evolve or perish - iflr · publicity. what constitutes commoditized business? lawyers disagree on...

12 IFLR/November 2006 www.iflr.com

Law firms aren’t traditionally the nimblest of organizations.Though innovative in how they solve problems, lawyers havealways been rather reactive when it comes to market trends.Recently however, heads of capital markets are realizing the

profit to be made by moving first. Whether the trend is Chinesecompanies listing in Hong Kong, synthetic CDOs in the US or hybriddebt in Europe, the past year has shown the benefits of spotting a trendearly and adapting a firm’s business model to take full advantage.

This is the IFLR Capital Markets Review 2006, annual analysis of thebiggest financial and product trends of the past year and how they areaffecting the business of running a law firm. Over the next 18 pages IFLRjournalists look at what has been driving the equity capital markets, debtcapital markets and structured finance in Europe, the Americas and Asiain 2006. It also ranks the elite of recommended firms in each practicearea, in each jurisdiction.

European structured finance has been characterized by the need toavoid commoditization, while in the US the challenge for law firms ishow to jump on the bandwagon of synthetic CDOs. Equity was moresimilar worldwide, with UK firms benefiting from the reaction toSarbanes-Oxley by picking up mandates on new listings in Hong Kongand on London’s Aim. In debt, the two hot topics were hybrids and highyield – but UK and US firms found different problems with capitalizingon them.

The Capital Markets Review also includes a breakdown and ranking ofhow firms have coped with capital markets fluctuations in the world’s 24biggest or most dynamic economies. The one consistent message is thatequity markets worldwide have performed strongly, with new offeringsdoubling in Brazil, almost tripling in Italy and more than quadrupling inGermany compared to 2005. The question is, which firms have benefitedfrom having a strong equity practice to begin with, and which haveevolved to take advantage of the trend?

Evolveor perishHow firms adapted to changing markets in 2006

CAPITAL MARKETS REVIEW 2006

www.iflr.com IFLR/November 2006 13

“You have to be able to tick allthe boxes,” says Tim Jones,joint head of FreshfieldsBruckhaus Deringer’s

securities practice. The top clients (includingsponsors, banks and issuers) all demand thattheir legal advisers now provide the full range offinancing options. Law firms hoping to win thebig acquisition finance mandates have to beable to show they can offer capacity thatextends beyond syndicated lending and straightdebt to mezzanine finance, high-yield and,increasingly, hybrid capital.

“There is a lot of overlap between bank andbond debt and so much liquidity availablethat banks need to present sponsors andcorporates with a range of options,” saysRachel Hatfield at White & Case. “Theyexpect a mirror image of themselves in theirlaw firms.”

High yield debt immediately looks the oddone out for European practices. Althoughmezzanine finance and second lien continueto represent a viable alternative to high yield,with buyout examples including Orangina,Gala and Amadeus, today offering high yieldexpertise is vital to a firm’s credibility withsponsor clients. But the product is stubbornlyUS-dominated and seems likely to stay thatway.

“The high yield market is sewn up on thebank side in Europe,” says Jim Wickenden,global head of capital markets at HerbertSmith. “It is very much a US product andalthough others are trying to break into themarket it is very difficult to get traction.”Wickenden says Asian high yield is moreopen and non-US firms have had moresuccess there in convincing banks to hire.

High yield debt has never been so

significant in Europe. Companies with non-investment grade credit ratings (belowtriple-B with rating agency Standard andPoor’s) are raising more money than ever inEuropean debt markets. Although strongliquidity in loan markets such as second lienand mezzanine finance continues to attractmid-sized European companies, high yieldremains a healthy product and asset class,according to Fitch Ratings. In its September2006 special report on the Europeanleveraged credit market Fitch shows thatEuropean high yield issuance, at €19.4billion for the first half of this year, was at itsstrongest since 2001. Deals such as NTL, Avisand Ashtead Capital in the summer mean thatthe European high yield market is set to breakits issuance record of €29.4 billion set in2004, according to Fitch.

