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Overleveraged companies in Kuwait have felt the brunt of the global recession and crisis particularly in the investment sector. "A lot of the work since the crisis has been restructuring, that involves many of the investment companies in Kuwait," explains one lawyer....

Overleveraged companies in Kuwait have felt the brunt of the global recession and crisis particularly in the investment sector. "A lot of the work since the crisis has been restructuring, that involves many of the investment companies in Kuwait," explains one lawyer.

With cheap unsecured debt readily available, Kuwait witnessed a mushroom in the number of investment firms "Between 2004 and 2008 we had about 120 and quite honestly, from their standpoint things were great, they were able to get debt easily and what's happened is that's been rolled over in to new debt facilities. The banks like it because it's no longer a provision on their books," says one lawyer. Consensus is, however, that the bad investments made will never pay off and these companies will be forced to consolidate or go insolvent. "My personal opinion is that even with all these restructurings they are going to default on those as well and even the companies that have restructured you are going to see a lot of liquidations and or mergers in to stronger investment companies as the next cycle starts," says one partner.

New lending is sparse with banks remaining cautious and only extending facilities to established clients. "All we have seen is a lot of rolling over of debt to pre-existing clients," says one lawyer.

Uncertainty has pervaded the sukuk (Islamic bond) market with lawyers admitting activity has been limited to refinancing outstanding issues. "Before the crisis we were working on a dozen sukuks we were only able to place half and the others we're restructuring now because they are in default," says one lawyer.

Corporate activity has not abounded and lawyers reflect that the protests will have dimmed any interest from outside investment in to the country in the short term. "What it has stopped is western involvement on M&A deals in the region. I think a lot of that is on hold, a wait and see kind of attitude," remarks one lawyer.

One burgeoning area in Kuwait is project finance. Long before any unrest in the region the government had set out a $140 billion five year PPP (public-private partnership) plan to encourage private sector investment. "There's a lot off PPP work in the country there's been a couple of engagements and there are a number of bids in the pipeline," remarks one lawyer, adding: "I think in light of the problems on the Middle East the government has seen there is a need to spend money in the country to create jobs and to create development."

New rail and metro, an Independent Waste Water Plant, in addition to several projects in the energy sector have all been awarded legal representation. But, the government has implemented a new procedure to decide how these projects are awarded which is a slightly laborious process. "There are three stages: a consortium being appointed of advisers for the government. So if the minister of education has a project they'll go to the PTB (Partnership Technical Bureau), the PTB will put together that consortium, which will be a law firm, a financial adviser and an expert in whatever the field is, then they will open it up to the private developers. Then, once the bid is won, an SPV (special purpose vehicle) is set up and a sizeable number of the shares have to be floated on the exchange," explains one lawyer.

This last element is another attempt by the government to encourage privatisation. New legislation was passed which requires an SPV to be established to design, finance, build and operate the projects for a fixed duration of 30 years or less, unless special dispensation is granted at the bidding stage. 50% of this SPV must be floated on the stock exchange via an IPO although it is not clear at what period during the development. "In theory it's a great idea there's a lot of excess liquidity in the market because a lot of individual investors were burnt with investment companies perhaps if they see the opportunity to put money in to a BOT (build-operate-transfer) contract or a concession there will be interest. I think the intent is there and the motivation is there but we will see if the interest is there from investors and financiers."

Even with a number of lucrative mandates needing counsel, Kuwait's legal market shows no signs of broadening according to its incumbent lawyers, with most feeling the international firm's are content to continue dipping into the region from bases elsewhere in the Middle East.