Emerging targets

Mourant Ozannes’ merger this summer created another large fish in the global offshore pond. Firms now have to focus on clients from new economies to stay ahead

It was nearly a decade in the making. Jersey and Guernsey titans Mourant du Feu & Jeune and Ozannes announced their merger earlier this year but, for market observers, it was a tie-up that had been on the cards ever since Jersey and Guernsey rivals Carey Langlois and Olsens merged in 2003.

Managing partner of the newly merged firm Jonathan Rigby is clear on the rationale for the deal. ‘There will be opportunities to introduce clients and intermediaries and we will also be able to provide a seamless service to businesses based in more than one offshore jurisdiction.’

He adds: ‘As one firm we are better placed to explore opportunities in new markets.’ And there’s the crux of the matter. The global offshore pond has got smaller and smaller in the past ten years and the key to growth is finding a foothold in emerging markets.

Firms based in the Channel Islands have opened offices in the British Virgin Islands and Cayman over the years, and Caribbean firms have moved the other way. Recently, Appleby launched in Guernsey through the hire of three Ozannes partners, while Conyers Dill & Pearman has announced that it is looking closely at the Channel Islands and is very keen to open up in either jurisdiction (or both) very soon.

‘We are now looking to expand further’, says Conyers chairman John Collis, ‘and would like to establish in both Jersey and Guernsey, either through a merger or by setting up our own offices.’

Conyers originally closed its office in Guernsey in 2003, partly so that it could focus on a strategy of expanding into the BRIC markets. ‘My view was that we were fairly well placed in all the traditional markets and we needed to attack these key emerging economies,’ says Collis. ‘We did a lot of research at the time – it wasn’t just an idea to follow what the global economists thought.’

For offshore firms there has been a surgein work from clients in Brazil, Russia, Indiaand China using offshore structures to dotheir business. Every major offshore firm is devising their own strategy to grab the biggest market share.

Appleby’s group managing partner Peter Bubenzer points out that, while each offshore location has its own merits and attractions, the global market has become far more competitive. ‘That is partly just competitive pressure, in the sense that all of them are trying to attract similar sorts of business and they are shaped by the wind of competition,’ he says. ‘Partly it’s because of the pressure from the Organisation for Economic Co-operation and Development and similar initiatives, that have driven changes to the approach to due diligence and client information, removing some of the regulatory arbitrage between jurisdictions.’

Latin lovers

When Brazilian oil giant Petrobras announced the world’s largest-ever share offering of $75bn in September, Brazil’s status as a booming world economy was underlined.

According to Goldman Sachs’ predictions, Brazil will be the world’s fifth largest economy by 2025. But while Brazil is the standout economy in Latin America, it is the entire continent that has got onshore and offshore firms alike particularly excited, with a diverse spread of work available.

The most recent and eye-catching example is Walkers’ role in the Petrobras share offering, working alongside Cleary Gottlieb Steen & Hamilton and local counsel Machado, Meyer, Sendacz e Opice. In August, Petrobras agreed to issue $42.5bn in new stock to the Brazilian government in order to obtain the rights to an estimated five billion barrels of oil in deepwater reserves.

In addition to the stock-for-oil swap, Petrobras will raise the remaining $32bn by selling stock to minority shareholders. The share sale alone would be the largest in the western hemisphere for ten years and would raise considerably more than the $22bn IPO by the Agricultural Bank of China in July (see LB207, page 18).

While Walkers was unable to discuss the Petrobras share offering, the firm has good links with the Brazilian oil giant. For instance, it advised Petrobras Finance Company on its $4bn bond issue through a Cayman incorporated financing subsidiary in October 2009. Partner Philip Paschalides led the team in what was the largest-ever single debt issuance out of the South American continent.

