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

After the global financial crisis left many international banks lacking liquidity, Chinese banks have bucked this trend and are seeking new ways of investing their capital. As one partner notes, "the financial crisis was a shift in Asia because suddenly Chinese banks were the only ones with capital, and they wanted to spend it even when all of the international banks weren't lending....

After the global financial crisis left many international banks lacking liquidity, Chinese banks have bucked this trend and are seeking new ways of investing their capital. As one partner notes, "the financial crisis was a shift in Asia because suddenly Chinese banks were the only ones with capital, and they wanted to spend it even when all of the international banks weren't lending."

This has led to China-related banking and finance growing in prominence this year with a substantial amount of outbound M&A finance and project finance work coming out of China. Inbound acquisition financing remains a strong source of work for international firms, but it does not seem to be growing at the same rate as outbound has been. "Outbound financing is the big story this year," says one partner. "Chinese companies aren't just looking to make the same old acquisitions anymore. They want technology, patents and trademarks and the PRC (People's Republic of China) banks can and will finance them in acquiring targets." Chinese companies have continued to make outbound acquisitions in a number of sectors that are historically of interest, such as oil and gas, mining and natural resources, and manufacturing. However companies also do seem to be becoming decidedly more audacious in their outbound investments as they look to make less customary acquisitions in high-end technology, international brands and trademarks.

While the traditional areas of investment still comprise the overwhelming majority of Chinese acquisitions, the rate of growth in luxury goods sector is certainly increasing. Given these developments, banking and finance practices in Hong Kong must have strong relationships with Chinese banks and investors in order to remain competitive in the market.

Australia continues to be a key destination for outbound acquisition financing for natural resources. There has also been a high level of interest in less traditional geographic regions such as South America and Africa. Chinese banks have also supported major investments in the project finance sector across Southeast Asia, with several seminal deals this year heralding the first time that Chinese banks have led international syndicates in project financings.

For example, in 2010 Sinosure provided an export credit facility guarantee for five leading Chinese bank lenders in the financing for India's $1 billion Sasan power project. The Sinosure-backed project financing represented the largest ever financing of an Indian project by Chinese lenders. The Baha Mar luxury resort development, slated to be the largest ever in the Bahamas, also represents a case of Chinese lenders following Chinese companies overseas as the project is being developed by a Chinese contractor and financed by the Import-Export Bank of China.

Financing work originating from liquid banks in other Southeast jurisdictions is also becoming increasingly popular with firm's advising on syndicate deals coming from right across the region.

International banks continue to lead in inbound acquisition financings, while both domestic and foreign banks play a key role in pre-IPO financings for Chinese companies.

This has been the year of Rmb-denominated "dim sum" bonds in the Hong Kong market, with all of the leading international firms getting into the action. 2009 signalled the start of the market but they have grown in popularity since then and firms will be hoping this trend continues....

This has been the year of Rmb-denominated "dim sum" bonds in the Hong Kong market, with all of the leading international firms getting into the action. 2009 signalled the start of the market but they have grown in popularity since then and firms will be hoping this trend continues. "Rmb bonds are really hot," says one debt capital markets partner, "they're what everybody either doing or wants to be doing, and you need to be at the forefront of these types of loans to be competitive. This might be a repetition of history, like when everybody wanted to do the euro-yen bonds in the late 1980s. But it's most likely that dim sum bonds aren't hype and that they're here to stay as long as Beijing supports them."

China's capital control regime has been restrictive for institutional investors in the past and these same investors are now looking at the dim sum bond market as a more flexible issuance option. By listing on the Hong Kong Stock Exchange, investors have an increased opportunity to carry bonds in Chinese companies. It goes without saying that investors have jumped at the chance to enter the mainland market-as the Financial Times reported on April 26th, there were more dim sum bonds offered in Hong Kong in the first four months of 2011 than there were during the entire year of 2010.

In general the Hong Kong debt capital markets space is also nearly split between high-yield and convertible bonds work, with most firms prioritising one or the other. Most of the US firms in Hong Kong focus almost exclusively on high-yield and Rmb-denominated work over convertible bonds, which is traditionally a stronghold of magic circle practices.

"There are really two types of debt practices in Hong Kong, and they're really not similar kinds of work," says one partner. "You've got people who are good at high-yield, and that's the growing market and then you've got people that just focus on the convertible bond work. There are really two categories, there-most practices just do one or the other." Despite this general market sentiment some notable firms continue to have top expertise across high-yield, convertible bonds and dim sum work, and these have a rather unique place in the market.

