Serb your enthusiasm

A great deal has changed in the Balkans over the past eight years. Serbia’s capital ­Belgrade - the former ­capital of Yugoslavia and once the military hub of the war in the Western Balkans - is now the economic centre for a region that has ­dramatically changed its fortunes since ­the conflict ended.

Belgrade is home to the largest law firms in the region and it is from here that they serve the growing economies of Bosnia, Montenegro, Macedonia and even Kosovo, the last of the nations to achieve stability, although not all firms will operate there. Albania in the south is still a no-go area.

Geographically, Serbia is ideally situated to be a gateway to the Balkan region. It borders Hungary to the north; Romania and ­Bulgaria to the east; Macedonia and Albania to the south; and Croatia, Bosnia and ­Herzegovina and Montenegro to the west.

Depending on who you speak to, the recession that has swept across Europe has yet to reach this part of the world. Although not all firms agree that they have remained untouched.

“Psychologically, people and markets aren’t so depressed as they are in other ­markets in Europe. This might be because we’ve seen much worse in our history,” says ­Matija Vojnović, managing partner of Schoenherr’s Serbian office.

Schoenherr is one of a few large firms, both domestic and international, that uses Belgrade as a base to work across the region. The others include Wolf Theiss, CMS Cameron McKenna, Gide Loyrette Nouel, Karanovic & Nikolic, Janković, Popović & Mitić (JPM) and Harrisons Solicitors.

It appears that for those law firms with energy and infrastructure work, 2009 is going to be a good year, with firms still living off the privatisation of Serbian power ­facilities and factories that have been sold off since 2001. Next year, however, is another matter entirely.

If you are not in power plants and bridges then projects are the winning ticket, as the other bulk of work to be had comes from some enormous redevelopment in ­Montenegro (see box), which since its ­independence from Serbia in 2006 has seen wealthy investors flock to country to rebuild its beautiful coastline.

But it is not all good news, according to Mark Harrison, managing partner of the 12-lawyer Harrisons Solicitors. The ­English-qualified lawyer has a unique view of the Balkans having worked at Linklaters ­(serving with Nick Eastwell) before a five-year stint as a partner at Eversheds. In 1999 he set up his own firm in Belgrade.

“It’s the worst I’ve seen it in 12 years,” says Harrison. “The market has slowed because of the questions surrounding Kosovo and the war criminals. It’s not top of the list for foreign investors.”

Harrison says he can count the number of greenfield industrial projects in Serbia over the past years “on one hand”, adding that he believes some international firms will leave.

“The perfect storm is hitting Serbia and it could continue for another year,” he warns.

Real estate, capital markets and M&A are, like everywhere else, suffering from the ­global economic downturn. But Serbia’s currency, the dinar, is stable, unlike some of its Eastern European counterparts.

Energy boom

Schoenherr has 23 fee-earners and three partners in Belgrade, and it has been busy receiving instructions from energy and infrastructure work, including the privatisation of the state electricity company EPCG in Montenegro. The firm’s latest big mandates include advising electric car company RWE on the tender for the construction of a 700MW ­thermal power plant in Obrenovac, Serbia, in a deal worth in excess of e1bn (£860m).

Elsewhere Schoenherr has advised ­Turkcell Iletisim on its bid for Cosmofon, a mobile phone operator in Macedonia. Other clients include Deutsche Bank and ­Mercator, the largest retail chain in the ­former Yugoslavia.

The firm’s energy practice has grown over 2008-09 and now represents one of ­the Serbian office’s key practice areas. Vojnović is looking at the energy work, including the renovation of the Kolobara power plant and the construction of another lignit-fired plant, as a promising stream of income. With renewable energy on the horizon (new laws are due to be passed by the end of this year) there is hope for the coming 12 months.

“There are different legal developments - some dying, some booming,” says Vojnović. “The energy market here is behind those of some of the surrounding countries’. There are no real renewable energy projects yet, but the regulations should hopefully be in place by the end of this year and work is gearing up for the third and fourth quarter. In the M&A market there are no straightforward deals, but we see many distressed deals.”

