CICC: Divide and rule is a traditional tool of statecraft. It looks like China International Capital Corp, run by the son of a former prime minister, is following the principle in corporate politics.
CICC, now the top investment bank in China, was established 15 years ago with Morgan Stanley as 35 per cent owner and senior partner. But the US investment bank's role has become more passive. It seems the shares are likely to be sold to two US private equity giants, Kohlberg Kravis Roberts and TPG. Morgan Stanley will shift its Chinese ambitions to a new joint venture with a more obedient local partner. It might get more from auctioning the stake to a single buyer, but the expected price, $1 billion or above according to Reuters, will still be 27 times the US bank's original $37 million capital contribution.
The grandfathered Morgan Stanley 34.3 per cent was a rare exception highly coveted by investors, because the current regime limits foreign investors to 33 per cent stakes in Chinese brokerage firms.
If the deal goes though, KKR and TPG will get something rare, a share in the leader in the highly regulated financial advisory market. Beijing wants the national champions to stay in China's hands. The investment will also give the firms insight into China and raise the profile of foreign private equity firms in the country.
In return, CICC, which has global ambitions, should gain the international experience of KKR and TPG. But the main thing the management from having two foreign partners rather than one is the ability to keep tight control.
Henry Kravis of KKR and David Bonderman of TPG are expected to join the CICC board. They will need to learn how to play the role of junior partner.
