Hong Kong: Solid state

It has not been a spectacular year for Hong Kong’s top-end players but routine work remains strong and the mid-level market is toughing it out 

Demand for prime office space is always a good barometer of a city’s business climate. In the legal sector, changes in firms’ office space can reflect dealflow and staffing levels in the city.


This year has seen a fair number of US and UK firms reduce their office space in Hong Kong, either by sub-letting or moving to less expensive premises. Wall Street firm Cleary Gottlieb Steen & Hamilton is a case in point. It recently moved away from the Central district, one of the most expensive office property markets in the world, to a 16,000sq ft space on the 37th floor of Hysan Place in Causeway Bay, 34 per cent smaller than its previous office in the Bank of China Tower.

Cleary’s move may be a one-off – the majority of international firms have so far decided to remain in the city to be close to their big clients. However, as dealflow for large M&A and capital markets transactions has receded, many have resorted to sub-letting underutilised office space to cut overheads. Those known to have looked at sub-letting include Paul Hastings, Weil Gotshal & Manges, Reed Smith and Orrick, Herrington & Sutcliffe.

A few have decided to call it a day in Hong Kong. In July US firm Blank Rome closed its Hong Kong office, with the two resident partners moving to Bryan Cave. The closure came just over two years after the office opened. 

“There’s a downturn in corporate activity, and that coincides with more firms opening and expanding in Hong Kong, particularly looking for corporate work,” says an experienced international lawyer in Hong Kong. “It’s a crowed market, with too many people chasing a few big deals. The US and international law firms with a high cost base who are concentrating on corporate work are suffering. 

“Some firms are downsizing, retrenching underutilised departments, getting rid of fringe players and focusing on profitable areas.”

For Deacons,the largest independent firm in Hong Kong, corporate was “solid, but not spectacular” this year.

“Equity capital markets and the finance side is quiet – it’s not as spectacular as last year and there’s low visibility into 2014,” says Deacons executive partner Keith Cole, whose practice focuses on corporate and M&A. “Overall, the Hong Kong market has been quiet.” 


Although the first three-quarters of the year were relatively quiet, the market is showing signs of recovery.

In the IPO market, for example, a string of deals have gone through in the past a few months. Some of the recent big-ticket IPOs on the Hong Kong Stock Exchange include the $1bn (£620m) IPO of Liaoning Huishan Dairy, the $1.1bn IPO of Huishang Bank, the $593m IPO of Bank of Chongqing, and the $425m IPO of Yuanshengtai Dairy Farm.

China Cinda Asset Management, one of China’s largest non-performing loans managers, is set to launch in Hong Kong, with the aim of raising $2bn from the global offering. This could be the largest capital-raising activity this year. Sullivan & Cromwell, which advised the financial institution on the $1.6bn sale of a minority stake to four strategic investors last year, is understood to be playing a leading role in the proposed IPO.

Another much-anticipated offering is the proposed IPO of meat producer Shuanghui International Holdings, valued at about $6bn. Paul Hastings and Chinese firm Commerce & Finance, which advised the Chinese company on its recent $4.7bn acquisition of US company Smithfield Foods, have both secured roles as the issuer’s counsel.

“The past quarter has seen a significant upturn in capital markets and M&A work,” says Phillip John, Norton Rose Fulbright’s head of North Asia. “It’s too soon to call it a bull market but the signs are good.” 

The recent flurry of IPOs has been driven in part by newly enacted IPO sponsors rules. Companies and underwriters were keen to submit their listing applications before the new rules came into effect on 1 October.

The regulation emphasises the gatekeeper role of sponsors, sets out extensive and strict prescriptions for the due diligence process and clarifies sponsors’ legal, civil and criminal liabilities. The rules create a significant amount of additional internal control work for the in-house legal and compliance teams of banks and securities firms, and raise the requirements of their external advisers. Some observers worry the stringent requirements may turn companies and sponsors away, damaging Hong Kong’s IPO market. But most lawyers believe the revised rules will benefit Hong Kong in the long term.

