IFLR 1000
The Guide to the World's Leading Financial Law Firms

There is a consensus among Austrian firms that the banking market has stabilised since the beginning of 2011. "The general opinion is that most of the write-offs have been done this year [2011]," states one partner....

There is a consensus among Austrian firms that the banking market has stabilised since the beginning of 2011. "The general opinion is that most of the write-offs have been done this year [2011]," states one partner. The position of nationalised bank Hypo Group Alpe-Adria, however, remains unclear with many unsure whether it will survive: "I'm quite sure that they can't repay so they will have to be broken up or at least that's the perception of the market at the moment." says one partner.

Consolidation has begun for the banks that have to repay government subsidies received during the crisis. Volksbanken, Austria's fourth largest bank, which actually posted a small profit in 2010, put its 51% stake in Volksbank International, a lender with operations in nine countries in Central and Eastern Europe (CEE), up for sale in December 2010. Russian banks are reputedly interested, eager to gain a foothold in Eastern Europe where Austrian banks prevail.

Refinancing transactions still dominate, but in 2011 less of these deals were crisis driven and fresh financings are more common. "Acquisition financing is coming back [and] leveraged financing is coming back and [these are] the areas I expect most business for in 2011," says one. Large syndicated loans and club deals involving more than four banks have started to return in the last 12 months. Austrian banks, however, only have the appetite for good assets, exemplified by the huge interest shown when electricity supplier Verbund announced its capital increase.

Lawyers are benefiting from clients' cautiousness. "Everything is done more carefully, takes more time and is reflected on ten times. You can see it in the volume of the transactions we are advising on. Before the crisis we had deals in excess of €200 million now we are doing a fully-fledged documentation for €50 million," says one partner.

On the legislative side, stamp duty, a major point of contention for Austria, was abolished in January 2011. "It was really a hassle," says one lawyer. "A lot of transactions were structured just to avoid the stamp duty and without taking into account the real issues. To have the best possible security agreement was often just the second priority." Although duty still applies to some security agreements, for 90% of transactions it is no longer applicable.

Project finance has never been big business in Austria but with the opening of the country's oft-delayed first road PPP (public-private partnership) project, the A5, in spring and the awarding of the contract for the second, the B4 Maissau by-pass, in July, there is hope that these projects could stimulate this sluggish area.

Finally, after a four-year hiatus, the IPO market returned to Austria in April 2011 as aluminium company AMAG raised €535 million on the Vienna stock exchange. However the listing is not indicative of what remains a cautious market....

Finally, after a four-year hiatus, the IPO market returned to Austria in April 2011 as aluminium company AMAG raised €535 million on the Vienna stock exchange. However the listing is not indicative of what remains a cautious market.

Lawyers are not overly optimistic about what the deal signals for the IPO market and many suspect it will be an anomaly this year. "The stock exchange authority hopes that it will encourage and fire up the market, my feeling is that it's still too volatile," says one partner. "These issuers are not that big, they are still small-caps and not that visible to investors outside Austria and it's always necessary that you tap international capital markets." This view was given credence when Isovoltaic, a solar panel producer, pulled its IPO in the same month over disagreements on pricing.

Elsewhere on the equity side the picture is more encouraging, at least for law firms, with the majority noting a marked increase in mandates for capital increases in the last 12 months and pointing to a pipeline of deals.

The problems arise when it comes to closing, with the bulk of deals in 2010 and early 2011 suffering the fate of Isovoltaic and being postponed. "We have prepared several deals until almost to the signing phase but they were not signed. We have now just picked up a deal which was to be closed in November but we try now for the end of June 2012. This is not uncommon these days," says one lawyer.

Investors don't have the appetite for risk given the instability of global markets that have at various points in the last 12 months been rocked by the sovereign debt crisis, Fukushima and the Arab Spring, and issuers cannot get the share price they expect. Further hindrance came in February 2011 when the coalition government introduced a 25% capital gains tax in a bid to reduce its budget deficit.

There are of course exceptions. Utility company Verbund's €1 billion issue was the most significant transaction in 2010 and Porsche's €4.9 billion increase in April 2011 has already eclipsed that.

The outlook for the debt market meanwhile remains positive. For companies presented with a difficult equity market and an absence of affordable bank financing, bonds have proven increasingly popular .across the board. "The big ones have big activity, the smaller ones try to have activity but have issues with volume so run it like a programme, where they place bonds then wait, then place more," observes one partner.

The markets in Austria are becoming more sophisticated with clients willing to utilise convertibles and hybrid bonds to attract institutional investors. "Many of the people who tried to get in to the equity market but couldn't went in to hybrid, because of their need for rating," says one capital markets lawyer and another agrees: "Part of the hybrid strengthens and is recognised by the ratings agency. What is new is that we see it in combination with stock issues."

International investment banks are also enquiring about adapting products used in the US and the UK for the Austrian market. "We have seen quite a few bonds, fund activities are up again, corporate bonds, structured derivatives and syndicated loans," observes one partner. "There is the attempt to overcome the failures of the system which prevailed before the crisis through new innovative products."

The popularity of high-yield bonds in Germany is another source of optimism for Austrian firms with some suspecting they will see the first Austrian bond of this kind completed under German law in the next 12 months.

"Towards the third and fourth quarter [of 2010] we have seen an uptick in activity. We have also seen transactions coming back to normal – not really a distressed background but rather strategic deals," is one lawyer's assessment of the last year in Austria....

"Towards the third and fourth quarter [of 2010] we have seen an uptick in activity. We have also seen transactions coming back to normal – not really a distressed background but rather strategic deals," is one lawyer's assessment of the last year in Austria. This positive trend towards straight M&A is verified by others: "I would guess the wave of distressed work is dying out now," says one.

Necessity, however, is often still the catalyst for transactions. "In the energy sector there has been quite some activity. Some very large players are pulling out of markets not because they are strategic but because they just need cash now," says one lawyer. The IT, biotech, pharmaceutical and financial services sectors have also been cited as areas of activity. The latter is one area M&A lawyers concur is rife for consolidation. Nationalised bank Hypo Group Alpe-Adria teeters on the brink of default and Erste Bank has already put large assets up for sale.

Growth in M&A in Austria is picking up, albeit slowly. There are not enough significant transactions to satisfy the larger firms but there has been a flurry of deals in the mid-market to content the smaller ones. "The market is mixed. It's not absolutely bad or depressed," says one lawyer. "There are big ticket deals going on and I think it's more or less the same on all sides with private equity [and] with private M&A."

The good news for the market is the re-emergence of private equity houses in the first half of 2011. "It's still a seller's market. But if one has a good asset there's a lot of interest from private equity investors," says one lawyer. "They are becoming more active again." Another partner agrees: "They are still cautious but there is light at the end of the tunnel."