Filling the Gulf
7 December 2009 | By Luke McLeod-Roberts
As Dubai’s economy suffers, international law firms are looking at Saudi Arabia as their next port of call. Luke McLeod-Roberts reports on the benefits and drawbacks of launching in the country
When the Dubai property bubble burst earlier this year international firms keen on maintaining a presence in the Middle East began to look at tapping other jurisdictions in the region. Top of the list were Abu Dhabi for its oil, government and projects work, Qatar for gas and infrastructure and the region’s largest economy Saudi Arabia for oil and gas, infrastructure, banking and finance.
In the past few months Clyde & Co, Eversheds and Lovells have all opened in Saudi, while DLA Piper decided to remain in the jurisdiction after a former alliance ended. The arrival of all these top 20 UK firms in such a short period of time is significant given the relatively closed nature of the Saudi legal market.
And with the recent news that the Dubai government has requested a standstill on debt repayments and is looking to restructure some of its largest businesses, will the influx of firms into Saudi continue?
Amgad Husein, local office partner at Denton Wilde Sapte, believes that Saudi’s status as the world’s largest oil producer, its major capital works programme and rocketing birth rate mean the opportunities in the country have always outweighed those of its neighbours.
“There’s more legal work in Riyadh than in the entire United Arab Emirates,” he comments. “It’s much bigger in terms of both population and GDP.”
But there are other factors that have led firms to favour Doha, Abu Dhabi or Bahrain for that matter. This primarily comes down to the difficulty of recruiting Western lawyers to the conservative country as well as regulatory hurdles. International firms outside the Gulf Cooperation Council (GCC) region cannot open their own offices in the country, but they can operate through an association with a local player. There can also be issues around obtaining residence permits and work visas.
Chris Jobson, regional managing partner for Eversheds in the Middle East, says that opening in Saudi was the last element of a three-pronged Gulf growth plan dreamed up in 2006. However, after the firm was introduced to local partner Hani Al Qurashi Law Firm, it took around a year for it to set up shop there in March this year.
A number of other firms are seriously considering moving into Saudi. Ashurst and Simmons & Simmons have been looking at the jurisdiction for some time. But both firms, which have bases elsewhere in the Middle East, have a relatively cautious approach to expansion and have been involved in slow-burning discussions. Vinson & Elkins, though, is believed to be at a relatively advanced stage of talks with potential candidates, with a view to establishing a tie-up. Indeed, the Saudi market would fit well with Vinsons’ international energy focus.
Other major international firms that are absent from the country are Latham & Watkins, Linklaters and Skadden Arps Slate Meagher & Flom. It was thought that Latham was planning to enter via a tie-up with banking associate and Saudi citizen Salman Al-Sudairi, although this appears to have been put on hold while Al-Sudairi is seconded to Goldman Sachs in New York.
Linklaters was believed to be considering a similar route with one of its Saudi-trained lawyers. It used to have a Saudi desk based in London manned by Saudi senior associate Yousef Al-Joufi. But Al-Joufi has since left the firm and head of the Emerging Europe, Middle East and North Africa practice Nick Eastwell has left for Linklaters spin-off Kinstellar, to be replaced by project finance partner Stuart Salt. So things are on hold there, too.
Having a Western-trained, bilingual Saudi lawyer on board might seem like a dream for an international firm. But Hussein El-Zein, vice-president for the Middle East at recruiter Sheffield Haworth, believes that having a well-connected lawyer is equally as important.
“If you want a successful Saudi strategy it’s key to have a well-connected Saudi lawyer who has contacts in the government sector,” he says. “Many firms are focusing on transactional experience and Western training. But one of the most successful tie-ups is that between Allen & Overy and Abdulaziz AlGasim, who is not fluent in English. Why does it work? Because he’s very well-connected and he’s tied up with Julian Johansen, who has transactional experience and Western knowledge.”