2011 has been a year of changes in the Hong Kong capital markets arena, with the most significant being the slew of US firms that have recently entered the market obtaining Hong Kong law capability in order to remain competitive. There are now almost no US firms in the Hong Kong market who do not have a local law practice as firms generally seem to agree that they won't be able to remain competitive without it....

2011 has been a year of changes in the Hong Kong capital markets arena, with the most significant being the slew of US firms that have recently entered the market obtaining Hong Kong law capability in order to remain competitive. There are now almost no US firms in the Hong Kong market who do not have a local law practice as firms generally seem to agree that they won't be able to remain competitive without it.

This has also meant that many US firms have gained their Hong Kong law practice at the expense of top magic circle firms, who had top local qualified partners and practices already. The shift of these partners away from the magic circle set and towards the US firms has undoubtedly shaken up the legal market. While some of the magic circle firms still lead the market for the mega-IPOs, it remains to be seen if the majority of them will be able to maintain that position as US firms now offer similar capabilities.

This power shift in Hong Kong is also reflected by the general problems that all firms are having in retaining top associates. The general consensus seems to be that it is a true "sellers market" in Hong Kong for capital markets associates. Some of the more traditional IPO powerhouses have had trouble retaining top associates as the new hires are easily attracted by higher salaries and the growth potential in the new practices of the US firms. Firms that give associates a range of experiences including M&A work seem to have a comparative advantage in retaining talent.

This past year has also brought much negative press about Chinese companies being undervalued by international investors on the Nyse and Nasdaq due to questions of accountability, transparency and corporate governance. This could be a potential source of concern for firms whose primary businesses is helping Chinese companies on their outbound US listings. There has also been an increasing level of talk about potential "go-private" listings, where Chinese companies plan to de-list from US exchanges and perhaps re-list in Hong Kong or Singapore. In these cases, the presumption is that Asian investors who could "better understand" the companies would have increased opportunities to buy shares on the region's exchanges and thus bring up the stock price.

Despite this however, there seems to be no noticeable slow-down in Chinese companies wishing to list in the US and overseas. Either way, the level of listing and de-listing advising that will be required in the future means that both Chinese and international firms' capital market practices should have a robust pipeline of work moving forward.

Perhaps related to the perception of Chinese companies getting a poor shake on the US markets, A and H-shares listings have become increasingly popular as a way for companies to provide investment opportunities to both Chinese and international investors.

While structured finance and securitisation certainly hasn't rebounded to post-crisis levels, the market in Asia is certainly picking back up. Investors are slowly becoming more comfortable with these products, as memories of the crisis fade and new proposed regulations hope to resurrect investor confidence....

While structured finance and securitisation certainly hasn't rebounded to post-crisis levels, the market in Asia is certainly picking back up. Investors are slowly becoming more comfortable with these products, as memories of the crisis fade and new proposed regulations hope to resurrect investor confidence. "There's not a lot of securitisation work going on globally," says one partner. "But most of the work that is being done is happening in Asia. I wouldn't say that the market is back to pre-2008 levels, but it's definitely improved. Last year was so quiet, and now we have been quite busy."

The uptick in the structured finance and securitisation arena is underscored by the relocations of some top partners from the US and Europe with those professionals viewing Hong Kong as a future global financial centre for these products. "I came from the US last year because the market was pretty dead over there," one leading derivatives partner notes. "Asian investors aren't necessarily comfortable with using securities to mitigate risk vs. other types of products, but I'd say they are becoming increasingly interested and are looking at new tools.

Korea continues to be one of the main markets in Asia for securitisation work, and banks continue to show interest in structured products relating to asset-backed products for hedging purposes. This is a boon to practitioners in Hong Kong who specialise in this type of work, as Korea can often be a proving ground for introducing new types of products to Asian investors.

Many top-tier firms have also had a role in developing China's new derivatives rules, which should open up a new market when they are finally enacted. Derivatives teams are also involved in continuing to unwind assets from the Lehman collapse.

The development of competition law in Hong Kong has at times seemed a bit like that proverbial football kick between Charlie Brown and Lucy-firms keep preparing for the imminent introduction of Hong Kong's competition law, only to have its drafting and implementation delayed again and again. However, that long-awaited day seems to be nearly here, with the law's review committee expected to conclude their work in summer 2012....

