Morgan Stanley has agreed to pay 200 million yuan ($29.2 million) for a 19.9 percent stake in China's Hangzhou Trust, as foreign banks increasingly look to China's once ailing trust banks to secure a foothold in its booming financial services market.
-- To take 2 of 9 board seats of Hangzhou Trust
-- To appoint new CEO of Hangzhou Trust
Zheng Xiangwei, the Chinese firm's chairman, said on Thursday that Wall Street bank Morgan Stanley had signed a definitive agreement to buy 90 million existing shares in Hangzhou Industrial and Commercial Trust Co Ltd.
"We don't lack capital but we have a shortage of talent and that's why we decided to choose Morgan Stanley," he told Reuters on the sidelines of a forum. He added that his company's price/book ratio, at about 2.25 times, was the highest among Chinese trust banks in which foreign firms have invested.
The US bank will appoint a new chief executive but Zheng will remain chairman of the firm, which will still be controlled by the Hangzhou government, he said. Morgan Stanley would also have the right to appoint two representatives on Hangzhou Trust's nine-member board, he added.
Hangzhou Trust has more than 6 billion yuan in assets under management and has been appointed the sole asset manager for a 5 billion yuan industrial investment fund to be controlled by the Hangzhou government, Zheng said. Hangzhou, a prosperous city in eastern China about 200 kilometres from Shanghai, announced plans for a 5 billion yuan industrial fund on Wednesday.
Beijing has been moving since 2006 to bolster China's trust companies, which were hit over the past decade by a series of bankruptcies and scandals. Under Chinese rules, trust firms face fewer obstacles than most other financial institutions in making equity investments in a wide range of financial sectors, including insurance, securities broking, asset management and private equity.
Trust companies are also allowed to offer a variety of corporate banking services, including asset management and indirect fund-raising for domestic enterprises. Zheng said his firm expected to cooperate with Morgan Stanley in a wide range of financial areas, although he declined to elaborate.
Once the deal is completed, Morgan Stanley will be Hangzhou Trust's only foreign investor, he added. Many other foreign institutions are also buying into China's trust sector. Royal Bank of Scotland Group Plc has won approval from Chinese regulators to buy a nearly 20 percent stake in Suzhou Trust Co, industry sources told Reuters in late June.
Earlier this year, Barclays Plc and National Australia Bank Ltd also won Beijing's approval to buy into Chinese trust partners. A foreign institution can hold no more than 20 percent of a Chinese trust company, while overseas investors can have a combined stake of up to 25 percent, according to Chinese rules.