Offshore firms are increasingly building Brazil, as well as other Latin American destinations, into their emerging markets portfolio. LB assesses the varying strategies in tackling the New World.
The opportunities in Brazil for offshore legal advisers are increasingly on the rise. In December 2010, Conyers Dill & Pearman’s São Paulo office managing partner Alan Dickson provided Bermuda law advice to Brazilian investment bank BTG Pactual on its sale of a $1.6bn stake to a consortium of international investors, marking the biggest eversovereign wealth fund commitment in Brazil. Again led by Dickson, in July 2011 Conyers, alongside Milbank, Tweed, Hadley & McCloy in New York and Arias, Fabrega & Fabrega in Panama, advised Queiroz Galvão Óleo e Gás (QGOG) – a Brazilian conglomerate involved in developing large-scale projects in various sectors – on a $700m bond issue to refinance the drilling rigs Atlantic Star and Alaskan Star.
Harneys has likewise picked up enviable instructions. In late 2010, Brazil-based international mining company Vale, the world’s second-largest mining and metal company by market value – with assets of more than $100bn – instructed Harneys on a $1bn notes offering by its Cayman Islands subsidiary Vale Overseas. Harneys has also received important instructions from leading Brazilian banks, including Itaú Unibanco and Bradesco.
‘Because of Brazil’s sheer size and potential, it requires its own dedicated operation’
With Buchi on board in Brazil, Harneys is now able to target all the key Latin American markets simultaneously, the firm deciding that the combination of assets in Brazil and Uruguay (see box, ‘Precedent’, page 70), would provide the best service offering.
Although Buchi, the former in-house counsel at Brazilian investment companies Triscorp Investimentos and Opus Gestao de Recursos, is not practising law for Harneys but working as a client relationship manager, her experience as a lawyer means she can talk knowledgeably about investment products used by investors and other businesses in Brazil. Her role in Brazil is to solidify Harneys’ relationships with the intermediaries.
Conyers’ Dickson welcomes competitors who decide to make any type of physical commitment to the region. ‘We decided to post practising attorneys on the ground, as opposed to only a marketing representative,’ he says. ‘But any kind of presence is going to improve a firm’s understanding of the local market.’
Different firms will adopt different policies. Harneys places its key assets in locations where they are able to add the most value to its clients and to the firm’s business. ‘Our strategy has been to select the best professionals to put on the ground,’ says Martins, ‘and in our mind, the best professionals are those who are best able to understand and translate client needs and market trends, and bridge those needs with our assets and offerings.’ Additionally, there is no significant time zone difference, so it matters less where the work is done. Harneys can handle Latin American legal work effectively and efficiently from its offices in Cayman and the British Virgin Islands (BVI).
To date, Martins is delighted with the result of Harneys’ Latin America strategy and the types of transactions the firm has handled over the last couple of years, which proves that having the right people in key locations and providing a superior product is a relevant differentiator.
Whether the offshore law firms post lawyers on the ground or carry out Latin America deals from their home territories or other hubs, it is not just Brazil being eyed up for hot opportunities. Harneys also operates from Uruguay, while several offshore law firms cite Mexico, Columbia, Argentina, Chile and Peru as ones to watch for growth opportunities.
Going Latin
Explaining why Latin America is a fundamental part of Harneys’ emerging markets strategy, Martins tells LB that it is similar to the reason why the key emerging market nations (BRICs) are essential to the strategic future of businesses that operate in international financial markets. While much of the developed world is dealing with negative trends – demographic, economic and financial – key Latin American countries present positive trends in these core areas. Essentially for Harneys, the more global Latin American individuals and corporations become, the more they will require its services. China/Asia remains Harneys’ largest emerging market. However, in the last three years Latin America has risen from virtually nowhere to be the firm’s second leading emerging market region.
It’s a similar story for Walkers, another established offshore player in Latin America – and Brazil in particular. From an offshore perspective, revenue generated by its Asia operations is stronger than revenue generated by the firm’s Latin America practice. Grant Stein, Walkers’ Cayman-based chairman, believes that this is to be expected as Walkers opened an office in Hong Kong in 2003 and expanded into Singapore in 2009.
Nonetheless, Walkers’ revenues from Latin America are increasing year on year. In order to maximise the benefits to its Latin America clients, the firm reorganised its Latin American offering in 2010 through the creation of a global Latin America group, comprised of specialists from its core practice areas – funds, finance, trusts and litigation – and by pooling its Latin America expertise, thereby developing a more co-ordinated approach to its Latin American clients.
Appleby is also very focused on Latin America and has a dedicated group of partners working in this market. Since it launched a co-ordinated Cayman, BVI and Bermuda Latin America practice around four years ago, it has become the firm’s most active emerging markets practice, after Asia (mainly China).