In another recent and highly complex Brazilian transaction, the Conyers’ São Paulo office advised airport retailer Dufry on the Bermuda law aspects of its exit from Bermuda through a merger with its own Swiss-incorporated company, Dufry Holdings & Investments AG. Partner Alan Dickson led the team, which saw the merger agreement developed through careful co-operation between Bermuda, Swiss and Brazilian legal counsel, as it was required to take account of the laws of all three jurisdictions. The Conyers team worked with Dufry’s general counsel Pascal Duclos, as well as local law firm Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados and top Swiss firm Homburger.

‘The volume of offshore work in Latin America is not enough to sustain an office with the costs involved in setting one up.’
Peter Bubenzer, Appleby

Firms based in the Caribbean have an obvious geographical advantage in winning work from Latin American clients. Most companies based in South America understand and trust BVI, Cayman or Bermudian offshore structures, so many of the firms based there can easily advise Latin clients from their home jurisdictions. However, there are two firms that feel that being on the ground is essential. Given that the Cayman Islands is largely seen as the domicile of choice among Latin American companies and considering its declared strategy of targeting the BRIC economies, it is perhaps unsurprising that Conyers was the first and only offshore firm to open an office in Brazil at the end of 2008. In addition to the Dufry deal, key clients of the São Paulo office include International Meal Company Holdings (IMC), the largest retail food concessionaire and a multi-brand restaurant chain. The São Paulo office, again led by Dickson, advised IMC in raising $100m through a private placement in June.

While Conyers has stolen a march in Brazil, it wasn’t the first offshore firm to have a presence in South America. Ogier inherited an office in the Uruguayan capital Montevideo when it merged with BVI firm WSmiths in 2007. By 2009, however, the office had closed.

According to Marc Yates, a corporate partner based in Jersey, the decision to close the office came after the firm realised that it could more than adequately service Latin American companies from the firm’s BVI or Cayman offices. This was demonstrated recently when the Jersey and Cayman offices advised Challenger Financial Services Group and its other consortium members on the acquisition of the GasValpo business in Chile for $100m.

‘You’re covering an entire continent when you’re working for Latin American clients and our offices in the Caribbean are not much further away from some key South American markets than Uruguay is,’ argues Yates. ‘That’s not to say we won’t keep our minds open to reopening if client demand exists.’

Channel Islands firms recognise the distinct advantage that firms in the BVI, Cayman and Bermuda have in attracting instructions from Latin American clients, but work from those clients seeking specialist Jersey or Guernsey structures is still a significant part of their businesses. For example, before its merger with Ozannes, Mourant advised on the Jersey legal aspects of the establishment of Sal-Cap Limited Partnership, a fund targeting certain indirect investments and funding to one of Brazil’s most respected real estate developers. The fund was established as a Jersey limited partnership and authorised as a Jersey expert fund.

Harneys is arguably the closest to matching Conyers’ expansionist approach, with a busy Latin American practice run from the Cayman Islands by Brazilian lawyer Marco Martins. However, this autumn the firm is changing its approach by launching an office in Montevideo, filling the void left by Ogier.

Martins says Uruguay makes sense for a first toe-hold in the Latin American market. There is more to the continent than Brazil, he points out, with Chile, Colombia and Peru all significant markets for growth. While clients of the practice include Brazil-based international mining giant Vale, other major clients are Peru’s Maple Energy and Banco de Crédito del Perú, the largest Peruvian bank. Brazil’s popularity means that office space can be prohibitively expensive and getting regulatory approval from the Brazil Bar, which prohibits foreign firms practising local law, can be cumbersome to say the least. This is why, Martins feels, that Montevideo is a far more practical option.

However, not all firms feel Latin America is ripe for picking just yet. ‘Based on the information we’ve received so far, the volume of offshore work generated in Latin Americais not enough to sustain an office with thecosts involved in setting one up,’ saysAppleby’s Bubenzer. ‘It’s a simple question of economics. Then you have the problem of deciding where to go. Brazil and Mexico are the major markets and if both are important can you sustain two offices?’ For some it’s still too early for Latin America.

