The emerging markets are experiencing phenomenal macroeconomic growth, which offers great opportunities for firms to be involved in deal-making. Lawyer 2B hears from those in the know.
Most international firms are already in the world’s major financial centres working on huge corporate transactions. So what’s the attraction of emerging markets?
Rachel Speight, Mayer Brown partner: In global economic terms, growth in Europe has been pretty poor and even in the Americas it has been quite flat. In the emerging markets, the growth rates are fantastic: Africa and Brazil are on a quite amazing macroeconomic growth trajectory. There are great opportunities in those regions.
Mark Soundy, Shearman & Sterling partner: The backbone of our firm is the New York-London axis – those are our two largest offices and yes, you would expect most of the strategic drive of the firm to come out of those. But as an international firm we chase high-end work for international clients. Very few of our clients are local, or if they start local they don’t remain local.
For example, one of our big private equity clients, Bridgepoint, is active in over 80 jurisdictions around the world. We have to follow our clients – and ideally we will be one step ahead of them.
Shreya Lal Damodaran, senior India consultant at Cleary Gottlieb Steen & Hamilton: In today’s globalised world, very few of our clients can afford to completely ignore the emerging markets. In such a scenario, law firms who advise such clients need to have credible practices to cover these jurisdictions. Hence, although a law firm may have a very good practice in developed financial centres, altogether ignoring the emerging markets can be a very self-limiting strategy.
This doesn’t mean that law firms necessarily need to open offices in several emerging markets but they certainly need to have jurisdictional experts who have relevant experience in assisting their clients on deals in such markets.
What are the hot jurisdictions at the moment?
Daniel Tyrer, Linklaters partner: From my perspective as a project finance and development lawyer, Russia continues to be very important, not withstanding the political situation. And the Middle East continues to provide a lot of opportunities, particularly in the downstream sector: refineries and petrochemicals work.
Soundy: The Middle East is definitely a place to be. I remember in 2009 everybody thought Dubai was going to sink into the sands but I was there only a couple of weeks ago and it is buzzing. It really is the hub of the Middle East and there is a lot of work.
Speight: In Latin America, Brazil is the country that stands out. There’s lots of infrastructure and oil and gas work, as well as M&A and large banking transactions built around projects and infrastructure. Mexico is also interesting because it has recently made some energy reforms and opened up the market, so everyone is really excited about opportunities in the Mexican power sector.
Soundy: Places like Egypt are also very hot and there are great opportunities for investment. I would definitely expect more M&A and private equity work in North Africa. I’m in New York at the moment because I co-head our global private equity group and every year we fly private equity partners from around the world in to one location. People are coming from Africa, India and the Middle East because they are the new frontiers for private equity and regional M&A.
Lal Damodaran: India’s economy is fast-growing and this brings a lot of opportunities for firms to be involved in the deal-making that’s bound to follow such growth. India’s demographics also play an important role in its emergence. It has a very large young population, making it an attractive labour market for manufacturing and services sectors. Another example of such a demographic advantage is India’s growing middle class, whose appetite for goods and services is a big draw for several multinational companies.
India also has a vibrant stockmarket with a huge number of companies listed on its exchanges, and a culture of entrepreneurship and investment. The new government at the centre is making a renewed effort to attract foreign investment, which presents an opportunity for multinational companies to reconsider their approach to India as an investment destination.
India has strict rules about foreign lawyers working there, however. What’s the situation?
Lal Damodaran: In short, the issue is that non-Indian lawyers are not allowed to practise law in India, whether in litigation or transactional work. Foreign lawyers are permitted to carry out fly-in/fly-out activities, under which they visit India for short periods to advise clients on foreign law issues.
At the moment, Western firms provide advice to Indian and non-Indian clients on non-Indian law issues and assist in transaction structuring and management either on a fly-in/fly-out basis or remotely out of one or more of their international offices.
What are the chief opportunities that law firms are looking to capitalise on in Africa?
Speight: Many of the big-ticket matters are project-based work such as infrastructure and mining, but the Africa story is much bigger now. There have been a lot of oil and gas discoveries that could really turn some countries around. In Mozambique they’ve just discovered a fantastic oil field that could rival those in Saudi Arabia. Oil and gas is a great story there and that’s going to see a lot of growth. People sometimes think of Africa as high risk but there’s enormous population growth and a growing middle class, which is generating fantastic M&A activity. Toyota, for example, imports a huge number of cars into Africa now that people have more disposable income. So while there is still a lot of project work, it’s now become more than that.
