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Morgan Stanley to invest $200m in Taiwanese bank

Morgan Stanley Private Equity has invested $200m in E. Sun Financial through a purchase of convertible bonds which are equivalent to a 9.5 percent equity stake.

Morgan Stanley Private Equity, the private equity arm of the US investment bank, has purchased European convertible bonds worth $200 million (€126 million) from E. Sun Financial Group of Taiwan. Anthony Cheng, an associate at E. Sun Bank, told PEO that the $200 million worth of bonds can be translated into a 9.5 percent interest in the company if Morgan Stanley converts them to company stock.

He said that the Morgan Stanley unit has agreed to convert $46.2 million worth of bonds next month, and that they have the option to covert the remaining bonds at a later date. The stock next month will be converted at NT$16.16 per share, a 1 percent premium over the bank’s share closing price on 9 July.

The second tranche of bonds worth $153.8 million will be converted at a price of NT$19 per share, an 18.75 percent premium over the lasted strade share price on 9 July, Cheng said. He added that this is the first significant private equity investment in the bank.

Morgan Stanley could not be reached for comment.

Reuters reported that the investment came several months after the bank had said that Morgan Stanley would invest $300 million for the right to buy a 15 percent stake in the bank, putting it in a position to acquire a stake held by Temasek Holdings of Singapore.

Cheng said that Temasek holdings had acquired European convertible bonds in 2006 and converted a third of them into shares for a 6.28 percent stake in the bank. However, it subsequently redeemed the rest of its bonds. It currently holds a 6.28 percent stake.

He added that if the Morgan Stanley chose to convert all its bonds into E. Sun shares, the bank would discuss with the firm the possibility of its participation on the bank's board.

A number of international private equity firms have invested in Taiwanese banks over the last few years. Lat year, SAC Private Capital acquired a control stake in Cosmos Bank, Carlyle invested in Ta Chong Bank, and Longreach Group took a majority stake in EnTie Bank. In 2006, Newbridge Capital invested in Taishin Financial Holding.

Financial services has become an increasingly attractive target for private equity firms outside of the US, where ownership restrictions have put a break on activity.