For Simon Firth, the Cayman-based co-head of Maples and Calder’s Latin American practice group, an on-the-ground presence is not a prerequisite. ‘Although we have yet to establish a physical presence in the region, we have found that having a dedicated LatAm practice group, which frequently travels throughout the region, has been very well received by our client base, and has resulted in us having a very strong presence in the region,’ he says.

Russian standard

Harneys and Conyers again lead the pack when it comes to getting as close as possible to Russian clients. Conyers launched in Moscow in 2008 and remains the only offshore firm in the Russian capital. The move has certainly paid off. At the end of 2009, the firm won the mandate, alongside US firms Skadden, Arps, Slate, Meagher & Flom and Orrick, Herrington & Sutcliffe, on Russian telecoms giant VimpelCom’s protracted $30bn merger with Ukrainian rival Kyivstar.

The complex deal, which had been put on hold for five years due to a long-running dispute between majority owners Altimo and Telenor Group, represented the first dual US/Russia tender offer. Although Conyers’ London team led in advising Russian investor Alfa Group Consortium, it was unmistakably a Russian deal. The transaction saw Norwegian telecoms operator Telenor combine its holdings in OJSC VimpelCom and Kyivstar under a new jointly owned mobile telecoms operator VimpelCom Ltd. The merged company is incorporated in Bermuda (where Conyers comes in), headquartered in the Netherlands and listed on the New York Stock Exchange. The new Bermuda entity launched a registered exchange offer in the US and a voluntary tender offer in Russia to acquire the shares in OJSC VimpelCom. Following what was the first combined US-Russian exchange offer, Alfa and Telenor transferred their interests in Kyivstar to the new company in exchange for its shares.

Walkers also advised the Alfa consortium on BVI corporate law. The firm’s BVI litigation group had advised Alfa for a number of years on its long-running dispute with Kyivstar before the BVI courts. The dispute was ultimately resolved with the parties deciding to go ahead with the merger, becoming one of the largest transactions by value ever conducted in the BVI.

‘A bigger beast comes with a certain inflexibility and lack of manoeuvrability – bigger is not always better.’
Sean Cheong, Collas Day

However, the real offshore playground for Russian clients is Cyprus. As a preferred jurisdiction for Russian investment, and a leading tax treaty jurisdiction, Cyprus has attracted the interest of a band of offshore law firms. The Mediterranean island has the most widespread double tax treaty network in the world and is a popular offshore centre for India or eastern Europe-related deals.

Nearly half of all foreign direct investment (FDI) into Russia flows through Cyprus and the BVI. Conyers launched its Cyprus practice in 2009 out of its Moscow office and advises on all aspects of Cyprus corporate law. Cypriot law firm Antis Triantafyllides & Sons entered into an arrangement with Conyers to co-operate on Cyprus, Bermuda, BVI, Cayman Islands and Mauritius work, and assigned a lawyer from its Cyprus office to Conyers’ Moscow team.

Harneys stepped up its activity in Cyprus after forming a joint venture with Cypriot firm Aristodemou Loizides Yiolitis (ALY) in 2008. In 2009 the two firms decided to make the relationship more formal, with name partners Pavlos Aristodemou, Demetris Loizides and Emily Yiolitis merging their firm into the Harneys network.

While ALY has kept its name to leverage off the reputation of the three name partners in Limassol, this gives Harneys unparalleled access to the 200,000 companies that are registered on the island. The flat 10%corporate tax rate, which is the lowest in Europe, the favourable dividend regime (leading in most cases to no taxation of inbound dividends), and the provisions ofno withholding taxes on outbound dividends, royalties and interest paid outside Cyprus from Cypriot companies, have increased the popularity of Cypriot companies for use as holding companies by multinational corporations.

