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

"It's been a wonderful year in terms of diversity and volume - a lot of transactional banking deals, syndicated loans, cross-border loans, and deals scheduled like credit transactions with credit agreements," one attorney reports. "We've got more work than last year," remarks another....

"It's been a wonderful year in terms of diversity and volume - a lot of transactional banking deals, syndicated loans, cross-border loans, and deals scheduled like credit transactions with credit agreements," one attorney reports. "We've got more work than last year," remarks another. "We're not up to pre-crisis level but we're on the way; maybe this year."

Not only is Brazil one of the fastest-growing economies in the world, it is also Latin America's largest. Though inflation continues to be a concern, closing at 5.9% in 2010 and increasing to 6.5% in 2011, in the words of one attorney, "The economy is hot but not overheated."

The boom is translating into an uptick in banking activity across the board, following a slowdown created by a brief post-crisis recession. In 2011, the government reported that domestic consumption, fuelled by fiscal policy and rapid credit growth, was the main driver of Brazil's boom over the previous two years. Other factors include the country's appeal to foreign investors, increased government spending, a rich reserve of natural resources and the high prices of commodities, an addition of more than 22 million people to the middle class between 2003 and 2009, and Brazil's upcoming role as host to the World Cup in 2014 and the Olympic Games in 2016.

By all accounts, the business community is receptive to the country's new president, Dilma Rousseff, who was inaugurated in January 2011 and was former president Lula's former Chief of Staff. "So far she's done a great job managing the country," says one source. "A lot of people are pleasantly surprised that she's not just trying to continue Lula's politics but putting on her own stamp as a manager." Another partner agrees: "She has proven herself to have a sound decision-making process in overseeing the Rio Olympics. She's more of a technocrat than a politician."

On the capital markets front, the picture is a calmer one. On the equity side, the last couple of years has been relatively quiet but the end of 2010 and 2011 have seen the IPO market at least come back in some part. "The market in general has improved this year," says one partner. "The beginning of this year, very intense; a lot of IPOs."

Despite this increase, investors remain highly selective and many offerings have not generated as much capital as would have been expected. "The IPOs that have launched are companies that have strong histories and are more well known," says one partner. "The pricing of IPOs is not the same as before the crisis. Before the crisis pricing was at the top range; now it is low and middle."

Competitors have also noted that the regulators are now much more attentive and aggressive when considering new products and deals, as one partner explains: "A lot of activity with the Brazilian Securities Commission going after insider trading, market manipulation." Although most would agree with a more rigorous regulatory regime, it can lead to a downfall in activity. "This has had an effect on capital markets activity in law firms last year," the same partner says.

One general concern has been the country's reliance on too much foreign investment, so the government has created an incentivisation program to encourage domestic banks to make the 20 and 30-year loans needed for Brazil's big infrastructure projects. One lawyer explains, "There was a problem in the past with banks funding themselves with foreign currency so the government created credit incentives. This will shift the amount of foreign funding for banks and the foreign exchange rate."

Overall though, one practitioner observes: "The environment is more one of opportunities than challenges." However, he acknowledges: "The biggest challenge for Brazil is to have the infrastructure work done on time and within budget. There are a lot of opportunities surrounding this. People will scramble to get things done."

Business is booming for Brazilian private equity and M&A lawyers. Since the 1990s, investors have been attracted by the country's huge domestic potential, economic growth and business-friendly policies....

Business is booming for Brazilian private equity and M&A lawyers. Since the 1990s, investors have been attracted by the country's huge domestic potential, economic growth and business-friendly policies. By April 2011, Brazil had overtaken China as the top target for private equity investment, according to a report by the Emerging Market Private Equity Association. One attorney remarks, "It's no longer BRIC – it's Brazil!"

Although the 2007-08 collapse of the economic systems in Europe and the US caused some disruption, lawyers report that the Brazilian markets have since made a comeback. According to a 2011 report by Bloomberg, Brazil's M&A activity is at a ten-year high. Energy and communications were amongst the hottest sectors, with blockbusters such as the sale of Brasilcel to Telefonica, and the sale of Repsol YPF Brasil to the China Petroleum and Chemical Company. "A number of transactions were really astounding," says one partner.

In particular, attorneys spent much of 2010 anticipating the "mammoth" Petrobras deal. In the world's biggest stock offering, the state-owned energy company raised $67 billion when the transaction finally took place in September that year. The event kept both Brazilian lawyers and their foreign counterparts busy, made international headlines, and was described by President Luiz Inacio Lula da Silva as "a new chapter in Brazil's development".

Practitioners report that consumer goods, mining, real estate, education and entertainment have also been doing well. One partner says that firms and their clients are "looking to market with very good expectations", while another notes that "bankers are very bullish about the equity market". In particular, lawyers have been busy assisting private equity asset managers with obtaining regulatory approval from the Brazilian SEC.

The explosion in activity has been helped by government incentives designed to increase foreign investment, such as the Brazilian Participation Fund (FIP). FIPs are vehicles which hold equity ownership interests in companies under a structure similar to that of a holding company. For foreign investors, they offer the added advantage that income or capital gains are not subject to any Brazilian withholding income tax, as long as certain requirements are met. In January 2011, the government lowered taxes for foreign investments in long-term Brazilian FIEE emerging company funds and FIP holding funds from 6% to 2%.

Whilst attorneys are optimistic that deal flow will continue to increase over the next 12 months, challenges lie ahead. These include long-standing issues such as controlling inflation and currency valuation, and maintaining liquidity in the credit markets.

