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

In May 2008 many commentators predicted that Russia and other emerging economies were de-coupled from the credit crisis emerging in the West. Deals continued to flow in Russia that summer as they halted elsewhere, with LBOs still the flavour of the month....

In May 2008 many commentators predicted that Russia and other emerging economies were de-coupled from the credit crisis emerging in the West. Deals continued to flow in Russia that summer as they halted elsewhere, with LBOs still the flavour of the month. But then oil prices started to drop and Russia got into a war with Georgia. Deals started to slow, and after Lehman Brothers they stopped altogether.

By October, banking work switched to restructuring, with many Russian companies' debt maturing at the time. The Russian government stepped in to help with refinancing debts, but this has since stopped. Rusal is the most obvious example so far, but restructuring work is expected to accelerate from the autumn.

The main source of new money is from the European Bank of Reconstruction and Development (EBRD), International Finance Corporation (IFC). "When times are good people say 'who needs them, I can get my money from the bank down the road'" says one partner. Now the multilateral banks' rigid terms look attractive.

Small rises in commodity prices has seen trickles of lending, but nothing substantial. Partners report that when banks lend they are not looking at traditional debt instruments, but new ways to protect against exposure. "It involves many, many securities," says one partner.

Now is not a great time to be a capital markets lawyer. The recent equity boom that started to slowdown in 2008 came to a complete halt following the "September slump" as one partner calls it....

Now is not a great time to be a capital markets lawyer. The recent equity boom that started to slowdown in 2008 came to a complete halt following the "September slump" as one partner calls it. Now equity work is almost non-existent, with the debt side showing relatively more activity.

But the debt markets have had their trouble too, with a particularly volatile performance in 2009. But Gazprom brought a ray of light to proceedings in April 2009 with a Eurobond issue – the first Russian placement since September 2008. Most issuances in the immediate future are expected to come from state-affiliated companies.

The debt market decline did offer another opportunity for law firms. For a couple of months they gained work performing buybacks – "the least sexy part of the work" according to one lawyer – while other work arose from companies defaulting on bonds. With large chunks of foreign debt due in the third quarter by Russian companies, an increase in this work is expected from September 2009.

Equity markets have been even harder hit than debt, and firms are not hopeful of any Russian IPOs within the next year. Some work might emerge relating to equity-for-debt deals, but little else is likely to happen in the immediate future.

Speculation suggests that a future trend might see Russian companies shun the London Stock Exchange when looking for an IPO; specifically, Hong Kong is mentioned as an alternative. Such a dynamic change would have an obvious affect on firms in Moscow, leaving those with strong Hong Kong offices in a position to dominate.

However other partners say that London is still in the number one position for Russian listings. Political and other issues make it difficult for Russian companies to list in Hong Kong say commentators. "Any tentative enquires we have had about listings have only looked at London," says one partner.

On the structured finance side, it is expected that securities will start moving onshore using domestic bonds.

It hardly seems like yesterday that, as one partner puts it, "the question was, which client to turn away". M&A deals started to fall away in December 2008, a time when more than one partner reported turning to drink....

It hardly seems like yesterday that, as one partner puts it, "the question was, which client to turn away". M&A deals started to fall away in December 2008, a time when more than one partner reported turning to drink.

Now the market is down significantly, and one of the big problems is the price differential between buyers and sellers. "People, even the most robust sellers, need to forget about 2007. It is a major stumbling block at the moment," says one partner.

Deals that are moving forward are generally the small and mid-market type worth between $50 million and $70 million. "I am doing one $10 million deal," says one partner. "I haven't seen something of that size since 1995."

The energy sector is expected to keep producing large deals however, and many law firms are trying to establish themselves in this industry. At the same time, Daimler's acquisition of a stake in truck maker Kamaz might be illustrative of another type of deal that could happen. "Global players still want to establish a base here," says one lawyer.

There have been some changes to the structure of deals too, with clients looking to structure companies offshore again. This is a turn-around from the last few years, when political pressure forced more companies onshore. One partner attributes this to the new LLC Act, which means companies now need a local notary to witness stamp a restructuring deal.

There are also changes in how buyouts are structured. Companies are doing deals that see the buyer purchase a stake now, with the provision that the buyer will buy the other stake at a specified date in the future.

The expected flood of distressed sales has yet to be seen. Many attribute this to the Russian Federation's bailing out of several key industries; however this has since stopped, leading to commentators predicting a flood of distressed work in the months to come.

Project finance is a funny business in Russia. Despite some high-profile projects in recent years, the actual level of pure project finance is low....

Project finance is a funny business in Russia. Despite some high-profile projects in recent years, the actual level of pure project finance is low. The work that does exist is in two sectors: One is public-private partnership (PPP) work relating to infrastructure, while the other is to do with the natural resources sector. Opinions on which is the better sector to focus on vary.

Another part of the problem is that Russia still needs to become comfortable with the idea of project finance, in particular PPP projects. The flip-side of this is that international banks still need to become comfortable with the country. This makes how Russian companies deal with foreign debt that is maturing very important.

The other issue is that it can be difficult to distinguish project finance from other types. "Lots of corporate financing is dressed-up as project finance," says one partner.

Still, law firms see the potential in this practice area and have beefed up their capabilities in recent years. Legislation has been brought in an attempt at making PPP projects more attractive to investors, though there is some way to go on this yet. Russia's infrastructure needs updating nonetheless, and some of this work is being earmarked for PPP projects.

Work on natural resources has been badly affected by the decline in commodity prices. Oil, gas and steel have recovered to a certain extent, but aluminium is expected to remain low.

Still there is potential. "There is more scope than in the Middle East for project financing," says one partner. "Even if the crisis in oil prices continues at a low price, the facilities need renewing. Most of capacity on-stream is from the 1970s."

Potential large-scale projects worth keeping an eye include the Shtokman project and the South Stream project.

Corporate restructuring and insolvency has yet to take off in Russia, with the travails of Rusal the only public case so far. Several reasons explain this, but the biggest has to be the Russian Federation's $50 billion bailout for companies in trouble....

Corporate restructuring and insolvency has yet to take off in Russia, with the travails of Rusal the only public case so far. Several reasons explain this, but the biggest has to be the Russian Federation's $50 billion bailout for companies in trouble.

While this has kept companies afloat, there are problems with the bailout. "Vital restructuring is being delayed," says one partner, "and this will have an effect in the future."

Even the concept of insolvency and restructuring is still taboo in Russia. "The psychology and traditions; people don't get it." Any Chapter 11 type deals or court bankruptcies are not happening, with the court route viewed as unpredictable.

This is slowly changing as the government brings in legislative changes and people get used to the concepts. The situation is different to the crash of 1998 say lawyers who were around, as there is more knowledge and more experience this time around.