China Investment Corp (CIC), the nation's $200 billion sovereign wealth fund, plans to spend $1.2 billion on buying 44.7 million shares of common stock in Morgan Stanley.
Morgan Stanley, the sixth-largest US bank by assets, said last night it was looking to sell approximately 80.2 million shares to raise $2.2 billion in a public offering. That equated to $27.44 per share, an 8.2 percent discount on the closing price on Monday of $29.89 per share.
CIC said in a statement that the purchase raises its equity ownership in Morgan Stanley to approximately 9.86 percent and reduces the bank's overall cost basis and increases its returns potential.
CIC purchased $5.6 billion mandatory convertible securities in Morgan Stanley's common stock in December 2007, representing approximately 9.86 percent equity ownership but its stake was diluted to approximately 7.86 percent after Mitsubishi UFJ Financial Group Inc bought into the bank last October.
Morgan Stanley said yesterday it has not received approval for the deal but it believed that it will satisfy the criteria.
Morgan Stanley received $10 billion as part of the $700 billion Troubled Asset Relief Program, a bailout plan by the US government aimed at shoring up its ailing banking sector.
"Morgan Stanley is widely expected to be able to leverage on its strengthened financial position and will be on the road of resuming its successful trajectory amid the dramatic restructuring of the international financial services industry," CIC said on its website.
CIC was established in 2007 to find better returns for China's massive foreign exchange reserves. It earmarks one-third of its money for overseas investment and two-thirds for the domestic market.
Wang Jianxi, the fund's vice-general manager, said in March that CIC would increase its investment in all classifications, given the global financial crisis had led to a tailspin in asset prices and therefore good investment opportunities.
American Express Co and JPMorgan Chase & Co also announced plans on Monday to raise capital.