Morgan Stanley’s share prices fixed for CIC investment

Morgan Stanley, which is the second largest Investment bank in U.S. after Goldman Sachs, has declared the prices at which their shares will be converted for the China’s $5 billion investment.

China Investment Corp. (CIC), which helps control £100bn of China's foreign exchange reserves invested $5 billion in Morgan Stanley at an interest rate of around 9.9%. According to the agreement, this money is due to be converted into bank’s shares in August 2010.

The two sides agreed CIC would be able to convert the equity units into Morgan Stanley common shares at a price no more than 1.2 times the reference price when the conversion was due.

Morgan Stanley has reported a huge loss of $9.4billion in the fourth fiscal quarter because of the subprime and other mortgage-related investments.

Agreement:
There are three cases that have been put up in the agreement, which are as follows:

1. If at the time of conversion, Morgan Stanley's shares are trading below $48.07, the $5 billion of China's investment will be converted to Morgan Stanley shares at $48.07 per share.
2. If the shares are trading between $48.07 and $57.684, the shares would be purchased at their market price.
3. And, if the value of bank's shares at that time is over $57.684, CIC will buy Morgan Stanley shares at $57.684.

Currently, the shares are trading at $54.37.

This is not the first investment by CIC in a Wall Street Firm. Earlier this month, it invested three billion U.S. dollars in the U.S. private equity firm Blackstone Group.

It has also invested 100 million U.S. dollars in the initial public offering of the China Railway Group in Hong Kong.

The Wall Street might not like China’s stronghold in its firms but it has no choice other than going for the investments as its companies have been badly struck by the present mortgage and credit crisis.

The deals have been structured so that the sovereign funds are passive investors with no seat on the board, and this escapes regulatory scrutiny. President Bush had recently stated that he was "fine" with foreign investors snapping up big stakes in U.S. banks and financial firms.