‘Latin America historically has been a fundamental part of our Caribbean strategy’
Likewise, the region is a fundamental part of Ogier’s emerging markets strategy. Ogier focuses its Latin America resources almost exclusively on Brazil, with investment funds and private wealth service lines being the most active. Ogier also works on corporate and commercial matters, as well as banking and finance.
‘Latin America historically has been a fundamental part of our Caribbean strategy,’ says Cayman-based partner Giorgio Subiotto. In the 1990s, Latin America actually represented Ogier Cayman’s principal market. That is no longer the case, as Ogier’s North America practice developed, but over time, the firm forged deep relationships with key players in Latin America, which meant that the region continued to contribute to a significant proportion of its business. Ogier BVI has followed a similar trajectory, albeit a shorter one, as the office opened in the early 2000s.
Beat you to it
Conyers got to Brazil first in March 2009. The firm recognised the multitude of opportunities that such large geographic areas as Brazil, and Latin America in general, encompass. Its Bermuda-based chairman John Collis says that because the Brazil economy was booming and Brazilian multinationals were trading globally, it was apparent that they were doing so through offshore vehicles. ‘So to us it was an obvious destination,’ he says. Conyers now has three full-time lawyers in São Paulo and has seen much of its activity involve asset finance within the oil and gas sector, Brazilian investment fund managers going abroad, as well as acquisitions.
Conyers’ Dickson finds Brazil a very welcoming place. ‘In many respects it was very easy to settle into life in São Paulo,’ he says. Furthermore, Conyers had its existing Brazilian practice to support the opening. ‘Having that base was very helpful.’
Harneys has also found the local market’s response to be positive and its Latin America practice has not only grown in terms of total revenue but, importantly, the firm has broadened its base of instructing clients. It now has strong relationships that enable the firm to compete for work such as the setting up of trusts for high-net-worth individuals (HNWIs), the establishing of funds for asset managers and HNWIs, equity and debt offerings by corporations, and corporate matters for the region’s companies.
Tough nut to crack
Opening an overseas office is never easy. Harneys’ main task has been to stay close to the market, understanding its needs, and bridging those evolving requirements with solutions that the firm either already has, or new ones that it has to develop. It spends a lot of time helping the market to analyse options and understand structures. This investment is a key component of Harneys’ strategy when tackling this market.
Because Harneys does not offer Brazilian law services – only Cayman, BVI and Cyprus legal services – Martins believes that this is one reason why the firm has been successful in the region. It makes it clear to the market that the firm is there to support its clients and partners, including the local law firms.
Specific challenges include the fact that government policies and regulatory positions can change quickly in Brazil. These changes often affect clients’ preferences for offshore structures. ‘I view this potential for swift regulatory change as a continuing challenge in Brazil,’ says Conyers’ Dickson. From São Paulo, Conyers monitors government policy carefully and actively participates in dialogue with a view to effecting positive changes in Brazilian policies of interest to international financial transactions.
In terms of other work coming out of Brazil, Harneys not only represents Vale in its international note offerings but in 2011, it acted for the mining giant in a restructuring of its offshore companies.
‘We don’t feel that we are missing out on major deals by not being on the ground there’
Not for everybody
Some believe that it is only a matter of time before other firms follow the two early movers. ‘It won’t be long before other offshore law firms set up in Brazil,’ says Conyers’ Collis.
However, most of Conyers’ and Harneys’ competitors prefer to remain active in the region from their island bases. Most of Appleby’s Latin America-related deals originate from either Miami or New York, not directly from Latin America itself, and it does not have any immediate plans to open an office in Brazil or any other Latin American country. ‘It’s not part of our emerging markets strategy to go straight into a country,’ says Peter Bubenzer, Appleby’s Bermuda-based group chairman. ‘We don’t feel that we are missing out on major deals by not being on the ground there.’
Bubenzer also believes that anyone looking at having a presence in Latin America would find it difficult to choose between Mexico and Brazil, as they both offer fantastic opportunities. Argentina and Columbia are also of great interest to Appleby, particularly on the insurance and funds side, both of which play to its capabilities in these areas.
Staying home
Offshore firms without a presence on the ground nonetheless pick up enviable Latin America deals. In July 2011, led by Cayman-based partner Peter Cockhill, Ogier – which has a large Latin American investment funds practice – advised a Brazilian-based investment manager, Ibiuna Investimentos Ltda, on establishing the Ibiuna Fund SPC, which initially has one segregated portfolio established for Brazilian investors with a multi-strategy macro investment focus.
