China Investment Corp. (CIC), the country's state forex investment company, said late Wednesday that it has agreed to invest 5 billion U.S. dollars in U.S. investment bank Morgan Stanley.
The Chinese company will purchase equity units that are mandatorily convertible into 9.9 percent of Morgan Stanley common shares at maturity. The equity units carry a fixed annual interest rate of nine percent before conversion on August 17, 2010.
The purchase is "a long term, passive financial investment" and does not lead to a role in management of Morgan Stanley, said a statement from CIC.
"CIC believes that Morgan Stanley has potential for long-term growth, particularly in its investment banking, asset management and wealth management businesses, as well as new business development opportunities in emerging markets," it said.
The purchase is made in accordance with CIC's global investment strategy, which is to realize attractive long-term returns with acceptable risks, it said.
CIC will maintain a cautious investment strategy, Finance Minister Xie Xuren said last week at the China-U.S. high-level economic talks. "It will pursue long-term investment instead of short-term speculation, and will achieve a balance between security and profitability."
China Investment Corp. was set up in September this year, with an initial capital of 200 billion U.S. dollars from the country's massive foreign exchange reserves.
One-third of the capital would be used to purchase Huijin Investment Co. an investment arm of the Chinese government, and another third would be injected into state-owned banks for shareholding reforms, CIC chairman Lou Jiwei said.
The remaining 70 billion U.S. dollars was earmarked for overseas investment in a wide range of portfolios but would not seek control, he said.