‘Offshore firms will look beyond Hong Kong long term, in the same way the larger international law firms have.’
Marc Yates, Ogier

But Russian clients are nothing if not mobile, so while the Cyprus connection is an advantage, as is a presence in Moscow, the ubiquity of Russian investors globally means that all offshore firms can name CIS clients that contribute significantly to their businesses. Geographically, the Channel Islands firms benefit the most from Russian clients using Jersey and Guernsey structures to invest into London and many firms report a marked increase in Russian clients coming to the Channel Islands for advice. In addition, Russia’s proximity to Asia means that the well-established Hong Kong offices of the major offshore players are now important hubs for Russian clients’ activities in Asia (see below).

Ogier in particular has been very busy. In 2007, the firm, led by Marc Yates, advised on the merger of the two Russian aluminium companies, RUSAL and SUAL, with the aluminium assets of Glencore International into one Jersey-registered company. More recently the firm acted for RUSAL in its landmark multi-billion-dollar debt restructuring with international banks, Russian banks and other creditors.

The firm also showed its credentials as the Jersey office advised on the incorporation and listing on the Toronto Ventures Exchange of PetroKamchatka plc, which owns various rights to explore for oil in the Kamchatka region of Russia. The original company migrated from the Yukon to Cyprus and a share exchange offer was made by PetroKamchatka to acquire the Cypriot company prior to listing.

Channel Islands rival Carey Olsen also has a significant Russia practice. As recently as August, the firm advised property client Raven Russia on its move from AIM to the official list of the London Stock Exchange, an example of Russian companies using Guernsey vehicles to list in major financial centres. It also acted for Deutsche Bank in its RUR15 billion refinancing of Russian Land Ltd, a Jersey holding company with real estate interests in Russia. The structure used Cyprus and Russian subsidiaries and also contained a Jersey trust.

There are also opportunities coming out of Russia for single-site offshore players. Isle of Man firm Cains, for example, reports that a Russian military space organisation recently approached the firm for advice on financial restructuring. Voisin’s Kate Anderson explains that her firm has strong ties with Russian clients through the firm’s membership of global network TAGLaw.

In January this year, Cains worked alongside Baker & McKenzie to advise Russian oil and gas company Exillon Energy on its $100m IPO and listing on the London Stock Exchange. ‘This IPO shows there is investor interest in small-to-medium-cap Russian companies in the energy sector, following the recovery in oil prices in 2009, and we expect more IPOs to follow,’ says Cains’ managing director Andrew Corlett.

Indian summer

As well as the favourable tax treaty with Russia, Cyprus also has a double tax treaty with India, which is particularly beneficial on interest payments out of India. It also gives the firms with Cyprus operations another string to their bows in terms of accessing another burgeoning BRIC economy. But the most significant pieces of offshore work concerning India come from Mauritius, which is the traditional route for investment into India. About 40% of the $45-50bn of the FDI that came into India from 1991 to 2006 was routed through Mauritius.

As far as India is concerned, offshore firms have a distinct advantage over their onshore counterparts. While the Indian Bar is careful to protect domestic law firms and prohibits foreign firms from setting up in India (see ‘Beyond the boundary’ LB207, page 122), no such restrictions exist for Mauritius and the Seychelles, both traditional offshore locations for Indian companies, using systems that they know and trust. Foreign firms looking to establish a foothold in Mauritius can do so through a joint venture with a local firm or local lawyer.

Such is the obvious attraction of Mauritius both as a route into India but also as a gateway into Africa (see box, ‘Out of Africa’, page 72) that Jersey-based Bedell Cristin is in the advanced stages of opening a new office on the island, specialising in corporate, funds, banking and trust law. ‘The strategic positioning of Mauritius, enabling us to win clients in India and further develop our growing practice in Africa, meant that it is important to have some sort of presence there,’ says Bedell Cristin partner Michael Richardson.