Ogier’s Cockhill and Cayman partner James Bagnall also acted for Brazilian investment bank BTG Pactual on the June 2011 merger of BTG Pactual Banking with Banco BTG Pactual, with the result that banking operations are now conducted through a Cayman branch of BTG Pactual rather than by a subsidiary. The transaction is believed to be the first merger of a licensed financial institution using the Cayman Islands’ recently enacted Companies (Amendment) Law 2011. ‘The transaction is significant as it demonstrates Ogier’s expertise in large, cross-border transactions, particularly in relation to South America, as well as in relation to local regulatory and corporate laws,’ says Cockhill.
Walkers has also enjoyed big-ticket instructions. In December 2011, led by partner Nicole Pineda, Walkers acted as Cayman counsel on the E1.85bn and £700m notes issue by Brazilian oil giant Petrobras’ finance subsidiary, Pifco. The sterling notes constituted the largest sterling bond offer on record from the emerging markets.
It is clear that whether the strategy is to stay at home and let the firm’s reputation bring work in, or to go and seek bounty on the ground in Latin America, for the time being at least South America is a gold mine for offshore firms. LB
Other ports
The majority of offshore law firms’ transactional work in Latin America remains Brazil-focused, but Chile, Peru, Columbia and Mexico also offer fantastic growth potential, believes Harneys’ Cayman Islands-based Latin America head Marco Martins, as do Argentina, Uruguay and certain Central American nations.Conyers Dill & Pearman’s work in Mexico continues to grow, according to its Bermuda-based chairman John Collis, and it is developing its business in Argentina. ‘We are monitoring developments in Argentina with a view to advancing our market
share there,’ says Conyers’ São Paulo office managing partner Alan Dickson. Conyers’ Argentinian clients include New York Stock Exchange-listed IRSA, one of Argentina’s leading real estate development companies. As for Chile, Conyers’ Dickson advised Itaú Unibanco, Latin America’s largest private sector bank, in its August 2011 joint venture agreement with Chile’s Munita, Cruzat & Claro, a Santiago brokerage and financial advisory firm.
Walkers has picked up Guatemala and Peru deals. In September 2011, the firm’s Cayman-based partner Nicole Pineda and trusts head Andrew Miller acted for Guatemala’s largest bank, Banco Industrial, on the $150m notes issue by Industrial Subordinated Trust, a Cayman STAR trust established by Walkers’ special purpose vehicle. And in November 2011, Pineda and Miller advised Bank of America Merrill Lynch and J.P. Morgan, as joint book-running managers and initial purchasers of $300m senior guaranteed notes, issued by Cayman Islands’ Intercorp Retail Trust. The notes were guaranteed by Intercorp Retail, the holding company for multi-format retail operations in Peru, and subsidiaries Supermercados Peruanos and Eckerd Peru. Maples and Calder, led by partner Kieran Walsh and associate Tina Meigh, acted as counsel to Intercorp Retail Trust.
Harneys likewise extends its talents beyond Brazil. It acts for Peruvian bank Banco de Crédito BCP and one of the firm’s more significant Latin American transactions involved advising South African beverage producer SABMiller and its Columbian subsidiary Bavaria on the latter’s March 2011 listing of $1.325bn in corporate bond securities on the Cayman Islands Stock Exchange (see ‘Riding High’, LB218, page 66). ‘That transaction really highlights what we can do best to support our clients and partners,’ says Martins, who led the deal. ‘We handled it out of our Cayman, London and Montevideo offices, and managed to add real value to a very complex deal.’
Precedent
Before Brazil, there was Uruguay. In late 2010, offshore firm Harneys opened its sixth office, in Montevideo. ‘Because of Uruguay’s hub status, it naturally came first,’ says Cayman Islands-based Latin America head Marco Martins. ‘Once we had that in place we could look at putting someone on the ground in Brazil.’
Unlike Brazil, which is a target market, Harneys is not targeting the Uruguayan market itself, but uses the Montevideo office as a hub for its Latin American operations in other jurisdictions. Being close to important capitals, Uruguay offers Harneys a low-cost location from which to engage all of South America. ‘Montevideo is the perfect base from which to support a pan-Latin America approach,’ says Martins. ‘It is business-friendly, financially efficient, and has high quality labour and low bureaucracy.’
Harneys is not the only offshore law firm to have opened in Uruguay. In 2007, Ogier became the first offshore legal practice to open up on the ground in Latin America when it launched a Montevideo office. It has since closed that down and does not intend to open up in Latin America again for a number of reasons. ‘We apply strict metrics in determining the viability of our foreign offices, including risk control,’ says Cayman-based partner Giorgio Subiotto. So far those metrics do not support the firm’s opening an office in Latin America.
The answer might be different if Ogier were working primarily with a corporate client base, but its main areas of practice are investment funds and private client work. In both cases, Ogier’s clients are well accustomed to dealing with advisers internationally and, according to Subiotto, often prefer that those advisers are located in the jurisdiction on which they are advising and where the firm has more resources available and are close to the regulators. This makes it easier for the legal practice to resolve any client issues that arise.