The development of competition law in Hong Kong has at times seemed a bit like that proverbial football kick between Charlie Brown and Lucy-firms keep preparing for the imminent introduction of Hong Kong's competition law, only to have its drafting and implementation delayed again and again. However, that long-awaited day seems to be nearly here, with the law's review committee expected to conclude their work in summer 2012.

This increasingly real spectre of the competition law has meant that clients are starting to invest in competition/antitrust consultation at an increasing rate, and have an interest in developing training and advisory programmes for their employees so that they are prepared when the law comes to pass.

Hong Kong is currently a bit of an outlier among Asia jurisdictions, having been one of the last to develop an anti-monopoly law. Places like Indonesia, Korea, Japan and China have gotten increasingly aggressive in enforcing their regimes and imposing fines on corporations who are not compliant. Together these movements represent a collective shift towards increasing regulation in the region.

After several recent high-profile failures-including Coca Cola's unsuccessful attempt to acquire HuiYuan juice producers because it was prohibited by Mofcom-clients from top firms seem to be investing more in antirust matters when it comes to investments and proposed M&As into China. This is also a boon to Greater China teams based in Hong Kong. Companies have taken a more preventative approach to compliance and ensuring that their proposals are successful with the Chinese government. Mofcom has increasingly resorted to Phase II investigations, which encourages firms to provide high-level advice to clients in the post-Coca Cola era.

Financial services regulatory work remains an important component of top financial law practices in Hong Kong, as regulators continue to investigate clients with increased diligence after the financial crisis. One former senior SFC official said that, "Having worked on both the private practice and regulators sides in my career I think I have a good vantage point to comment on what has been happening in Hong Kong....

Financial services regulatory work remains an important component of top financial law practices in Hong Kong, as regulators continue to investigate clients with increased diligence after the financial crisis. One former senior SFC official said that, "Having worked on both the private practice and regulators sides in my career I think I have a good vantage point to comment on what has been happening in Hong Kong. I understand that the SFC wants to be especially diligent after the financial crisis, but from a business perspective we need to keep enabling Hong Kong companies to be market leaders and give them room to grow. Regulation is good, but there is a danger of having a knee-jerk reaction in response to the crisis."

Speaking of one of the main reasons for the SFC's increased levels of enforcement, contentious work continues to focus on the fallout from the Lehman Brothers collapse, the minibonds scandal and liquidation issues. While some of this work is still related to the valuation of outstanding derivative assets, much centres on banks seeking advice in minimising negative exposure from SFC investigations. Representing clients in cases relating to fraud or misconduct charges is also a large part of this practice.

Practices commonly focus more on either contentious or non-contentious work, with a few notable exceptions. Much of the non-contentious work has to do with advising clients on mitigating future exposure and minimising the risk of SFC problems in the future. Advising clients on FCPA work also provides a steady stream of mandates.

One regulatory change that will likely come in the near future is the shift from self-regulation in the insurance industry to the establishment of an independent insurance authority in Hong Kong. While the new Insurance Authority has yet to be developed implemented, the government did green-light its creation this year after the conclusion of consultations in 2010. The new government body, which will have substantial licensing, investigation and prosecution powers, will likely create a new area of compliance work for regulatory practices in Hong Kong.

Investment funds work in Hong Kong continues to be largely dominated by a small number of high-profile players, though lots of new practices have sprung up and are trying to get a piece of the market. Leading US firms like Weil Gotshal & Manges that are known for private equity work have followed many of their top international private equity clients to Asia, and developing funds practices has been a natural extension of their core business....

Investment funds work in Hong Kong continues to be largely dominated by a small number of high-profile players, though lots of new practices have sprung up and are trying to get a piece of the market. Leading US firms like Weil Gotshal & Manges that are known for private equity work have followed many of their top international private equity clients to Asia, and developing funds practices has been a natural extension of their core business. "Everybody is developing fund formation practices in the private equity space as a compliment to their private equity work," comments one veteran business development professional at a leading firm. "Because private equity is all about relationships, the firms that are almost in-house with the leading PE firms also want to go to them for their funds work. It's a small business, but everybody wants a piece of it."

Firms like Simmons & Simmons and Deacons with a long reputation in public fund formation continue to lead the market in this area. Their long-term experience with successfully setting up retail funds in Hong Kong and knowledge of government entities have helped ensure that they remain strong in that sector of the market.