As a result international firms are turning their attention to the small number of eligible Saudi firms that know the local market. Dubai-based Al Tamimi & Company, which currently has a Saudi base in Riyadh, is looking to expand into Jeddah. As a GCC firm it does not need a local sponsor, but if it joins up with Adli A Hammad and Mohammed A Al-Mehdar, as tipped to do so by The Lawyer (9 November), it would instantly access a solid client base with good local contacts. Al-Mehdar and Hammad used to be part of a Jeddah-based alliance with the White & Case-trained Abedi brothers and their experience and contacts increase their selling power.
Some of the best-connected lawyers include Jeddah-based Mujahid Al-Sawwaf, who counts the Binladin Group among its clients, or Bassel Barakat at the Law Office of Hassan Mahassni, which works with Ashurst on a non-exclusive basis. Major deals for the latter have included the $2bn (£1.22bn) Shuqaiq IWPP, Islamic finance aspects of the Red Sea Gateway Terminal and work on the King Abdul Aziz International Airport in Jeddah. Jeddah’s Bafakih & Nassief, which Denton Wilde Sapte refers work to, is described by Dentons’ Husein “under the radar, but frankly one of the better firms on the local scene. The guys have a good attitude, are receptive and quite flexible.”
This also provokes the question of which destination is best for new launches. To date most international firms have centred on Riyadh, which, as the largest city and centre of government, makes sense. However, an increasing number of firms are looking to the port city of Jeddah on the Red Sea coast. This is partly on strategic grounds: it is the commercial hub and close to a lot of major projects such as the Red Sea Gateway Terminal. Plus, as a smaller market it is less saturated than Riyadh and it is also a slightly more liberal city.
But Husein thinks Jeddah will be unable to compete with the capital. “It’s easier to put Western lawyers on the ground there because of lifestyle issues and the fact there aren’t so many firms. But let’s make no mistake about it - the money is in Riyadh, the decisions are made in Riyadh.”
There is a consensus among observers of the Saudi market that, although it has undergone an incredible amount of commercial liberalisation in recent years, this is unlikely to extend to the regulations governing foreign law firm launches.
Saudi differs from some of the other GCC countries in having a more established domestic legal system. But it still faces the same issue as many of the countries in the region - that there is a preference for public rather than private sector jobs. There are signs that this is changing, with an increasing number of Saudis being funded to study abroad. But it will take some time for that generation to gather sufficient expertise to operate as partners in the local market.
As a result Sheffield Haworth’s El-Zein believes that in the short-term more Arab lawyers from outside the GCC will move into Saudi. For example, Lebanese firm Alem & Associates recently tied up with Saudi’s Attayyar Law Firm.
One senior partner at the local office of an international firm is still sceptical about the ability of local partners to deliver. “There’s definitely a huge gap between international and local law firms in terms of expertise and ability to execute the work. However, local firms are, frankly, a lot cheaper than we are. There’s a cost benefit there for mid- and low-level work.”
But Eversheds’ Jobson claims that with the oil prices back up to $80 a barrel, the ball is in the Saudis’ court. “International law firms may be in a hurry but the Saudis don’t have to rush, they can take their own time,” he says. Dubai, on the other hand, may not be so relaxed.
Allen & Overy and Abdulaziz AlGasim
Baker & McKenzie and Torki A Al-Shubaiki
Clifford Chance and Al-Jadaan & Partners
Clyde & Co and Abdulaziz A Al-Bosaily
Denton Wilde Sapte and Wael A Alissa
DLA Piper and Dr Alaa Naji
Eversheds and Hani Qurashi
Freshfields Bruckhaus Deringer and Fares
Herbert Smith and Al-Ghazzawi Professional Association
Hogan & Hartson and Salah Al-Hejailan
King & Spalding and Mohammad Al-Ammar
Lovells and Al-Yaqoub Attorneys and Legal Advisers
Norton Rose and Abdulaziz Al-Assaf
Trowers & Hamlins and Feras Al-Shawaf
White & Case and Mohammed A Al-Sheikh
Big international firms looking at Saudi:
Latham & Watkins
Skadden Arps Slate Meagher & Flom
Simmons & Simmons
Saudi firms not in exclusive alliances:
Abdulaziz H Al-Fahad
The Law Office of Hassan Mahassni
Bafakih & Nassief