Morgan Stanley in talks to buy China broker
(Reuters)
Updated: 2006-02-14 21:02

Morgan Stanley is in talks to buy up to half of troubled Chinese broker AJ Securities to bolster its leading position among foreign investment banks in China, two sources close to the situation said on Tuesday.

The bank wants at least a 20 percent stake in mid-sized AJ, and could take up to half of the Shanghai-based broker if current restrictions against foreign ownership are eased, a senior brokerage executive close to AJ told Reuters.

Foreigners are lobbying China to drop ownership caps for overseas firms in its financial industry, including brokerages.

Set up with China Construction Bank Corp. in 1995, top domestic investment bank China International Capital Corp. (CICC) is dominant in helping Chinese firms get access to markets.

Morgan Stanley's minority stake in CICC gives it access to a swathe of potential Chinese client companies, and allows the U.S. bank to help those firms access international capital markets.

A controlling stake in a Chinese broker would allow Morgan Stanley to also underwrite potential fundraisings in mainland China for local firms.

A second senior industry executive said Morgan Stanley had been conducting due diligence for the potential AJ deal since last week, and had not submitted a formal bid yet.

"Talks with Morgan Stanley are in the preliminary stages. The final result will mostly depend on their due diligence and regulatory approval," said the first executive.

A Morgan Stanley spokesman in Hong Kong declined to comment.

AJ Securities, a unit of Shanghai-backed industrial conglomerate AJ Corp. , is considered by market players to be one of the most beleaguered securities firms in China and carries a heavy debt burden.

It operates 16 branches in China, mostly in the financial hub Shanghai, and its registered capital stood at 650 million yuan ($80.8 million), according to its Web site (www.ajzq.com).