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"Deals are happening, but .....

"Deals are happening, but ... there is quite a lot of tension [when it comes to negotiations]. Before it was happier," says a partner about the current banking and project finance environment in the Czech Republic.

However, new deals are few and far between. Cross-border financing is moribund, but there is still life in the local market. "On an isolated basis [Czech] banks are in better shape," explains one partner, "but they are still part-affected." The relative health of local banks has seen them turn to each other, rather than their parent banks, for interbank loans.

Deal activity is focused on small-to-medium sized transactions. The energy sector is one area that can expect to receive some new money. The sale of International Power to a Slovak company is a good example. "The banks will provide finance for this, because it is quite a big deal," says a partner.

Banking teams are occupied primarily with refinancing and reorganising arrangements. This activity is mostly voluntary so far, with banks trying to protect clients before they get in trouble. Many partners report continuous requests to review previously agreed deals. The work involves looking at covenants, waivers and – something banks are keen on – adding securities.

Export finance is relatively active, with the Czech government backing deals financially. This is a way of supporting national industries, with deals being put in place in Russia, Ukraine and the neighbouring Slovak Republic.

Project finance is quiet, but there are rumours that something might happen on the energy side. Public-private partnerships (PPPs) are unpopular given the previous experience of the D47 highway project, which was criticised for a lack of planning, transparency and budgeting. Little is expected beyond the small PPP projects that have begun as a way to stimulate growth.

"Equity capital markets are dead. People have stopped talking about them," says one partner in the Czech Republic....

"Equity capital markets are dead. People have stopped talking about them," says one partner in the Czech Republic. So dead, in fact, that the last big equity offering in the country was New World Resources' listing on the London, Prague and Warsaw stock exchanges in May 2008.

Partners note that in 2009 their work has shifted to become more defensive. "There are derivatives, the fallout from Lehman Brothers and the three Icelandic banks. The work is from one-off events," one partner says.

The local fixed-income market has also showed signs of life, even if it is less than in previous years. This is good news for domestic Czech firms, who tend to capture most of the local bond work. The Czech government has also discussed the possibility of retail bonds aimed at regular investors. The transitional government put in place until fresh elections in October 2009 maintains the plans will go ahead, but there has been little forward activity to date.

Looking ahead, lawyers see little chance of the many IPOs mooted before the collapse of Lehman Brothers going ahead any time soon. While some regulatory changes should yield work, most mandates will relate to regional players seeking to take stakes in companies in need of capital.

"I can tell you what is not going on and that is large, leveraged deals," says a partner on current activity in the Czech M&A market. Bar the odd exception, big M&A deals are unlikely to return in the immediate future....

"I can tell you what is not going on and that is large, leveraged deals," says a partner on current activity in the Czech M&A market. Bar the odd exception, big M&A deals are unlikely to return in the immediate future.

Several firms hoped to benefit from an expected surge of sales in distressed assets, however this is yet to materialise – with potential buyers holding out for prices to stabilise. Disposal of healthy but non-core assets by international companies is the one exception, with International Power's decision to sell its Czech assets being an example of this.

Transactions that are going through are of low-to-mid-market size and are taking much longer to complete. Partners also report that clients are asking firms to look over previously agreed deals for any flaws, with the aim of clawing some money back.

The privatisation of the Prague Airport is currently stalled, but officials insist it is still to go ahead. It is expected that some restructuring of the company might take place before it is put back on the market. Czech Airlines has gone through a disappointing tender process, but its privatisation should occur, eventually. The only question is, "if the value will be greater than zero," says one partner.

The effects of the credit crisis have taken longer to manifest themselves in the Czech Republic than in western Europe. The country is an exporter and depends on the West, but one partner predicts: "We [the Czech Republic] are not likely to have the full year of insolvencies that other countries will have....

The effects of the credit crisis have taken longer to manifest themselves in the Czech Republic than in western Europe. The country is an exporter and depends on the West, but one partner predicts: "We [the Czech Republic] are not likely to have the full year of insolvencies that other countries will have."

This is for a number of reasons, including the relative liquidity of local banks here. However, problems have begun to mount and the market is now expecting a lot of cases, more than anticipated 12 months ago.

The new Insolvency Act 2008 has had over a year to bed in and the response to it has generally been positive, bar a few teething problems. "Certain companies are trying to get rid of receivables by way of insolvencies," says one partner. "But it is a positive development." The new law contains provisions for reorganising companies, a novel concept in the country.

Restructuring and insolvency work that is coming through is from a range of sources. For one, a number of multinational or regional companies are bringing cross-border cases, benefiting international law firms that can provide cross-border services. But there is still a need for local knowledge, so international firms with good domestic capabilities will do well.

Firms with good connections to banks should thereby receive regular work. And, to date, the automotive industry has not been as badly hit as expected, but this could change. Meanwhile, gas and porcelain (one of the country's traditional industries) are sectors that have been impacted by the downturn, but real estate has held up so far – perhaps for not entirely transparent reasons. "The banks are terrified to call in real-estate developers," says one partner, "because it could start a domino effect that would devalue the property on their books."