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

"My impression divides the last year into two parts. The first part on refinancing, restructuring, there is a clear trend to prolong terms of loans....

"My impression divides the last year into two parts. The first part on refinancing, restructuring, there is a clear trend to prolong terms of loans. Those who didn't restructure were in trouble," says one partner. "Good business managed to live through the hard times, working for new projects, new investments. Banks are more capable, they are willing to lend but not in huge amounts," one partner says.

"Quiet optimism" is an accurate description of the state of banking and finance in Lithuania. "The private lending situation is such that they've cleared up portfolios. The economic recovery trend is positive. There is confidence in the market. The trend is positive," one commentator says. Besides expected work on the restructuring of loans and credits, which has invariably decreased with banks having cleared up their portfolios, the market was buoyed by the return of new financing last year. "They're [financial institutions] not as scared to lend as a year ago. Renewed lending is more in retail. Retail lending is lively but not a workload to law firms," one partner says.

Corporate financing is starting to exhibit an upturn. While there have been no huge syndicated financings, commentators have observed a pickup in acquisition finance and aircraft finance areas. Furthermore, real estate finance is still in the restructuring phase, nevertheless, there are some newly formed real estate funds which are starting to raise cash and seeking assets on the market. "A lot of real estate was taken by the banks. These assets will be on the market quite soon as there are rumours of an exit from investors. The situation is kind of becoming ready to jump," one partner says.

Infrastructure becomes more and more of a sensitive issue as the government promised to pay much attention to this sector. There have been some possibilities with a restrained spate of PPP (public-private partnership) pilot projects in prisons, roads and hospitals. Nevertheless, much of the legal work remains on the government side with reduced scope on the private side; as one partner observes: "The reality is that the likelihood of such PPP projects is quite small. It's too big for local investors and too small for the London guys".

By far, the hottest topic on the project finance front is the planned construction of a new nuclear power plant on the site of the closed Ignalina plant. The financing of the Visaginas Nuclear Power Plant is set to extend beyond €10 billion and is one of the largest ever financings in the Baltics and CEE (Central & Eastern Europe). "It is of national importance to Lithuania and neighbours Poland, Latvia and Estonia. The government makes sure the project is bankable. It is a single project; it is too large to be a benchmark," one partner said. In renewable energy, there has been some activity in the last year. To this end, law firms have been primarily engaged with the financing of wind farms. There has been some activity with regard to internal combustion in waste management and hydropower but Lithuania does "not have large rivers" and most projects can be financed by single bank loans.

Lithuania's capital markets are seen as "quite shallow" and "any capital markets deal is a real event" according to one partner. Within the capital markets, sovereign issues are still a major talking point. "I'm very glad, as a private practitioner, that Lithuania continues borrowing in the international capital markets...as a citizen, I'm not so glad to see how borrowings are increasing. We are far from Greece and Italy... the budget deficit is decreasing. Borrowing will continue but it is reducing. These are good trends," one partner says. Another practitioner notes that: "What we understand from the ministry of finance is that this sovereign issue will be the last one. The government is borrowing a lot but there's cash flow and so no need to borrow more. It's likely the deal for September will be the last one. There will be no sovereign issues for the next few years." Additionally, it is not only the state that thinks of foreign capital markets; corporations too, are looking to finance abroad and consistent with the regional trend, they are looking to the Warsaw Stock Exchange.

The last 12 months has seen the Lithuanian economy gradually stabilise. This steady shift is creating an environment that is increasingly conducive to mergers and acquisitions....

The last 12 months has seen the Lithuanian economy gradually stabilise. This steady shift is creating an environment that is increasingly conducive to mergers and acquisitions. Transactions have been on the rise with foreign investors feeling their way back into the market. However, market commentators have reported a dissonance between buy and sell side expectations. This has resulted in an increase in the pursuit of deals but a cap on the actual number of completed transactions. "Of course there is positive movement in M&A. There are more and more deals this year, three times more deals. The trend is more deals," one partner says. "There's a shift towards more deals. Even last year there was a number of deals made. It's about a 30% increase in the number of deals above $5 million and about a 20-30% increase from 2009. This year it's even more. It should be 50% more than 2010. It's growing," another partner says. A high proportion of deals took place in sectors such as pharmaceuticals, oil, agriculture, and confectionery. These were areas that were relatively unaffected by the crisis.

Without a doubt, the envisioned construction of the Visaginas Nuclear Power Plant is the most significant project on the market. Recently, Hitachi was selected as the strategic investor for this nuclear power plant project. "It's a commercial project but the main motive is independence from Russian gas. Energy independence is the main motive. It will be the largest project ever in the Baltics," one partner says, adding: "It's the national energy strategy's main objective. Renewables is secondary, but with EU targets this will increase. The political choice is for Nuclear Energy." Nonetheless, support for renewable energy is in place and there has been some transactional activity in wind power and to a lesser extent biofuel. Moreover, there has been an increase in interest and discussions centered on solar power. However, for the time being, the "nuclear and gas sector is leading, the short term perspective".

One of the salient features of the last twelve months has been the increase in private equity. Importantly, market commentators agree on two reasons to account for this trend. Firstly, private equity funds are looking to make successful exits. Secondly, there are still extant funds that had not been invested in the crisis and so investors are hunting for targets. To the latter end, we see much activity from Polish investors. "There are a few strategic Polish investments into Lithuania. There's potential for more deals involving Poland. Poles come here, Lithuanians go there," one partner says. Another stream of investment flows from the Jeremie (Joint European Resources for Micro to Medium Enterprises) initiative developed in cooperation with the European Commission. A number of funds have been created for financing SMEs (small to medium enterprises) in Lithuania and surrounding countries. Historically, Scandinavian investors have been the most engaged in the Baltics, but this has not been the case with private equity and strategic investors are still very much active.

Purely domestic deals are a rare breed in Lithuania. "There are very few domestic deals. It's very small. Usually, there are more with international aspects to the transaction. 90% of deals have some international aspect," one partner says. However, what becomes clear is that in Lithuania, there are strategic investors and purchasers looking to seize significant targets before the financial investors return with the high-ticket mandates.