One trend to watch in the fund formation space is the increasing tendency for top Asian fund managers from international private equity houses to set up their own, all-Asia funds. This may mean more space for alternate, smaller players to enter the funds market in addition to the massive international private equity houses. Hedge funds also continue to be a strong product.

As with debt offerings, Rmb fund formation is a hot topic in the market right now. While relatively few Rmb-denominated funds have been formed so far, it is likely that they could become a presence in the market as quickly as dim-sum bonds have. International players are seeing the prospect of partnering with Mainland fund managers as an increasingly attractive prospect despite the regulatory, risk and structural components that are still being worked out in this relatively new market.

The top M&A players in the Hong Kong market have been gradually changing over the past few years with the arrival of new US firms into the country. As top US private equity firms have followed their high-profile international private equity clients to Hong Kong, these firms have been growing their M&A practices and winning an increasing number of key mandates....

The top M&A players in the Hong Kong market have been gradually changing over the past few years with the arrival of new US firms into the country. As top US private equity firms have followed their high-profile international private equity clients to Hong Kong, these firms have been growing their M&A practices and winning an increasing number of key mandates. Also, according to one leading partner, "US firms who were previously thought of as just US capital markets shops are now getting Hong Kong law capability and becoming full-service firms who want to develop strong M&A practices. They don't want to just do IPOs-and the higher salaries that US firms pay often means that they can get top partners from magic circle firms." While there are magic circle firms that currently stay at the top of the rankings (and will likely continue to keep their stop standing in the future), there is certainly even more competition in Hong Kong's M&A market for top legal advising, and it looks like both US and magic circle firms will be sharing the limelight.

Much of the M&A work in Hong Kong is China-related, as most international firms created places for themselves in Hong Kong long before they opened up offices in Beijing or Shanghai. Thus, many of the trends that have been affecting mainland China M&A work have been affecting the types of deals that Hong Kong partners have been focused on. Hong Kong partners have long advised international corporations on their inbound acquisitions into China, but many leading firms are now developing a more sophisticated role in representing Chinese companies on outbound acquisitions as the distribution of work in the market is gradually shifting.

The great financial crisis left Chinese banks-as with banks in other Asian Tiger countries-with a relatively robust base of capital compared to financial institutions in other harder hit parts of the world. This was a positive development for Chinese companies who wanted to finance outbound acquisitions and joint ventures overseas. In the past few years, Chinese companies have also been changing the types of international targets they are seeking, from traditional manufacturing and mining and materials to high-end technology and established intellectual property assets like brands.

"Don't get me wrong-most of the outbound work from China still has to do with traditional types of acquisitions," says one partner, "but the kinds of assets that Chinese companies have asked about acquiring in the past year has been really different. For example, one electronics company I've been working with that has always done commoditised products now wants to buy patents and engineers and make the high-end stuff for cheaper. That's very different than the kind of outbound work we've historically been doing." Firms in Hong Kong are increasingly acting as go-betweens in advising Mainland companies on making international acquisitions with companies in relatively unfamiliar sectors.

Outbound work will also increase as China gradually moves towards floating the Yuan against the dollar in the next few years and lets the currency appreciate more. In the meantime, there seems to be enough cross-border inbound work between international companies listed in Hong Kong and multinationals seeking targets in China to keep everyone busy.

Hong Kong's private equity market has seen a good deal of changes this year, as many US firms with international private equity relationships have continued to carve a place for themselves in the Hong Kong market by following their international clients to Asia. One notable aspect of the Hong Kong private equity scene is that the majority of the work is not done by mega-firms but rather boutique firms that have specialised in representing international private equity clients in Asia for a number of years, as well as smaller, newer-entrants who are establishing their Hong Kong presence....

Hong Kong's private equity market has seen a good deal of changes this year, as many US firms with international private equity relationships have continued to carve a place for themselves in the Hong Kong market by following their international clients to Asia. One notable aspect of the Hong Kong private equity scene is that the majority of the work is not done by mega-firms but rather boutique firms that have specialised in representing international private equity clients in Asia for a number of years, as well as smaller, newer-entrants who are establishing their Hong Kong presence.

"Before, you had capital markets firms coming to set up shops in Hong Kong, and all of their other practices developed from there," says one leading practitioner. "But now you've got the private equity firms coming over here with their international clients and then developing its M&A practice from there. Most of those are US firms. It's a trend that has developed quickly, and is changing the market."

