US company and Chinese partner will work with small-cap outfits

SHANGHAI - Morgan Stanley on Friday formally unveiled a new joint venture with Huaxin Securities Co Ltd, in a move to boost its presence in China's investment banking industry.

The Shanghai-based venture, Morgan Stanley Huaxin Securities Co Ltd, will focus on underwriting yuan-denominated stocks and bonds for small-cap companies in China.

Huaxin Securities holds a two-thirds stake in the venture, which has registered capital of approximately 1 billion yuan ($154 million), with Morgan Stanley holding the remainder.

Huaxin is a mid-sized domestic brokerage. Founded in 2001, the Shenzhen-based company currently operates 21 branches nationwide.

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The joint venture was approved by the regulator on Dec 31, and Yang Kai, chief executive officer of Morgan Stanley Huaxin Securities, said around 100 staff will be employed.

"Morgan Stanley is proud of its long history of commitment and success in China, a market that remains a major priority within our international growth strategy," said James Gorman, president and chief executive of Morgan Stanley, in a statement.

"Today's launch is an important milestone that allows us to bring to China, and to domestic clients, many of Morgan Stanley's core capital-market skills and competencies."

The joint venture marks a significant change in Morgan Stanley's strategy in China, and places the focus firmly on smaller enterprises instead of large State-owned companies.

"This is an opportunity for Morgan Stanley to bring its expertise and share and work with Huaxin, our partner, and we will really have an impact on smaller companies and their capital-market issues," said Morgan Stanley Chairman John Mack at a news conference in Shanghai.

The launch comes after Morgan Stanley ended its involvement in China International Capital Corp (CICC), which focuses on the country's large State-owned companies, according to Mack.

"CICC really has emerged as a totally independent, China-owned, global investment bank. We see that as really different from what we are doing here today," said Mack.

In December, Morgan Stanley got the green light from regulators to sell its 34.3 percent stake in CICC, which it founded in partnership with China Construction Bank Corp in 1995.

The sale brought Morgan Stanley around $700 million in pre-tax gains and cleared the way for it to set up the new venture with Huaxin.

Chinese regulations forbid foreign companies from engaging in more than one securities joint venture at a time.

The new venture also deepens the US financial institution's cooperation with Huaxin.

In 2008, the two sides launched a fund management company, Morgan Stanley Huaxin Fund Management Company.

"I think Huaxin's cooperation with Morgan Stanley will become deeper and deeper to cover other areas in the future," said Jiang Yao, Huaxin's chairman.

Morgan Stanley has been a pioneer among foreign investment banks in China.

Since entering the country in 1993, it has obtained a broad range of business licenses from the regulators, covering commercial banking, asset management and private equity (PE).

Last month, Morgan Stanley said it aims to raise 1.5 billion yuan in its first yuan-denominated PE fund, which will be launched through its newly established Chinese PE unit.