21 February 2011
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Marcus Leese says Asia is the place to be for offshore lawyers in the Year of the Rabbit
While caution should attend any upbeat assessment of economic prospects, there’s every sign that 2011 - the Chinese Year of the Rabbit - will prove to have some bounce.
Across Asia there is a sense of an economy that is optimistic, robust and buoyant. Asia is by no means immune from global ailments, but high levels of growth and low household and government debt have warded off the kind of malaise that has afflicted much of the world. From a legal practice perspective, including offshore jurisdictions such as the British Virgin Islands (BVI), the Cayman Islands, Guernsey and Jersey, this means it is all hands on deck.
On the capital markets front, the Hong Kong Stock Exchange can expect a significant number of listings in 2011. This is interesting from a number of angles.
On one hand it is an important bellwether of Asian regional business activity and optimism. On the other, it shows Hong Kong’s popularity as a listing centre and how the exchange is playing a global role as companies from outside the region look to take advantage of Asia’s buoyancy.
This continues an offshore trend that emerged in 2010, exemplified by the listing of Russian aluminium conglomerate Rusal using a Jersey listing vehicle. Early indications suggest that this has paved the way for businesses from outside Asia to look at Hong Kong as an alternative exchange to New York or London.
With Cayman companies having long been the most popular offshore corporate vehicles for listing on the Hong Kong Stock Exchange, and Jersey and BVI companies now also able to be used as listing vehicles, considerable offshore legal work is expected.
Loads of funds
On the funds side, the legal market is also anticipating a ramping up in instructions, especially in the hedge fund and private equity space. As in 2010, there is likely to be numerous new funds established both in Hong Kong and the wider region.
Undoubtedly, one driver for these new funds is the sheer volume of entrepreneurial activity in Asia. Funds are being established as a direct consequence of regulatory restrictions on banks and major financial institutions, which is encouraging traders to set up their own ventures. The longstanding attraction of offshore jurisdictions for fund domiciles is undiminished.
M&A is in step with the positive Asian picture. Drivers include the number of distressed assets drawing institutional buyers, but the revitalisation of private equity is also pushing activity.
Mining and extractive industries are attractive, and Chinese and other state-owned businesses are still looking out for resource prospects in Asia and elsewhere in the world, notably Africa and Eastern Europe. There is also an appetite for opportunities in business sectors ranging from life insurance to foodstuffs among acquisitive Asian buyers and outside players looking to invest in Asia.
Private client on the up
Big-ticket M&A and capital markets work looks set to keep a lot of lawyers deskbound in the months to come. But one underrecognised practice area that is beginning to receive some attention is private client work. In some respects, the challenges are the same as anywhere else. However, there are some critical differences.
In Asia, personal and inheritance tax rates are low or non-existent, which means little of the work is actually tax-driven. Much more usual is the need to structure divisions between personal and business wealth, and to develop structures that anticipate and prevent succession and inheritance disputes in years to come. Many clients are first-generation wealth creators whose families are facing these issues for the first time.
When faced with these issues clients in Asia, like elsewhere, tend to look first to the offshore world for solutions, with its long history and great experience and expertise in trust and private client matters.
If things stay on track there will be opportunities for wealth creation for some time to come, but that is not to say the region is a one-way bet. Clearly, there are major economic pressures in play, the best-flagged being the value of the Rmb and international calls for the Chinese to let it rise. There is also potential exchange rate volatility across Asia.
Moreover, economic policies in - and the growth rates of - Asia’s markets (including the US and Europe) will inevitably have a significant influence on Asia’s short-term economic fortunes.
Recent events in North Africa have yet to be felt politically or commercially in Asiain any material way. However, they are a salutary reminder of how quickly the geopolitical situation can change. The legal market cannot ignore the existence of flashpoints in Asia either; the relationship between North and South Korea, ongoing island sovereignty disputes between China and Japan and Japan and Korea, and the role of the US and other regional powers in Asian affairs.
Despite, or arguably because of, these and other uncertainties, Asia is guaranteed to be one of the most exciting places to practise commercial law. And the Year of the Rabbit may yet be declared a vintage one.
Marcus Leese is a partner at Ogier in Hong Kong