PE picks up strategic stakes in CICC

According to a statement by Morgan Stanley, the US bank expects to realize a pre-tax gain of approximately $700 million upon completion of the transaction, which is expected to close before the end of the year.

Morgan Stanley was one of a group of investors that injected capital into CICC when it was established in 1995. At the time, Morgan Stanley invested $37 million. International and local groups that co-invested included Central Huijin Investment Ltd, which took 43.35%, China National Investment & Guaranty Co., Ltd. and Mingly Corporation each took 7.65%, while GIC had a 7.35% stake. CICC has registered capital of $125 million at that time.

While there was no formal announcement of the actual shareholding, Bloomberg numbers indicate that KKR and TPG will each get 10%, while Great Eastern will take a 5% stake. GIC, the fourth largest shareholder with 7.35% before it adds new shares, will boost its holding in CICC to 16.35%, making the sovereign wealth fund the bank's second-largest shareholder after Central Huijin Investment, the local investment arm of the China Investment Company.

In the joint statement, the new investors stated, "We are delighted to have this opportunity to invest in CICC, one of the most prestigious and successful financial institutions in China." They claimed that CICC has played a "pivotal role in the development of China's financial industry," noting that Chinese banks on the whole are taking "an ever more prominent position in the world's financial markets."

Indeed, Chinese banks have made a major push onto the global stage, notably raising nearly 500 billion RMB ($75.12 billion) in 2010 alone in IPOs, rights issuances, equity placements, CB sales and other capital raising exercises. However, as one Hong Kong executive at a German bank noted, "They still have a long way to go to be recognized as international leaders. Yes, they have made a lot of money and raised a lot of money, but they don't have a real presence abroad, capital markets sophistication, or a desire to engage with the world."

CICC could still be a coup for the private equity majors involved. A fund of fudns source told AVCJ, "A number of firms tried to bid for the shares that Morgan Stanly was selling. It's not a complicated deal; Morgan Stanley simply needed to exit and CICC is a ‘do not miss' opportunity for private equity." The insider also added, "Part of the reason why KKR was allowed to participate was because of David Liu's connection, as well as his track records."

Liu, the Hong Kong-based MD for KKR, is also the former co-head of Morgan Stanley's Asian private equity unit. He joined KKR in 2006 to lead China deals. One of the more experienced deal-makers and known for his connections in the market, a unique and elite CV such as this would have been necessary to win the bid for CICC's shares, even with the KKR name behind him. TPG is rumored to have been given the nod due to its experience with financial services firms and its long-standing presence in China. The firm has been on the mainland since 1994.

CICC has been underwriting and acting as leading arranger of global offerings for Chinese state-owned enterprises (SOEs) since 1997, when Chinese SOEs first began to approach international capital markets. CICC has enjoyed the highest cumulative value of underwriting in terms of IPOs in Asia ex-Japan, global IPOs of Chinese companies and Chinese companies' total overseas financing. It has executed transactions in key segments of China's commercial industry, such as telecommunications, power, transportation, oil and gas, petrochemicals, non-ferrous metals, and financial services.

 

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• Topics
• Greater China
• Financing
• Morgan Stanley
• KKR
• TPG Capital
• GIC Private