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CIC boosts stake in US bank

CHINA Investment Corp will spend US$1.2 billion buying common shares offered by Morgan Stanley because it is optimistic about the company's future growth and progress.

China's US$200 billion sovereign wealth fund will buy 44.7 million shares to raise its stake in Morgan Stanley back to 9.86 percent, the size of the original stake CIC held in Morgan Stanley in 2007.

CIC's equity ownership was diluted to 7.68 percent in October 2008 when Mitsubishi UFJ Financial Group Inc invested in Morgan Stanley.

The new purchase can reduce the overall cost basis and increase the returns potentials for our company, CIC said.

"China has adequate foreign reserves to invest overseas, and increasing its stake in Morgan Stanley is a safe choice for China Investment Corp as it knows the United States bank well," said Sun Lijian, a finance professor at Fudan University.

"China may face the threat of inflation when the economy recovers, so investments in overseas markets can hedge against potential inflation," Sun said.

Morgan Stanley announced on Tuesday it has priced a public offering of 80.2 million shares of common stock to the public at US$27.44 per share, or a total of US$2.2 billion.

The offering will bring it closer to repaying US$10 billion it borrowed under the US Treasury's Troubled Asset Relief Program.

"Morgan Stanley is widely expected to be able to leverage on its strengthened financial position and will then be on the road to recovery amid a dramatic restructuring of the international financial services industry," CIC said.

Mitsubishi UFJ will purchase 16 million shares of common stock.


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