Linklaters’ projects practice gets wholesale makeover” />The future of Linklaters’ projects team is clouded. Although considered one of the City’s pre-eminent project finance groups, advising on such significant deals as the mammoth Russian natural resources project Sakhalin, a recent wholesale review of the team has left its direction in question.
New global head of projects Bruce White initiated the review soon after he took the helm in May. It aimed to examine whether the group should reorganise its client base, expertise, advice and offices, and identify ways to cut costs and downsize the group’s partnership.
Given that White re-placed former practice head Alan Black after 12 years at the helm, the implementation of a review comes as no surprise. White clearly needs to distinguish his own management style and develop a comprehensive understanding of the challenges before him. But what is not clear is how far-reaching the recommendations of the review will be.
Around 100 of the firm’s global project finance lawyers trooped off to Lisbon over the weekend to discuss the future direction and strategy of the practice and to hear the results of the review. Although a closed conference, White reveals that items on the agenda included which jurisdictions, clients and niche areas the group is set to target. “The review is done and we’re moving on to taking concrete steps to implement its recommendations,” says White. “Our strategy is to differentiate ourselves from our competitors and deepen our relationships with our key clients.”
As part of the new strategy, the firm is likely to ramp up its oil and gas expertise, as it is one of the only areas within projects that is not overcommoditised and also booming. This is especially crucial, as projects has seen dropping profitability for most firms for some time because of low hourly rates and growing competition.
White admits that the firm is examining new and developing jurisdictions related to the oil and gas market to combat this. In particular it is looking at launching in the Middle East and expanding its presence in Latin America and Russia.
“The firm is actively considering opening in the Middle East,” says White. “We’re analysing from a percentage of work perspective whether not having an office will become prejudicial to us in the future.
“We moved [partner] Daniel Tyrer to Moscow for project finance last year and we’re looking at whether we should build that up more. We would potentially move more people to Moscow.”
Costs have also been highlighted, given that Linklaters’ finance department, which incorporates projects and capital markets, is facing increasing pressure to improve its fees. During 2004-05, the group was the least profitable of the firm’s three core groups, the other two being corporate and commercial, following overhiring. Finance reported a revenue of £257.6m, due largely to a strong capital markets performance.
As part of the review, it is understood that management is encouraging several senior partners to take early retirement, although discussions are still ongoing and further exits could follow (The Lawyer, 12 September). The move, which is similar to the overhaul of the firm’s corporate practice last autumn, should loosen a logjam of projects partners at the top of the lockstep and create room for younger lawyers to progress.
Linklaters is notoriously reticent about naming anyone that could be construed as a managed exit, a spokesman confirmed that at least one senior London-based projects partner will depart later this year.
White instead claims that the group is recruiting heavily and has taken on eight new associates in recent weeks. Nine projects lawyers have also been made up into the partnership in the last three years, including four in May.
But while this is good news for younger lawyers, the group does have a policy against lateral hires of UK-qualified partners. The recruitment figures are also not reflective of actual net growth, as a series of senior associates, including Philip Thomson and Alexander Currie, have quit the firm in the last three months. This leaves the London projects team with 17 partners and around 45 associates.
One competitor comments that the team is now very young, with only a couple of remaining plateau partners – and the futures of the few remaining plateau partners are in doubt following the review. This, though, is sure to assist the group’s financial situation significantly.
It was clear that a shake-up within the London projects practice was brewing even before White took over management and for as long as two years. The London projects team lost partners Peter Gray and David Weber in 2003.
Rainmaker Stuart Salt subsequently left London in May when he transferred to Hong Kong to head the Asian banking and projects group. This was a significant blow to the local team, although in 2004 partner James Douglass returned to London after his own stint in Hong Kong. This is not to mention the shake-up that resulted in White, who was previously head of PFI and PPP, one of the divisions in the projects department, actually taking over management of the entire group.
White claims that these changes are not directly connected. But until the review, the group had struggled, along with most of the projects sector, with growing competition, forcing hourly rates down from an already low starting point. One insider explains: “The problem with projects is that it used to be a sexy frontier area of law that few firms had expertise in. Now it’s become commoditised and, as a result, fees have reduced.
“In order to get profitability, the group needs to bill lots of hours; and in order to protect those fees, they need to reduce the number of partners. Getting rid of the odd plateau partner can change the gearing significantly.”
While the group’s gearing remains under discussion internally, there is little doubt that the team has been securing sizeable and significant mandates. But because – oddly – Linklaters does not report the deals its projects team has advised on to league table generators such as Mergermarket or Thom-son Financial, it is difficult to confirm this conclusively.
The group’s mandates on projects such as Sakhalin and Greater Equate are, however, in the public domain. Combined with the changes recommended by White, the group appears to be making the proactive steps needed to ensure it remains top of the heap, even if a few partners will not be along for the ride.
Recent deals acted on by Linklaters’ projects team
Greater Equate Acting for the sponsors in connection with a $2bn (£1.1bn) expansion scheme of a petrochemicals facility in Kuwait.
Qatofin LDPE Polyethylene Plant Advising the lenders on the financing of the Qatofin LDPE Polyethylene Plant (and a share in certain downstream assets) in Qatar.
Sakhalin Advising the project sponsors on the financing of a substantial oil and gas development off Sakhalin Island in Russia. This multibillion-dollar project consists of upstream developments, transportation and liquid natural gas downstream developments.
M6 Toll Road Advising the government of Hungary in relation to its first PPP project.
Portsmouth Hospital Acting for the sponsors on credit guarantee facility financing (with monoline wrap) of the new PFI hospital.