‘Price is an issue for BRIC countries, so smaller firms that rely on a network are in a position to offer clients better value.’
Hiren Patel, VerrasLaw

Freshly merged Mourant Ozannes has also declared a particular interest in India, with managing partner Jonathan Rigby keen to show the firm’s desire to expand its India practice right off the bat. ‘We are seeing much more business in the East,’ says Rigby, who visited Mumbai and New Delhi in 2009. ‘We are particularly interested in attracting business from India and China.’

Harneys is also eyeing up opportunities in India, with the firm hiring its own Indian lawyer, Chetan Nagendra, from leading domestic firm Amarchand Mangaladas in 2008. Nagendra recently told Legal Business that he expected Harneys to open its own office in Mauritius in 12-18 months.

While clients are using Jersey funds to invest in India via Mauritian vehicles, the Jersey Finance-led consortium that visited India last year also reached an agreement that a formal tax agreement between India and Jersey should be signed, giving Jersey-based firms a likely advantage over other offshore rivals and going some way to break Mauritius’s longstanding stranglehold on foreign investment into India.

While the opportunities are myriad, just two offshore firms are taking advantage on the ground: Conyers again, which opened an office in October 2008 and Appleby, which arrived first in 2007.

Appleby’s move into Mauritius, according to Bubenzer, was a direct response to the firm’s institutional clients, who indicated that they would instruct the firm if it was based there. The launch allows the firm to target African and Asian-focused funds, with India a particular target. Taking early-mover advantage in Mauritius led to the office being shortlisted for the International Office of the Year award at the 2009 Legal Business Awards. The firm has made a clear success of the venture, adding a Seychelles office last year that supports the Mauritius push into Asiaand Africa.

‘The strategic positioning of Mauritius, enabling us to win clients in India, meant that it is important to have a presence there.’
Michael Richardson, Bedell Cristin

A standout transaction for 2010 was acting as the Mauritius legal counsel to the consortium led by Morgan Stanley Infrastructure (including Norwest Venture Partners, General Atlantic, Goldman Sachs Investment Management and Everstone Capital Management) on the acquisition of a 44% stake in power generation and engineering services firm Asian Genco for $425m. This was the biggest private equity transaction in India in almost two years, as well as the largest private equity transaction in the country’s power sector and the first one of over $300m since 2008. Appleby’s Mauritius managing partner Malcolm Moller led on the deal, alongside Davis Polk & Wardwell and Indian firm J Sagar Associates. Other standout deals recently include advising Sodexo on its acquisition of Radhakrishna Hospitality Services Group to become one of the leading food and facilities management services companies in India. The Mauritius office is also currently advising Prudential on the proposed acquisition of AIA, the Asian arm of US peer AIG, for $35.5bn.

Conyers’ Mauritius legal practice launch came in the autumn of 2008, ‘providing a conduit for investment into the burgeoning markets of India and South Africa as the appetite for doing business in these regions continues apace’, according to a statement from the firm at the time. The firm has hit the ground running, advising MakeMyTrip Ltd, the parent of India’s largest online travel company, on its $70m IPO on Nasdaq in August. The company became the first Mauritius-incorporated entity to list on a major New York stock exchange and was the first US IPO by an Indian company in four years. Collis points out that the transaction is a landmark for the country, and ‘paves the way for future US listings through Mauritius’. Head of the Mauritius office Craig Fulton led the Conyers team alongside Latham & Watkins and Indian firm S&R Associates.

China in your hand

For other offshore firms, Singapore has been an alternative route to accessing Indian clients, exploiting the city state’s convenient location as a hub for the so-called ‘Chindia’ market. Conyers was first to open in Singapore in 2001. It remained the sole offshore firm in the country until Cains opened there in July 2008. Last year, Walkers launched a Singapore practice, partly in response to client demand for BVI and Cayman advice in Singapore and also to target a range of work emerging from Asia, including private equity and banking work from India and project and financing work coming out of Indonesia.

Singapore has become a popular hub for the offshore community as a route into Asian markets but it is Hong Kong that has historically attracted the most interest. Six of the leading global offshore firms operate substantial practices from Hong Kong, starting with Conyers which opened in 1985. Ogier was the most recent arrival in 2007.

