China Investment Corp. (CIC), the nation's state-owned forex investment firm, said late Wednesday that it has agreed to invest 5 billion U.S. dollars in the No. 2 U.S. investment bank Morgan Stanley.
The Chinese firm, which invested 3 billion U.S. dollars earlier this year in the U.S. private equity firm Blackstone Group, will purchase equity units that are mandatorily convertible into 9.9 percent of Morgan Stanley common shares.
The equity units carry a fixed annual interest rate of nine percent before conversion on Aug. 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.
"It is a good opportunity to invest in U.S.-based financial institutions, many of which are being undervalued when the subprime mortgage crisis has had an impact on them," Li Yang, director of the Institute of Finance and Banking under the Chinese Academy of Social Sciences, told Xinhua.
Also on Wednesday, Morgan Stanley reported a larger-than-expected loss in the fourth fiscal quarter due to a 9.4-billion-U.S. dollar writedown from its exposure to subprime and other mortgage-related investments.
It lost 3.61 billion U.S. dollars in the fourth quarter, compared to a profit of 2.27 billion U.S. dollars in the same period a year earlier.
"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," said the statement.
The purchase is made in accordance with CIC's global investment strategy, which is to seek 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.
Earlier this month, CIC made its second investment this year of about 100 million U.S. dollars in the initial public offering of the China Railway Group in Hong Kong.
(Xinhua News Agency December 20, 2007)