Caixin
Apr 29, 2021 07:52 PM
FINANCE

Morgan Stanley Set to Take Greater Control Over Two China Joint Ventures

On April 27, China Fortune Securities was officially listed on the Shanghai United Equity Exchange to transfer its shares to Morgan Stanley. Photo: VCG
On April 27, China Fortune Securities was officially listed on the Shanghai United Equity Exchange to transfer its shares to Morgan Stanley. Photo: VCG

U.S. financial services giant Morgan Stanley looks set to take almost full control of its two Chinese mainland joint ventures after a Chinese partner announced the stakes had been put up for sale, sources with knowledge of the matter said.

State-owned brokerage China Fortune Securities Co. Ltd., which holds 49% of brokerage Morgan Stanley Huaxin Securities Co. Ltd., is selling a 39% stake at a price of 569.6 million yuan ($88.1 million), according to a filing (link in Chinese) to the Shanghai United Assets and Equity Exchange on Tuesday. It is also selling (link in Chinese) its 36% stake in Morgan Stanley Huaxin Fund Management Co. Ltd., a mutual fund manager, for 389.3 million yuan.

Morgan Stanley, which last year gained regulatory approval to increase its stake in the securities joint venture to 51% from 49%, is already the largest shareholder in both companies and has first right of refusal to buy the stakes. If it does go through with the purchases and they are approved by the regulators, Morgan Stanley will own 90% of Morgan Stanley Huaxin Securities and 85% of Morgan Stanley Huaxin Fund Management. A person with knowledge of the matter told Caixin that CoStone Capital, a venture capital investment company that holds 15% of the fund management venture, is likely to sell its stake directly to Morgan Stanley and it will not have to formally list the sale on an equity exchange because it is not a state-owned enterprise.

Morgan Stanley is one of many foreign financial institutions seeking to take control of their Chinese joint ventures or set up wholly owned or majority-owned subsidiaries to tap into the country’s booming financial services sector after the government scrapped ownership limits in 2020 as part of a broader market opening policy. The China Securities Regulatory Commission has so far approved eight foreign companies to either set up foreign-controlled securities firms or take controlling stakes in existing securities joint ventures.

They include JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS Group AG. Citigroup Inc. said on April 15 it is “actively pursuing” the setting up of a securities company and a futures company. In April last year, JPMorgan’s asset management arm said it planned to take full ownership of China International Fund Management Co. Ltd.

Morgan Stanley Huaxin Securities was set up in 2011 and the business provides underwriting and sponsorship of equities and bonds and proprietary trading of bonds. It reported a net profit of 1.4 million yuan in 2020, reversing a 1.1 million yuan net loss in 2019 (link in Chinese).

China Fortune Securities’ announcement of the stake sale was not unexpected. In February, Shanghai China Fortune Ltd. (600621.SH), its parent company, said (link in Chinese) it had approved the plans, saying the disposals would help optimize the company’s asset structure and ensure a “reasonable allocation of resources.”

Contact reporter Guo Yingzhe (yingzheguo@caixin.com) and editor Nerys Avery (nerysavery@caixin.com)

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