‘Post 1997, Hong Kong moved very much from being an international finance hub to also being a key People’s Republic of China business centre,’ says Collis. Firms with Cayman or Bermuda backgrounds have traditionally dominated Hong Kong, as Asian clients have tended to favour structures originating in those offshore locations. There has been significant investment into the PRC through thousands of companies incorporated in Bermuda or Cayman. Funds raised by companies in both offshore centres accounted for around 80% of the total public offerings in 2009, up from 66% in 2008, which is down to the fact that only foreign companies from these jurisdictions were allowed to list on the Hong Kong Stock Exchange (HKSE) until recently.

‘We are looking forward to seeing the first-ever BVI company to list on the HKSE, which we hope may happen before 2010 is through.’
Christine Chang, Maples and Calder

This year China had the fastest growing group of millionaires in the world and according to Merrill Lynch’s annual world wealth report in 2010 the number of high-net-worth individuals in the Asia-Pacific region rose 25.8%. The legal market has seen this reflected in the huge demand for wealth management services.

Maples and Calder and Walkers are generally accepted to have the strongest Hong Kong practices but the landscape has changed in the last five years. Chinese clients have looked to expand globally and have started to list in Europe on markets such as London’s AIM. In another boon to the offshore community, Jersey has been approved as an acceptable overseas jurisdiction by the HKSE, enabling companies from the Channel Island to float on the exchange.

At the end of last year, companies from the BVI were also told that they could list on the HKSE. It’s a timely boost for BVI companies, which provide the second-largest source of investment in China (behind only Hong Kong), according to data from the Chinese Ministry of Commerce in 2008.

‘Cayman Islands companies have been able to list on the HKSE for some time and have been an extremely popular mechanism of driving foreign direct investment into and out of Asia,’ says Denise Wong, a partner at Walkers’ Hong Kong office. ‘The recent change to allow BVI companies to list in Hong Kong, in line with businesses incorporated in Cayman and Bermuda, can be seen as a feather in the cap for the BVI and is evidence of the jurisdiction’s increased prominence. At this stage, however, we have yet to see a BVI company list on the HKSE.’

‘This recent move by the HKSE has indeed resulted in more work for us in particular, because we were instrumental in obtaining recognition of the BVI as an approved jurisdiction for listing on the HKSE,’ says Christine Chang, joint managing partner of Maples and Calder’s Hong Kong office. ‘Given the prevalence of the use of BVI entities in pre-IPO structures for PRC businesses, our work will now have saved both precious time and money for those who otherwise would have had to redomicile their BVI companies into other jurisdictions before being able to list in Hong Kong. We are looking forward to seeing the first-ever BVI company to list on the HKSE, which we hope may happen before 2010 is through.’

The approval granted to Jersey companies was triggered by two approaches to the HKSE. Ogier had been acting for a Jersey company that had sought a pre-IPO ruling on whether Jersey is an acceptable overseas jurisdiction, while Jersey Finance had been making its own submission to the exchange on the same question. To achieve approval, matters such as shareholder protection provisions under Jersey law were considered, as any non-Hong Kong company listing on the exchange has to demonstrate that shareholder protection offered by that foreign jurisdiction is at least equivalent to that in Hong Kong.

Some argue that the opportunities for Jersey companies in Hong Kong will be limited but that the approval will help raise Jersey’s profile. However, others expect that some existing Jersey companies that are listed on AIM may now seek a Hong Kong listing because of improved liquidity in the Hong Kong market.

What is certain is that the Channel Islands firms have been very busy in China-related capital markets work. Most notably, Ogier’s Jersey office acted for RUSAL on the listing of its shares on the HKSE earlier this year. The listing was a landmark deal for a number of reasons: the first major commodities company and first major Russia-based business to choose Hong Kong over London and New York; the first Jersey company listing in Hong Kong; and a major international debt restructuring supported by an IPO. In August this year, Ogier also acted as BVI adviser to a consortium comprising Zijin Mining Group, one of the largest gold producers in China and the China-Africa Development Fund on the $284m acquisition of BVI company Platmin Congo.