“There is work to be found,” agrees Nemanja Stepanovic, managing director of Belgrade-based JPM, which has 40 lawyers, including 12 partners. “Litigation will carry on - it’s something we do on an almost daily basis. Renewable energy is something we can count on for 2010 - subsidies from the EU, the Serbian state and the energy sector should be in place next year and last for two or three years. We’ll have enough work but the deals will be on a small scale.”

Competition work could be a source of income after new antitrust rules were announced. However, opinions differ as to their ­effectiveness.

“The Serbian Commission for Protection of Competition [CPC] has become more active,” points out Vojnović. “The new law is about to bring increased competencies for the CPC, so we can expect to see a lot more antitrust work.”

Stepanovic, however, is not so sure. In May JPM organised a panel, ­featuring members of the Serbian government and senior JPM ­partners, to discuss the issues raised by the new rules. Stepanovic is ­critical of the way they were created.

“Provisions were made in such a way to enable the state to make ­decisions. There was no real ­relationship with concerned parties,” he argues. “We’re not sure when it’ll be improved. It requires the agreement of the political elite.”

New beginnings

There is much to be ironed out in the Balkan’s legal market, but this is still a ­fledgling post-war economy. After years of feuds and political disputes, companies are again working on cross-border deals.

With the influx of massive outside investment in Montenegro and booming tourism in ­Croatia, there are positives.

The problem is that Serbia appears to be falling flat and lawyers in the region are not sure that the worst of the recession is over.

“We’ve encountered the economic ­problems between six and nine months after the rest of Europe, so any upturn will come later,” says Stepanovic, highlighting how the lag of macro-economic conditions is ­obscuring the future.

Schoenherr’s Vojnović also believes that the future is uncertain but the flexibility of the region’s lawyers will make them less prone to the severe cuts seen in Western Europe. ­Corporate, finance, real estate, ­projects - the ­practice areas overlap and lawyers are ­easily redeployed. He does, ­however, have a ­warning for some firms not involved in the big deals.

“Lawyers aren’t as specialised here. Firms are smaller and can more easily adjust to clients’ needs. I don’t believe that 2009 will be as good as the record year in 2008. I’m not so optimistic about 2010. Right now we’re mainly working on restructuring and ad hoc ­energy deals. The question is what remains when those mandates dry up and whether new large deals would come to replace them.”

Montenegro or bust?

It has been hailed as the new Monaco, but will Porto ­Montenegro live up to ­expectations?

Since Montenegro achieved independence from Serbia in 2006, the world’s investors have descended on this small but beautiful country on the shores of the Adriatic.

Canadian businessman Peter Munk was one of the first, snapping up the port at Tivat and, with backing from Oleg Deripaska, Nathaniel and Jacob Rothschild and Bernard Arnault among others, launching Porto Montenegro, dubbed “the new Riviera”.

The port is the biggest building project on the Mediterranean coast. With berths for 650 yachts (including space for 150 super yachts), hotels, apartments, a shopping centre and golf course among the facilities, it is touting itself as a home for the richest yacht owners in the world.

In business terms it has been a huge boon for the local population. Most of the legal work has been performed by law firms based in Serbia, with some lawyers saying as much as 90 per cent of the instructions being awarded to Belgrade firms.

For Mark Harrison, managing partner of Harrisons Solicitors, the project and others like it have been a money-spinner, counterbalancing the depressed market in surrounding countries, including back home in Serbia.

Harrisons has been acting for Porto Montenegro for four years, proof of Belgrade’s status as an economic hub for the Balkans.

“If firms have serious business in Montenegro then they’ll be able to ride out the downturn,” says Harrison. “It’s a very interesting market from a lawyer’s point of view. The place is humming.”

Other projects that look set to transform Montenegro include Velika Plaza (‘long beach’), a 13km stretch of sandy coastline that is earmarked for a e25bn (£21.65bn) redevelopment by the Abu Dhabi sovereign wealth fund - the same investor that bought Manchester City FC in the UK.

Most recently a deal was struck by one of the richest families in Egypt for a new e1.75bn holiday resort.