Morgan Stanley has put the sale of its stake in mainland brokerage China International Capital Corp on hold, telling private equity bidders including Bain Capital and TPG that their offers are too low as jittery equity markets continue to take a toll on deals.
The CICC deal provides evidence of just how far apart the expectations of potential buyers and sellers generally remain.
With their access to vast sums of borrowed money curtailed, buy-out firms are reluctant to pay top price for new deals while sellers are still hoping to get as much as they would have received six months ago.
From the beginning of the CICC process, executives from the private equity firms involved expressed concern that they might be buying at a peak.
Putting the auction for Morgan Stanley’s 34.3 per cent stake in the brokerage on hold will complicate matters as the bank had planned to seal a new partnership with Fortune Securities in Shanghai.
Morgan Stanley, which hoped to get at least $1bn for its CICC stake, has been told by the government that it cannot simultaneously be in two separate investment banking ventures in China.
China Construction Bank, Morgan Stanley’s principal partner in CICC, has transferred its stake to China Investment Corp.
CIC bought a $5bn minority stake in Morgan Stanley in December in a deal that was described more as a strategic investment for Morgan Stanley than as rescue finance.
When the CICC deal was first sealed in the summer of 1995, Chinese markets were dormant and most of profits came from the interest earned on Chinese government bonds.
But now, Chinese firms are scouring the world for mergers and acquisitions, more companies are going public, the number of investors in the domestic stock market is growing by the day and the rest of the world is lining up in search of Chinese investment capital, making Chinese brokerages hugely attractive at the right price.
CICC executives are paid far more than their counterparts at other mainland brokerage firms such as Citic Securities.