How to compete with the USThe trouble, for European firms, is that highyield debt is typically arranged by US lawfirms, either from New York or through theLondon offices of top manager firms such asLatham & Watkins, Cravath Swaine & Mooreand Simpson Thacher & Bartlett. The latestdata from Thomson Financial show that CahillGordon and Shearman & Sterling are alsoprolific advisers on international high yielddebt. These five US law firms accounted for 55of the 78 adviser-instructed manager dealsrecorded by Thomson for the second quarter ofthis year. Lawyers point to Dutch computerchip manufacturer NXP’s recent €4.5 billionhigh yield bond, the biggest ever by aEuropean borrower, to demonstrate thedifficult task Europeans face in breaking intohigh yield debt. Although Dutch firms Stibbeand De Brauw Blackstone provided Dutch law

advice to the managers and NXP respectively,the bond is governed by New York law and thelead advisers were Sullivan & Cromwell andSimpson Thacher for NXP and Davis Polk &Wardwell for the managers.

But European law firms are aware thatchallenging the US firms on the manager sideis unrealistic. Instead, the strategy of buildingcapacity at European firms is designed todemonstrate to corporate banking clients thatthe firm can handle the full range of financingadvice.

Freshfields, for example, is pushing its highyield practice and the firm has had successwinning issuer work from Germany,including instructions for Unity Media andmanufacturer Flender, through lead partnersSarah Murphy and Don Guiney. The firm islooking to develop the practice in the UK, anaspiration matched by competitors including,but not limited to, Clifford Chance, Allen &Overy and Herbert Smith.

“High yield is where the different practicesmeet,” says Jones at Freshfields. “It gives youa way into companies.” Offering a high yielddebt capability is seen as the best way ofbringing together private equity and publicM&A partners with their capital marketscolleagues. The interface between differentparts of the business through high yield debtis an important connection for firms’ internalcommunication and knowledge pooling, aswell as for impressing clients. “More joined-up thinking is required,” says securitiespartner Stephen Miller at Allen & Overy.“Companies need to get their debt and equitymix exactly right and capital management isnow a big thing for businesses, which need toensure balance sheets are optimized.” Millerthinks that this trend helps explain the rise ofhybrid capital among European companies.

Hybrids present a way in IFLR reported bankers saying in March thisyear that corporate hybrid capital is the biggeststep forward in international finance since thebirth of high yield debt, with some predictingup to $40 billion this year in the US alone. Avaluation dispute sparked by a decision of USinsurance valuation authorities in March nowmakes that estimate optimistic, but Europeandeals such as Vattenfall and Porsche last yeardemonstrate the value of hybrid instruments tocompanies wishing to raise capital withoutrisking ratings downgrades or diluting theirequity. Practitioners are divided on whetherthere will be an explosion of issuance or a moregradual development in Europe, but they arekeen to see the product take off: the fees leviedon bespoke hybrid bonds are more than doublethe rate for traditional bond issues.

Lawyers predict that over time there will bemore demand for the integrated approach toadvising on capital structure. “Clients maynot know, at the time of instruction, whethera particular tranche will be in bond or loanstructure,” says Hatfield at White & Case.“You need to be able to advise on the meritsof both.” DA

EUROPEAN DEBT

An integratedpractice streamWhy blending bond and bank capacity is the best way to win debt work in a modern, fluid market

Ranked by deal size Legal adviser No of issues Rank Mkt share Proceeds ($mil)

Latham &Watkins 21 1 18.5 10,745.90Shearman &Sterling 12 2 16.3 9,461.10Cahill Gordon & Reindel 12 3 15.3 8,849.30Cravath Swaine &Moore 4 4 6.8 3,924.60Simpson Thacher & Bartlett 6 5 6.4 3,717.40Allen & Overy 3 6 3.7 2,127.70Weil Gotshal & Manges 3 7 2.4 1,407.30Vinson &Elkins 3 8 2.3 1,307.10Bonelli Erede e Pappalardo 1 9 2.1 1,199.30Kirkland & Ellis 1 10 1.7 1,000.00Total with adviser 78 46,726.40Industry total 96 58,021.70

International high yield issues January 1 to June 30 2006. Source: Thomson Financial

High yield: manager legal advisers


EUROPEAN SECURITIZATION

The European securitization industryis on track to beat last year’s issuancerecord of €327 billion. TheEuropean Securitisation Forum cites

new issuance volume of €106.1 billion for thesecond quarter of this year (the second highestquarterly volume ever) and points to mortgage-backed and collateralized debt obligation(CDO) issuance as leading contributors togrowth. Securitization lawyers surveyed by IFLRare similarly sanguine about the market for theirproduct. But away from issuance volumes,German mortgage markets and the EuropeanCommission’s Capital Requirements Directive,the big trend structured finance lawyers aretalking about is the commoditization of theirtechnology.