This phenomenon underscores Asia's unique private equity landscape, and the importance of maintaining relationships with the relatively small number of international private equity houses.

All of the major international private equity players in the region have also been teaming up with Chinese counterparts in order to tap the expanding market. This is good news for the legal community across the board, as both international and domestic firms have an important role to play in bringing these types of funds to fruition.

In another, similar trend, the sources of private equity funding in Hong Kong have become increasingly diversified in the past few years. Government sovereign wealth funds like the National Council for Social Security Fund in China and Singapore's Government of Singapore investment corporation have become increasingly active in the private equity space, and show a tendency to make regional investments instead of those overseas. Private individuals in Hong Kong (of which there are quite a few) also are involved in private equity funds through services launched and managed by the city's top international banks.

According to PricewaterhouseCoopers, China private equity will become even more attractive in the next four years as the Asian markets continue to buck the global economic downturn. As private equity houses pour resources and talent into the Asian markets-and as Hong Kong continues to be a leading financial centre in the region-the city is likely to continue to be a hotbed of private equity activity in Asia.

Hong Kong serves as an important base for international firms working with financial partners and corporations investing into mainland China, but much of the regional work for other Southeast Asian jurisdictions is also done by Hong Kong partners or in conjunction with Hong Kong partners, as many of the major investment banks have large hubs in the city. As far as activity in the market goes, one partner puts it this way: "If someone tells you that project finance really has a lot going on in Asia, they're probably taking the mickey or talking themselves up....

Hong Kong serves as an important base for international firms working with financial partners and corporations investing into mainland China, but much of the regional work for other Southeast Asian jurisdictions is also done by Hong Kong partners or in conjunction with Hong Kong partners, as many of the major investment banks have large hubs in the city. As far as activity in the market goes, one partner puts it this way: "If someone tells you that project finance really has a lot going on in Asia, they're probably taking the mickey or talking themselves up. It's not a big market, but there is some activity going on-there are a few major projects in India, and Vietnam, Thailand and Indonesia are also active in project financings. Still, the work available has been thin after the Lehman collapse."

Banks in jurisdictions like Thailand have also had a changing role in the regional project finance space, and much of the advising for international banks involved in this work is done out of Hong Kong. For example, Thailand's very liquid national banks have recently solely financed a huge power project in Lao PDR, representing one of the first times in the region's history that local banks rather than international banks have taken the lead on these massive investments.

In and of itself, prospects for financings within Hong Kong are limited-which is perhaps not surprising since Hong Kong's infrastructure is highly developed and most of this year's power projects have been investments into power facilities for developing countries. However, there are some key mandates like the Guangdong-Shenzhen-Hong Kong express rail link that are advised on by firms with strong ties to the Hong Kong government and developers. Theme parks and cultural venues are also a main area of project financing for the SAR.

As the Chinese economy continues to develop, it is likely that there will be more opportunities for foreign and regional investors to be a part of energy and infrastructures. If that happens, Hong Kong is likely to play a key role as a go-between for international financial entities who want to get a piece of China's project finance market.

Restructuring and insolvency work continues to be modest in Hong Kong, as practitioners are unfortunately (or fortunately) limited by the continued success of the Hong Kong and Chinese economies.However, the Lehman collapse continues to leave a glut of insolvency work that keeps many top partners busy-as one partner put it, the massive Lehman fallout really is "the work of a lifetime....

Restructuring and insolvency work continues to be modest in Hong Kong, as practitioners are unfortunately (or fortunately) limited by the continued success of the Hong Kong and Chinese economies.

However, the Lehman collapse continues to leave a glut of insolvency work that keeps many top partners busy-as one partner put it, the massive Lehman fallout really is "the work of a lifetime." This keeps contentious practices that have strong Hong Kong law capability quite busy.

There is also a modest amount of work that has come from local Hong Kong restructurings this past year, and these mandates are often taken by firms like Tanner De Witt and Mayer Brown JSM that have strong ties to local Hong Kong entities and companies.

Some leading partners also predict (in as much as these things can be predicted) that there will be a wave of China-based restructurings in the coming years. Questions over corporate governance and loans made by international investors to Chinese companies that are less than transparent could lead to a future pipeline of work as these entities run into trouble. One partner notes that, "with so much liquidity in the market, someone will always make bad business decisions. Liquidity means future work for restructuring and insolvency lawyers."

Hong Kong partners also continue to do high-profile restructuring work in jurisdictions across Asia, including places like Vietnam.