How do law firms get started in new countries? What are the challenges?
Tyrer: Where we don’t have our own office, clearly a big challenge is understanding the legal and regulatory system. Depending on the country, the quality of local counsel can vary.
Soundy: We are not one of those firms that opens an office with the attitude of “If we build it, they will come.” What normally happens is that you have one big client that takes a step into the unknown and you build some capabilities around them. Then other clients want to be in the same place and the business builds up around that.
Speight: Keeping and maintaining a presence on the ground is a challenge. You wouldn’t immediately open an office; you have to establish a record and that means people travelling back and forth to the country. And there are the usual everyday difficulties with communication, although lots of lawyers at Mayer Brown are bilingual. A lot of people in emerging economies work with personal email accounts so there are issues with security. And there are sometimes difficulties just getting in touch: I remember doing a deal in Mauritania during an election and we couldn’t get hold of anyone.
So how do firms go about doing deals in countries where they don’t have their own office?
Speight: Many of the transactions we do are cross-border. So you might find BNP Paribas or Standard Chartered – two very good emerging markets banks – investing in a project in Kenya and often they have an Africa desk in London or Paris. So it’s not too hard for me here in London to do that deal.
Also, in terms of time zones, the UK is quite close to Africa, and of course a lot of African countries have based their legal system on ours. Paris is another good centre for African business and there are some Portuguese and Brazilian firms that do well in the Lusophone countries of Angola and Mozambique.
Tyrer: With African deals, we work out of London and Asia, plus our Paris office working in Francophone Africa. We also have an office in Lisbon, which brings real value to transactions in Lusophone Africa because they know the local firms and the legal system, which is derived from the Portuguese one.
Soundy: We have a ‘best friends’ network that we’ve relied on for 140 years, so it’s a powerful one. If I do an M&A deal in the Middle East, we can work out of Abu Dhabi or Dubai as a hub. The chances are it will be a Sale Purchase Agreement, which is governed by English law, but there will be certain aspects where we need to take local advice, especially when it comes to due diligence, and then we use local lawyers, or if the business is being transacted in a language other than English. But the guts of the transaction, the long-form documents, will look pretty much like what you would see in London.
How do deals relating to emerging markets differ from others, if at all?
Soundy: When you are doing deals in the emerging markets, you need great clarity when thinking and speaking and documenting things because you are often dealing with clients for whom English is not their first language. Their English is much better than my Arabic but they are still reading documents and negotiating in something other than their native tongue.
On a recent deal, we basically rewrote an SPA in very plain English to guide people clearly through the document. Of course, as lawyers we always have to be very clear but it is particularly true in cases like this – you cannot have long, rambling sentences that go on for pages.
But perhaps an even more interesting difference is your role as a junior lawyer. Going on secondment and working in those environments is very exciting because you tend to be working on ‘frontier’ stuff, but also because you are in offices with relatively limited resources so you have to go out and do business development as well. In Dubai and Abu Dhabi, all the lawyers and clients know each other so you get a lot more exposure on the business and client development side.
Some emerging markets have a reputation for political instability. How difficult is it for Western law firms to do business in such conditions and how do they go about it?
Speight: You have to be very careful and it’s a hot topic for our international clients; in fact, it’s a big part of our work. We have an anti-bribery and corruption practice and they spend their time educating clients because, if someone doesn’t know the rules, they can tarnish the whole supply chain. Education and due diligence are very important.
Soundy: You have to keep your wits about you. Ideally, you will be working for clients you know to be highly reputable because you have worked for them before. When taking on new clients you have to be very rigorous in your due diligence. The problem is not so much about corruption but rather, especially in the Middle East, a lack of transparency. If you are working for a quasi-royal family in the region, they will want to make sure you don’t know all about their family affairs. That’s fine, but if you are doing a deal with them you will need a level of detail.
Tyrer: We have a strict and robust internal risk group that does thorough background checks on clients we may take on. That has stood us in good stead although, since we tend to work on the most high-profile transactions, we are perhaps not a natural home for the more exotic deals.
What advice would you offer students hoping to work with emerging markets? What skills do they need?
Speight: Good language skills – French and Spanish are useful. Flexibility and an ability to deal with lots of different people are also important, plus an international outlook and an interest in world affairs because they have a big impact on transactions.
