International law firms have been pouring into the Middle East for some time – some quite a lot quicker than others – but it’s not hard to see why.
When The Lawyer published the top global project finance deals (24 July 2006), five of them were from the Middle East. Four of those were in the hotbed of big-ticket activity that is Saudi Arabia.
The list of firms appearing as advisers on those deals threw up some familiar faces: Allen & Overy (A&O), Clifford Chance and Linklaters from the magic circle, along with UK firms Ashurst and Herbert Smith.
Interestingly, out of all those firms, Herbert Smith is the only UK-based firm that does not have a Middle East presence… yet.
Herbert Smith has highlighted the Middle East, as well as China and Russia, as the emerging markets it wants to target, although the firm is very much torn between making a late entrance to Dubai or Riyadh, or holding off and waiting for the starting gun on India.
Given that most other firms, UK and US-domiciled, will also be pouring headlong into India, it is hard to see where Herbert Smith will get any real competitive advantage.
“If we could we’d be in India tomorrow,” says one UK partner in management. “And when we can we’ll be there rather promptly, and I imagine quite a few of my contemporaries are planning the same.”
The opening of India, when it comes, will no doubt drain out some of the resources firms are investing in the Middle East and Singapore. But the Middle East, primarily on the back of high oil prices, is going to remain a vibrant market.
The official line from Herbert Smith, according to chief operating officer Norman Green, is: “We keep all the emerging markets under review. We’re interested in the Middle East as the activity levels remain strong and we’re looking at the possibility of opening an office in Dubai.”
Herbert Smith rode on the back of its impressive Tokyo energy practice to secure work on the Middle East’s biggest project this year – the $9.8bn (£5.17bn) PetroRabigh oil and gas facility. The firm advised Japanese company Sumitomo Chemicals, which entered into a joint venture with Saudi Aramco (advised by White & Case) to sponsor the project.
London project finance partner Andrew Calderwood was one of the lead partners on the deal. While an office would have been “administratively beneficial” but not essential for the PetroRabigh deal, it is a situation he fears the firm could not get away with again.
“There’s an appetite for a greater proportion of the work to be documented and negotiated locally, and it’s going to become increasingly important to have a presence there,” says Calderwood, who stopped short of saying it was essential.
“Cleary Gottlieb and Milbank are the US firms without offices in the region, with the majority of their peer group choosing to base themselves in Riyadh rather than Dubai, which is more favoured by UK firms,” says one partner at a UK-based firm. “It’s a staffing problem really. You can usually convince people to go to Dubai, but it’s a lot harder to convince them to go to Riyadh or Oman.”
Sources also warn that basing your office in one location can also be to the detriment to your ability to secure mandates out of other Middle East countries. “It requires some very delicate politicking; you’ve got to try to keep both sides of your bread buttered,” says one such source.
Ashurst officially opened its Dubai office in September 2005 to focus on energy, transport and infrastructure projects. Managing partner Paul de Cordova was earlier this year joined by partner David Wadham, recruited from International Power.
One notable name missing from the list of UK firms advising on the top deals is Freshfields Bruckhaus Deringer. Freshfields launched a small office in Dubai in May 2005, led by partner Joseph Huse, who splits his time between Dubai and Paris, and senior Middle East counsel Eric Milne. The firm is still playing catch-up, evidenced by it closing just one projects deal in the first half of 2006, while its magic circle rivals all closed multiple deals.
Clifford Chance, with 44 lawyers in Dubai, has the largest office of the magic circle firms. The firm also topped the league tables for global infrastructure projects and is present on two of the top five deals in the region, making it and Linklaters the only firms to appear twice. The league tables show that it closed five Middle East deals, worth some $15bn (£7.91bn) in total project value.
Linklaters only applied for its licence to operate in Dubai late in 2005, opening early in 2006 with a raid on Clifford Chance’s local operation. Linklaters took Clifford Chances’s corporate and securities head Ewan Cameron, who now heads Linklaters’ office, and corporate partner Scott Campbell. It has since bolstered it by raiding A&O as well, cherry-picking pieces in an attempt to build a competitive team.
The deal activity in the region is not going to slow; and as the economies develop, practice groups other than project finance and energy will become viable. The real question is whether the firms that have taken the plunge late make up the lost ground.