto management control or have influence on the management, while Morgan Stanley’s role in CICC nowadays is more like a passive financial investor.

By George Chen
(Additional reporting by Wei Gu in HONG KONG, Martin Howell in DAVOS and Samuel Shen in SHANGHAI) (Editing by Ian Geoghegan)