“This year has not been phenomenallyexciting,” says Julian Tucker, head of structuredfinance at Shearman & Sterling. “There havebeen lots of repeat issues as products havebecome more commoditized. While there havebeen developments on existing structures, takethe Washington Mutual covered bond, they arebased around existing market concepts.”

Legal advisers that work on innovativesecuritization structures are, in one sense, avictim of their own success. Public documentsavailable through the US Securities andExchange Commission’s Edgar (electronic datagathering, analysis and retrieval) service meanthat anyone can take a look at how the latestdeal has been produced and reverse engineer theproduct for their own ends. Commoditization istherefore an inevitable result of innovation andpublicity.

What constitutes commoditized business?Lawyers disagree on the precise parameters, butmany point to master trust structures,residential mortgaged-backed securitizations,credit card deals and even some commercialmortgage-backed transactions. Despiteagreement on these areas, advisers caution

against judging entire asset classes ascommoditized, stressing that what is establishedand routine in one country can be complex andgroundbreaking in another, and that anythingmulti-jurisdictional poses unique challenges.The crucial test is: has this been done before? Ifit has, the chances are the product will bequickly commoditized. Publicity prevents thetechnology becoming proprietary.

“Commoditization means law firms mustwork out how to keep at the innovative edge ofthe market,” says Salim Nathoo, Allen &Overy’s recently appointed head ofsecuritization. “The challenge is to break opennew markets for existing technology, which hasbecome commoditized, while working on newtransactions and structures.”

Nathoo thinks European securitizationpractices will increasingly look to emergingmarkets and infrastructure, citing deals such asthe UK Ministry of Defence’s Skynetrefinancing and the SovRisc export loanssecuritization. The SovRisc transactionintroduced of a new asset class and was awardedIFLR’s 2006 European securitization deal of theyear. Others agree with Nathoo, pointing toRussian receivables deals from Home Credit andFinance Bank and Red Arrow InternationalLeasing as well as insurance securitization fromSwiss Re and Axa and commercial real estateCDOs as exciting prospects.

But lawyers caution that these deals will inturn become commoditized necessitatingfurther innovation and the introduction of newasset classes to the market. “The innovative edgeof the market is cross boarder pan-Europeandeals where different insolvency regimes slowdown the process of commoditization,” saysNathoo. “But the process is not stopped aspeople have been through these transactionsbefore and have become familiar with thetechniques.” Nathoo cites European tradereceivables transactions as an example of howcommoditization progresses even throughmulti-jurisdictional deals.

The process of product commoditization isan issue for all the big firms. Once banksperceive technology to be commoditized theywill only accept charges that reflect that. Butthese deals still require resources. Lawyers saydeals that banks perceive to be routine can stillbe relatively labour intensive, with a lot ofdetailed documentation.

“You need an awful lot of bodies to handlethese deals, however commoditized they are,”says Tucker. “Banks have become tight onpricing and margins have been squeezed, oftenwith large write-offs for the lawyers. This sort ofwork ties up many talented young associates,leaving less capacity for the more innovativetransactions.”

While there are lots of superstar securitizationpartners in Europe, and in the London marketin particular, these people need back up from

associates to service clients’ repeat issue volumebusiness. Specialists say banks are aware of this.And they have issues with all their deals beingdone by associates.

“One has to ask how long can you keep abright, clever, three-years or so qualifiedassociate happy doing these commoditizeddeals?” says Tucker. “That is why a number ofthem are leaving to join banks.” Associates areprepared to sacrifice the chance to make partnerto go in-house for work that better matchestheir expectations. Losing staff to bank clientscan actually prove beneficial for law firms, butthe difficulty is that this attrition leaves fewerbodies to handle the same level of work. DA

One trend to watch out for is the conver-gence of securitization with other formsof finance. Companies are now insertingsecuritization enabling or clearingclauses into their lending agreements,giving the company the option tosecuritize revenues in the future. Thismethod of obtaining permission, or pre-cooked securitization, means thatissuers will no longer have to go throughthe costly and time-consuming exerciseof obtaining consents from the lendingagent.