Ogier hasn’t completely dominated the market though. In August, Carey Olsen partner Guy Coltman led a team advising the first Chinese business held through a Jersey company to list on the HKSE. The firm advised West China Cement (WCC) on Jersey law in the company’s global offering, which comprised a Hong Kong public offering and an international placing, raising around HK$1.28bn.

Carey Olsen originally acted for WCC on its admission to AIM in 2006. The firm’s China credentials were further underlined in September when it advised Asia Ceramics Holdings on the company’s successful listing on AIM.

The firm, according to partner Andrew Boyce, hopes to see more Chinese-owned companies listing on the HKSE through a Jersey vehicle because over a quarter of Chinese companies listed on the London Stock Exchange have done so via a Jersey company. The firm has sought to gain traction in the crucial China market despite not having its own presence in Hong Kong. For example, the firm recently sent one associate on a secondment to leading PRC firm King & Wood, a move which was arranged by Jersey Finance.

But the offshore firms practising Cayman and BVI law have not been slow in taking advantage of their traditional dominance in the region and, as Ogier’s Marc Yates points out: ‘You’re not going to find Chinese clients using a new jurisdiction overnight.’ The Caribbean firms have racked up an impressive range of mandates. Conyers, for instance, advised China’s Titan Petrochemicals Group on the Bermuda and BVI aspects of its $315m debt restructuring, which completed in July.

Last year, Walkers acted as Cayman counsel to the Macau subsidiary of US casino giant Las Vegas Sands, Sands China Ltd, on its $2.5bn Hong Kong listing. In February, Walkers also acted as Cayman counsel to Beijing-based International Mining Machinery Holdings on its HK$2.54bn IPO on the HKSE, in another example of a private equity-backed company coming to market via an IPO to release value from investments made over the past few years.

As yet, there are no plans for any of the offshore firms to launch in mainland China. According to those with Hong Kong and Singapore operations, this simply isn’t necessary. However, long term this might change. ‘Offshore firms will look beyond Hong Kong long term, in much the same way the larger international law firms have,’ Yates predicts.

Staying home

While a majority of firms are in agreement that China can be serviced from Hong Kong or Singapore for now, the global offshore players appear polarised on whether an on-the-ground presence delivers distinct advantages in pursuing work from clients in BRIC economies. Certainly it seems that not having an office in Hong Kong or Moscow is no real barrier to winning work from Russian and Chinese clients.

However, the current interest in launching overseas offices does not mean that all offshore law firms are likely to follow the Conyers or Harneys strategy of establishing new branches in the rapidly emerging markets.

Some prefer to stay much closer to home. ‘There is a clear shift in economic power from West to East. This will undoubtedly present new opportunities, but we are not interested in jurisdictional expansion for the sake of it,’ says Mourant Ozannes’ Rigby, ‘our strategy is to build the best legal teams in the best offshore centres.’

‘Our strategy has always been client-driven,’ says Maples and Calder’s Christine Chang. ‘At such point in time as client demand compels us to consider a new jurisdiction, we will do so. Until then, our strategy is to build strength and depth in the locations in which we currently operate.’

‘It isn’t one-way traffic, a lot of Jersey firms are moving into new places. It is a sign of globalisation.’
Richard Pirie, Crill Canavan

Appleby’s Bubenzer says that the decision to open in Mauritius and the Seychelles came due to their double-tax treaty status but the firm isn’t looking to expand aggressively around the world. ‘We’ve elected to establish relationships at a distance in the BRIC countries, so we’re not seeking to set up in all these jurisdictions,’ he says. ‘I wouldn’t say our strategy is better, it’s just the right one for us. We travelled to those countries, we’ve marketed in them and we’ve established relationships with service providers and clients both inside and outside those jurisdictions. In many cases access to these markets is stronger through the relationships you have with major clients and referrers in the key international financial centres and that is perhaps more important than having a presence on the ground.’