Despite the extraordinary boom cycles that characterise Hong Kong’s equity capital markets, its debt market has provided a steady stream of corporate finance work for international firms. Firms such as Allen & Overy, Clifford Chance, Davis Polk & Wardwell and Slaughter and May have all recently advised on bond issuances for Hong Kong-listed Chinese companies.

“The investment community has really warmed up to credit-enhanced bonds, and we are seeing more interest from issuers,” says Clifford Chance Shanghai-based capital markets partner Jean Thio.

Another active area in debt financing is the dim sum bond market – also known as offshore RMB-denominated bonds. According to data compiled by Thomson Reuters the total amount raised from dim sum bonds in Hong Kong in the first nine months of 2013 reached $20.9bn, an 8 per cent increase from the same period last year.

“We’ve had lots of client requests to help out on RMB bonds issuance,” says Cole. “Assisting clients applying for RMB-qualified foreign institutional investors is another big area, and an important area of the fund industry in Hong Kong.” 

Regulatory work

In line with the global trend, Hong Kong is moving towards a more regulated environment. Lawyers on the ground have noticed a sustained uptick in enforcement activity by Hong Kong’s regulators. A notable example is the HK$1.6m (£126m) fine imposed on Credit Suisse by the Securities and Futures Commission (SFC) for regulatory breaches and internal control failings. The action came after the regulator conducted an investigation into the holdings of Credit Suisse and Credit Suisse International which found open positions in Industrial and Commercial Bank of China stock options in breach of the prescribed position limit of 50,000 contracts in 2011.

In the banking and finance sector the Hong Kong Monetary Authority (HKMA), Hong Kong’s de facto central bank, has also stepped up its enforcement action. The Hibor (Hong Kong interbank offered rate) investigation is a case in point. HSBC and UBS are among the banks investigated by the HKMA for alleged inappropriate market conduct in their local benchmark rate submissions. It echoes the global probe into rate-fixing, such as the Libor investigation in the UK.

“There’s a sustained and constant uptick in enforcement activity in Hong Kong,” says Norton Rose Fulbright litigation partner David Lee “The increase is both locally and globally driven. There are issues that are very Hong Kong-specific, such as listed companies subject to short-selling and fraud allegations, and investigations driven by overseas regulators, such as the investigations into banks for influencing lending rates.”

“Clients and firms need to keep looking over their shoulders to see what is happening in other jurisdictions, as Hong Kong will follow suit. There’s a high degree of interaction between regulators in key jurisdictions, and what happens overseas is closely linked to what happens here.”

Strengthened enforcement efforts, particularly in the financial services sector, have seen a number of international firms beef up their regulatory and investigation teams.

For example, Freshfields Bruckhaus Deringer hired ex-SFC employee and Herbert Smith Freehills(HSF) partner Tim Mak. Linklaters has also hired from HSF, picking up the firm’s former Asia litigation head Gavin Lewis. At the beginning of this year, Davis Polk launched an enforcement and litigation practice in Hong Kong with the hire of Clifford Chance heavyweights Martin Rogers and James Wadham.

The growth in regulatory enforcement is not exclusive to international firms. Hong Kong firms such as Deacons and Howse Williams Bowers (HWB) are also gearing up for more work.

HWB has recently hired experienced regulatory and compliance lawyer Jill Wong as a partner. Wong joins from King & Wood Mallesons Hong Kong office and had previously served as deputy general counsel at the HKMA.


“While corporate work is steady, there’s plenty of regulatory and compliance work around as Hong Kong becomes more regulated – firms need more specialist lawyers in that area,” says Chris Howse, senior partner at HWB.

Several new laws and regulations have been recently enacted or are due to come into force next year, such as the Companies Ordinance and Competition Ordinance. Despite volatility in the capital markets, contentious and non-contentious regulatory matters will keep lawyers and clients in the city busy.

Key figures: Hong Kong 

GDP: $244bn

Inflation: 4.3%

Population: 7.2m

Life expectancy at birth: 83

Unemployment: 3.3%

Source: The Government of Hong Kong, World Bank