TEXT-Fitch release on Morgan Stanley India Capital Private Ltd

(The following statement was released by the ratings agency)

Sept 15 - Fitch Ratings has today assigned Morgan Stanley India Capital Private Ltd (MSICPL) National ratings of Long-term 'AAA(ind)' with Stable Outlook and Short-term 'F1+(ind)'. The agency has also assigned a National Long-term 'AAA(ind)' rating to MSICPL's INR10bn Long-term debentures and a National Short-term 'F1+(ind)' rating to its INR10bn Short-term debt programme. MISCPL is a fully-owned subsidiary of Morgan Stanley, USA (MS, International Long-term Issuer Default 'AA-' (AA minus)/Negative), a corporation organised and existing under the laws of state of Delaware USA, through its subsidiaries in Mauritius and India.

MSICPL's ratings are at the highest National rating levels, driven solely by the explicit commitment of support extended by its ultimate parent, MS, rated six notches above India's 'BBB-' (BBB minus) Long-term IDR. Continuance of this support would be critical as MSICPL is a start-up and is unlikely to have a standalone credit profile commensurate with its current rating level in the foreseeable future. Its operations are fully integrated with MS in terms of systems, management and oversight.

MSICPL's business will be split into the broad areas of lending to corporates and high net-worth individuals against equity collateral and trading in the bond markets. It aims to scale-up rapidly and has aggressive profit targets in the next two to three years. However, attainment of projected scale and return targets may be challenging given the prevailing downturn in capital markets, to which its business is closely linked. Its ability to attain the above-mentioned targets would also be closely linked to the scaling-up of MS's Indian franchise beyond institutional equity, especially in onshore private wealth management and investment banking business, which is currently underway.

MSICPL expects credit losses to be negligible over the projected period. This is based on MS's international experience in similar business and supported by the moderate credit loss experience of other entities extending equity collateral-based corporate loans in India. Fitch, however, notes that lending against equity collateral has not seen a credit cycle and actual loss levels may turn out to be higher.

MSICPL's current capitalisation is USD140m (INR6.0bn) and over USD200m (INR8.8bn) is likely to be injected by the end of 2008, subject to regulatory approvals. While its plans factor in the regulatory cap on single-party exposures (15% of total equity) - a critical factor for corporate lenders - adequacy of its current capitalisation would depend on the scalability of business. The company is in the process of putting bank lines in place, which would be used to support liquidity.