This is a reflection of the amount ofmoney around for levered deals.Research from Standard and Poor’sleveraged commentary shows that theratio of total debt to earnings rose to amultiple of 5.8 this September, beating aprevious high of 5.7 for leveragedbuyouts (LBOs) in the first quarter of thisyear. Securitization specialistsexpressed fears that one of these bigleveraged buyouts could default, but saythat, whatever the outcome of the trans-actions, securitization lawyers willbecome more familiar with their bankingand debt finance colleagues as LBOsponsors look to asset-backed securiti-zation and clients demand seamlessfinance advice across practice areas.

The move has been anticipated bysome law firms. White & Case hasmerged its London structured financeand capital markets departments, whileothers expect to see more convergenceof securitization with other types offinance, particularly acquisition finance.Although bigger firms in Europe have yetto formally merge their practice areas,lawyers predict that other firms in the UKmarket could follow suit and there is atleast recognition that partners need topool their efforts across practice groups.Although initially confined to the UKmarket (which accounted for 54% of totalEuropean issuance in the second quarterof this year), lawyers say the movetoward practice convergence willeventually impact on lawyers in otherleading European jurisdictions includingSpain, Italy, Germany and TheNetherlands.

Pre-cooked securitization

Recommended firms Tier 1

Allen & OveryClifford Chance

Tier 2

Freshfields Bruckhaus DeringerLinklatersSidley Austin

Tier 3

AshurstSlaughter and MayWeil Gotshal & Manges

Tier 4

Cadwalader Wickersham & TaftHerbert SmithLovellsSimmons & SimmonsWhite & Case

Innovators neededFirms need to find a way to cope with commoditization

UK securitization


EQUITY-LINKED DEBT

Gradually, the convertible bondmarket is changing. Issuers arebecoming more innovative, pre-IPO deals and mandatory

exchangeables are becoming more common,and the dominant firms in what was once ahighly commoditized market are reaping thebenefits.

The changes are hard to pick up, largelybecause the convertible bond market is verycyclical: when equity markets are hot, as theyare now, investors want different ways toaccess it; when the markets cool off, investorsreturn to fixed income or alternative assets. Soit’s only at the peak of the cycle that theinnovations and fundamental shifts indemand can be seen.

Pre-IPO convertibles, which give

bondholders a way in to an expected flotationbefore other investors, have been around for agood few years – they were particularlypopular in Asia during the technology boomthere. But 2005 saw the first two completedin Germany, a furore over new issues in HongKong and the first shariah-compliant issuefrom Dubai.

The problem in Hong Kong was that someissuers and their legal advisors tried to changethe structure of the convertible to giveinvestors a guaranteed return on IPO. Ratherthan allow bondholders to exchange theirnotes for shares at a certain (favourable) priceafter the flotation, the bonds allowed them todo so for a certain percentage discount onwhatever the IPO price turned out to be. TheHong Kong regulator took against this

guaranteed profit and refused to approve thenotes.

But this furore was itself a result of the factthat there were simply more pre-IPOconvertibles coming out of Asia this year. Alot of property companies in China werelooking to list or exit private equityinvestments, and any producer connectedwith raw materials such as oil, gold or steelwas looking to float and benefit from highcommodity prices.

Law firms and banks are also becomingmore creative with equity-linked products.For example, German chemicals group Bayerissued a €2.3 billion mandatory convertiblein June this year that was not only unusual inits size and mandatory nature, but was alsoone of the first to be used as part of acompany’s regulatory capital. And WeatherCapital Finance issued a novel €825 millionpre-IPO convertible (see table) that wasinitially convertible into shares of OrascomTelecom but, on a qualifying event, could beconverted into alternative stock.