It’s hard work but fun. I enjoy working with people from different countries and finding out what is happening there. And there’s the opportunity for travel. We were doing a deal in Eritrea recently and the documents had to be sealed and stamped. Our trainee helped us to achieve this by going to Eritrea.
Tyrer: I really wanted to do international work and most of the people who come to a firm like this want the same. I have always got a kick from doing deals in weird and wonderful places.
Soft skills as well as legal skills are important. You are often working with local counsel so you’re a semi-client and a semi-colleague. You’re working with local counsel to get the right legal answer but you are often passing on to them demands on you made by your direct client. So it’s often a more commercial role, making sure local counsel are answering the questions you ask in the right way.
Soundy: The most useful thing is listening to people who have worked there for many years. It is also good to read books that talk about the history of the place. What the region was like 20 or 40 years ago really does inform how and why the people there do business.
There are some things the UK is still very good at and the English legal system is absolutely world-class. If you are a student wondering what law is going to look like in 15 to 20 years’ time, it will be more globalised and English law is likely to be spread worldwide, even more than now. So the need for English-qualified lawyers is likely to be very strong and I expect London to be at the heart of what emerges. The coming years are going to be very exciting for young lawyers here.
Spotlight on: Angola
Angola is one of the 12 members of Opec (the Organization of the Petroleum Exporting Countries). It has become steadily more important among that group, which also includes Algeria, Libya and Nigeria in Africa, over recent years. A number of projects are due to come onstream with several large oil companies expected to start producing from new oilfields in the next three years.
Another major development on the horizon, linked to the foreign exchange control legislation, is the start of trading on the Angolan stock exchange in 2017, although this date has been put back several times already. Vieira de Almeida partner Francisco Amaral points out that the stock exchange has been under discussion for a long time and adds that few companies are preparing to list.
China remains the country’s major trading partner, alongside Portugal and South Africa, and is investing not only in oil and gas but also in the infrastructure development associated with the sector. Enquiries are increasingly coming from the US. Development includes the building of refineries and other infrastructure directly associated with the oil and gas sector, as well as roads, railways and general urbanisation.
Agriculture looks like another good bet for future investment and diversification of the economy. There are a number of agriculture projects on the go in the country’s interior. There has been a slow and gradual increase in the amount of land used for arable production, according to the United Nations, and this is expected to continue rising.
Sponsor’s comment: Katie Meer, graduate recruitment adviser, Shearman & Sterling
At Shearman & Sterling we pride ourselves on being a truly global firm. Our 18 worldwide offices work to deliver service to our multinational clients, such as HSBC, Liberty Global and Viacom. We do this by operating as global practice groups rather than distinct geographic locations. Our trainees are fortunate to have secondment opportunities in offices such as Abu Dhabi, Brussels, New York and Singapore.
Second-year trainee Sarah Moir-Porteous reflects on the deals she experienced during her secondment to Singapore: “I worked almost exclusively on projects in the emerging markets in countries such as Indonesia, Malaysia, Myanmar, Nepal and Pakistan. What made this so challenging was the limited legal framework in these jurisdictions; sometimes, deals would be a first for that country. In these cases we had no template for the transaction so we had to use initiative and be willing to adapt to the changing circumstances.
“On occasion, we were involved in working with the government to amend local laws to make them more sophisticated and attractive to our client and future investors.”
Second-year trainee Rosie Boyle has enjoyed a range of international deals despite remaining in the London office: “During my seat in Project Development & Finance I worked solely on projects based in emerging markets – mostly in North and Sub-Saharan Africa. This meant learning about not only the commercial background to the projects but also the political, legal and cultural backgrounds of these countries.
“One of the main things I learnt is the importance of flexibility – both in relation to clients’ needs and in the structuring of the project. The political, economic and legal infrastructures of these countries are developing at such a rapid pace it is important to keep up to date with what is happening and to understand how this will affect the project.
“Although this can be challenging, it is one of the things I enjoyed the most. It allows quite abstract financings to have a real element linked to important changes happening in the world. It is also exciting to see how the projects you are working on contribute to helping these countries develop.”
Working in emerging markets is a fast-paced and exciting experience. Providing clients with the best service in novel situations means pushing yourself to perform as a business adviser with cultural sensitivity, foresight and flexibility.
At truly international firms, this doesn’t have to mean travelling the globe but certainly requires you to stay up to date with world affairs and be willing to think creatively – skills that are highly valued at Shearman & Sterling.