With Brazil's relentless economic expansion and an explosion of foreign investment in the country, a presence in São Paulo is fast becoming a must-have for international firms with a serious focus on Latin America. Over the past few years, a swarm of mega-firms - including seven of the eight largest in the Global 100 - have opened offices in Brazil....

With Brazil's relentless economic expansion and an explosion of foreign investment in the country, a presence in São Paulo is fast becoming a must-have for international firms with a serious focus on Latin America. Over the past few years, a swarm of mega-firms - including seven of the eight largest in the Global 100 - have opened offices in Brazil. Since many have long had Latin America practices operating from offices in other countries, a physical presence in Brazil is the next logical move.

This year, the IFLR1000 has dedicated a special section to some of the most promising ventures into one of the world's most exciting emerging markets. As well as international firms which already have operations in Brazil or associations with local firms, we have included news of leading firms which have announced plans to open up branches in the country.

As two of the world's top financial centres, New York and São Paulo have always had strong ties. With many Latin American deals involving listings on the New York Stock Exchange, top firms from the Big Apple have historically based their Latin American practices in New York, often franchising work out to a network of Brazilian practitioners. Unsurprisingly, São Paulo is the top choice for international firms seeking to open up their first office in Brazil, or form alliances with their domestic counterparts.

However, traditional relationships between domestic and foreign firms have, in some cases, begun to shift. "The Brazilian firms are starting to feel some competition," says one attorney. "Historically, the [international] firms with head offices there have mainly focused on striking trans-national work which really wasn't competing with the Brazilian market – but now they are."

The permissibility of international firms operating in Brazil is a complex matter which has been the subject of widespread debate. In order to be granted the permanent right to practice by the Brazilian Bar Association (OAB), those with a law degree from a Brazilian or international law school must pass the OAB bar examination and fulfil all of the organisation's other requirements.

Another option is to obtain a license as a foreign law consultant, which is valid for three years and is renewable, subject to the approval of the OAB. Requirements to obtain the license include holding a permanent visa, being licensed to practice law by a bar association or the equivalent abroad, providing evidence of good character and conduct and having a clean slate in terms of criminal convictions and disciplinary violations. Foreign law consultants are only permitted to provide legal advice on the law of the country they are licensed to practice in.

In an effort to keep their operations above-board, many foreign firms have formed alliances with local firms. However, in 2010, the São Paulo bar association published an advisory decision which found that such formal alliances are against its rules. "Because of the increasing interest in international law firms, a lot of the law firms in the Brazilian market didn't feel happy and called upon the bar to take measures," says another lawyer. However, he is philosophical about the recent invasion by foreign firms. "The market is big enough for everyone," he adds. "We shouldn't be afraid of international law firms - it shows that the market has come of age. It's not what it was 10 or 15 years ago."

It seems timely that at the point where Brazil finally seems to be realising its economic potential and drawing the eyes of investors and prospectors from across the globe, that the country should also be gearing up to host the two biggest festivals of world sport: the 2014 soccer World Cup and the 2016 Olympic Games.Brazil has hosted the World Cup before of course, but that was in 1950, the world and the event have changed dramatically since then....

It seems timely that at the point where Brazil finally seems to be realising its economic potential and drawing the eyes of investors and prospectors from across the globe, that the country should also be gearing up to host the two biggest festivals of world sport: the 2014 soccer World Cup and the 2016 Olympic Games.

Brazil has hosted the World Cup before of course, but that was in 1950, the world and the event have changed dramatically since then. A look back to the South African finals of 2010 is a better comparison, an up and coming economy presenting itself to the world whilst desperately trying to cope with the infrastructural demands of a huge influx of fans from across the globe.

Few doubt that the country will put on a show, with many imagining a Rio Carnival type celebration on a grand scale, but beyond the pageantry there is plenty of less glamorous work still to be done.

Infrastructure, not just in the forms of the stadiums themselves, but also roads, rail, airports and leisure facilities, will all need to be put in place and the clock is ticking.

"The sense of urgency is there, especially for new transportation, airports and hotels. 22,000 new rooms are needed in Rio alone for 2016," says one partner. "It goes beyond city government to the federal level; for the first time in 30 or 40 years, totally aligned."

There is a concern that things are not moving as quickly as they should be, with bureaucracy and the recent elections both being blamed for the delays. "We're beginning to see some work related to upcoming sporting events," says one partner, "Things are moving slower than we'd like because they depend on the government, so we haven't seen a lot on the finance side."

"Projects for the Olympics and World Cup are somewhat behind because of the general elections; lot of complications. Bureaucracy is a problem," says another. However, there is still optimism that realism will start to drive things forward: "Investors' perceptions of the new government are quite positive because of the program they have in place for infrastructure projects," says another partner. "They're not trying to re-invent the wheel. There's a general consensus about what needs to be done."

Alongside the stadiums, other projects planned include an extension of the Rio Metro and a high-speed rail link between Rio and Sao Paolo.

Driving a number of these projects is the Brazilian Development Bank (BNDES) and firms with good connections with the institution will be looking at a good number of mandates in coming years.

Outside of sport-related infrastructure, another major project of interest is the Belo Monte Dam. When completed, it would be the third largest hydroelectric project in the world behind the Three-Gorges in China and the Itaipu Dam on Brazil's border with Paraguay. With the economy booming and the population increasing, demand for power will only keep going up and the country will soon need to decide whether its future is in big projects like Belo Monte or energy production on a more macro scale.