Carey Olsen enjoys a ‘best friends’ relationship with Maples and Calder, which prevents either firm from treading on the other’s toes when it comes to advising clients from BRIC countries on Channel Islands or Caribbean structures. Says Boyce: ‘Our historical stable of clients is where we are seeing the growth coming from. Given the state of the economy, investors are cautious. The only people that are really getting any investment away are the established players. As the BRIC companies start to invest it becomes more mainstream and you’ll see the key players involved again.’

This is an approach that Rigby endorses: ‘We enjoy a very strong relationship with service providers – banks, accounting firms, trust companies and fund managers – in our home jurisdiction. Many of them have extensive international networks so we are well placed to work with them to win work from the BRIC economies without necessarily having a physical presence there.’

‘Given the state of the economy, the only people that are really getting any investment away are the established players.’
Andrew Boyce, Carey Olsen

Hiren Patel at VerrasLaw is an advocate of networking and is convinced that his firm is able to maximise its capabilities by working on making contacts and forming solid relationships with clients in all relevant jurisdictions. VerrasLaw is a relatively small firm and Patel admits that it couldn’t afford the overheads of running several small offices overseas. The boutique firm has even been in the position that it has turned work down from India purely because of Patel’s current workload, no mean feat in this still fragile economy. He is also highly aware of how clients work and what they seem to want.

‘A lot of relationships are formed by physically sitting down in front of a client, it is all about demonstrating a skill set,’ he says. ‘And remember, price is an issue for BRIC countries so smaller firms like us who rely on a network as opposed to small offices are in a position to offer clients better value.’

He is not alone in positing this theory. Nigel Pearmain and Kate Anderson of Voisin in Jersey agree that size is irrelevant, especially when you can take advantage of international law firm networks such as TAGLaw, which Voisin has been a member of for the past 12 years.

‘I think unless you are going to go the whole hog and have a substantial presence in other places then there isn’t much point in opening a two-man operation,’ Pearmain says.

The Indian market in particular responds very well to the boutique firms working within a network due to the type of clients that offshore firms are attracting. According to Patel, a lot of the business that is coming in is from high-net-worth individuals who are looking to acquire businesses in the West, as well as getting access to the London capital markets and continental Europe. He points out that when it is just one person or family approaching you, then it becomes solely a relationship issue. ‘They are not going to care about the size of the firm but the capability of the individual and they want to know that you can deliver,’ he says.

However, Conyers director John Collis’s argument is that the key decision-makers, even for the established service providers, are actually based on the ground in those BRIC countries. ‘If you take Moscow for example, it is full of international bankers, financiers, lawyers accountants and fund mangers,’ he says. ‘You are so much more accessible if you’re there with them. Certainly we could service clients from Bermuda or BVI or Cayman but we believe it’s much more effective to be working with the teams in the cities where the work is taking place.’

Andrew Corlett of Cains is also mindful of the changes that offshore firms are going to have to make. He warns London and New York not to think that their dominance over the financial markets will last forever, explaining that Indian companies in particular often feel that their businesses are undervalued on the London Stock Exchange and that they have more liquidity in their own market. As this happens, traditional financial centres could be shunned as the BRIC economies gather strength. Another example of this, he claims, is the fact that the Chinese are starting to look for ways to avoid using intermediaries and set up their own agencies in the developed world, and so their need for offshore firms could diminish over time.

Conyers may have led the charge but now the challenge is for all offshore firms to establish the most effective routes into the key BRIC markets before it is too late, if it’s not too late already.

As Patel puts it: ‘Here in the West we tend to ignore emerging economies until they are thrust upon us. We have to try to be ahead of the game.’ LB