Denton Wilde Sapte (DWS) is looking to Africa and the Middle East along with its strength in energy and natural resources to save an ailing banking practice by channelling its energies into the project finance market.
In looking towards project finance, DWS perceives a gap in the market. This gap has opened mainly thanks to the magic circle restructuring its project finance teams in one way or another to cope with increased commoditisation in the market.
Happily for DWS there has not been a decline in project or trade finance, where it has also been strong, but instruments that were considered cutting-edge 10 years ago have now become far more commoditised, meaning an influx of national and regional firms pushing down fees.
The magic circle has reacted in a number of ways because it no longer provides the level of fees it needs.
Clifford Chance partners previously dedicated to project finance are now working in the oil and gas sector, for example, and doing project finance work within that. But they also do many other things relating to that sector. The firm has not had a dedicated project finance team for three years now.
For similar reasons to the magic circle, DWS is pulling its attention away from the UK and the crowded PFI market and looking to build on its strength in the Middle East and, intriguingly, Africa.
Deal values and volumes are increasing. White & Case claims to have lawyered its way through $35bn (£17.65bn) worth of deals in Africa last year alone, the biggest being a role advising Global Alumina Corporation on the project financing of a $2.4bn (£1.21bn) bauxite mine in the Republic of Guinea. Phillip Stopford, co-head of White & Case’s project finance group in Europe, the Middle East and Africa, says: “Africa is about to burst forth. There’s the demand for natural resources and a lot of investment from the US, Europe, China and India.”
Different geographical areas of Africa have different business focuses. Traditionally South Africa is the hub for corporate activity. This year the country saw the continent’s largest-ever leveraged buyout, with Kirkland & Ellis advising Bain Capital on its $3.5bn (£1.77bn) acquisition of African retailer Edgars Consolidated Stores.
Paul Buginga, head of African development at DWS, sees his firm’s presence growing in the region. “Now we’re on a recruitment drive in Johannesburg,” he says. “This will be a mix of associates and partners and we’ll be strengthening the ties between the Middle East and Africa.”
Meanwhile, the French-speaking sections of Northern and sub-Saharan Africa are the places to be for power plant and infrastructure developments, as well as oil and gas work.
French is the language of business in Tunisia and Algeria, meaning that the deals will often be run out of the Paris office. DWS has noted this with the transfer of project finance head Howard Barrie to Paris.
The opportunities are there for law firms in Africa, but taking advantage of them is not as simple as it looks.
No matter how many deals an Africa practice gets through, it will have to be profitable to be a successful addition to a firm’s business. The pound’s appreciation against the dollar in recent years has made that a more difficult feat to achieve.
Stopford says: “For law firms the real challenge is that you’re dealing with oil and gas jurisdictions whose revenues are dollar-denominated and the cost base is in pounds. Hourly rates suddenly become quite important.
“If you charge in dollars you’re getting less than you would have got a few years ago. Clearly you can’t charge London rates in large parts of Africa, so you have to be creative about how you staff the deals.”
The leverage in DWS’s Cairo office is 1:5.25 compared with a firmwide 1:2.6. The firm will also be looking to its allies in Botswana, Ghana, Mauritius, Tanzania, Uganda and Zambia, which will provide far cheaper lawyers.
But DWS will have to tread carefully not to upset governments and regulatory authorities. Its big move is a risk, but from where it is standing, it looks like a risk worth taking.