Simon Sinclair, a partner at Clifford

Reaping rewardsHow Linklaters has gained from more innovative convertibles

A selection of 2006 pre-IPO convertible bonds

Issuer

Golden State

Environment Group

Greentown China

Holdings

Angara Gold

Weather Capital

Finance

Dubai Ports World

Issuer counsel

Herbert Smith on

English, Hong

Kong and US law;

Maples & Calder

on Cayman law;

King & Wood on

PRC law

Herbert Smith on

English law;

Maples & Calder

on Cayman and

BVI law; T&C Law

Office on PRC Law

Skadden Arps

Slate Meagher &

Flom: legal adviser

to Angara Mining

and JSC

Vasilevsky rudnik

Gold mine as to

English and

Russian law

White & Case,

Arendt &

Medernach and

Dewey Ballantine

Clifford Chance

Underwriter

Merrill Lynch, The

Bank of New York

JP Morgan

Nomura

International and

Uralsib Securities

Citigroup, Credit

Suisse, Deutsche

Bank

Barclays Bank,

Dubai Islamic Bank

Underwriter counsel

Linklaters. Simpson

Thacher & Bartlett also

advised certain

investors on US law

Linklaters for JP

Morgan. For the sole

manager: Sidley Austin

on English law; King &

Wood on PRC law;

Allen & Gledhill on

Singapore law

Linklaters on English

law; Chrysses

Demetriades & Co on

Cypriot law

Linklaters

Denton Wilde Sapte

Deal description

Guaranteed secured

convertible notes due

2013. Largest ever

pre-IPO convertible

bond offering by a

company in the greater

China region

$65m secured non-

mandatory convertible

bonds due 2011 and

$65m secured

mandatory convertible

bonds

$50.1 million 7% bonds

due 2008 (with condi-

tional conversion rights

into shares of Angara

Mining). The first pre-IPO

convertible bond by a UK

issuer

4.75% secured

guaranteed

exchangeable bond

due 2013 initially

exchangeable into

existing GDRs repre-

senting Ordinary

Shares of Orascom

Telecom Holding

The world's largest

single sukuk issue, the

first sukuk issue to be

convertible into equity

upon an IPO, and the

first sukuk to be listed

on DIFX

Deal value

$150

million

$130

million

$50.1

million

€825

million

$3.5 billion

As many pre-IPO convertible bonds are private transactions, this list does not purport to be exhaustive


Chance in London, says: “Althoughconvertible bonds are really driven by frothyequity markets, there has been an increase inissuance and creativity in recent years. Thishas been particularly evident in the last fiveyears as hedge funds have become more activein this area, looking to convertibles as anotherway to access the stock markets.”

Convertible bonds have also gradually crept

down the credit spectrum in recent years,fuelling a rise in issuance. Says Ben Dulieu,partner at Linklaters in London: “Convertiblebonds used to be seen as investment grade,big company products. But in recent yearsmore and more small, high-growth companieshave been looking to convertibles as a way toraise growth capital, as an alternative toprivate equity funding.” Recent examplesinclude oil exploration company Afren, whichissued an as-yet unlisted bond this year, andAngara (see table).

Not only does the table reveal the numberof smaller, high yield issuers of pre-IPOconvertibles this year, it also illustrates thedominance of a few firms in the roles advisingthe banks and issuers. Linklaters has alwayshad a dominant role in equity-linked advice.In IFLR’s equity survey in 2005, for example,the firm completed 119 bonds, 103 morethan its nearest competitor, Clifford Chance.The majority, 79, of those were in Asia, andon all but three Linklaters advised the banks.That trend can be seen on the table here,where Linklaters advised on four of the fiveselected deals, and all for the underwriters.

It had been suggested in the past thatLinklaters’ domination of the equity-linkedmarket wasn’t necessarily the most profitableone, as deals became more and morecommoditized and fees were squeezedaccordingly. But this recent rise in innovationsuggests that the firm is now reaping thebenefits of its position in the market, withmore structured, profitable deals. Dulieu

confirms that one mandate tends to followanother: “Winning work in this area isbecoming more self-perpetuating. Doing thelast deal pushes you onto the next,particularly if you introduced somethinginnovative and can go into the market andtalk about it.”

Other firms that have performed well inAsian convertible this year are Herbert Smithand Sidley Austin. Herbert Smith advised theissuer on both the Golden State andGreentown China pre-IPO convertibles thisyear, and says it has several others in thepipeline. Equally Sidley Austin, though itworks on more private transactions that are notlisted here, says it has two more in the pipelinein Asia that should close this year. SC

CONVERTIBLE BONDS

ASIAN EQUITY


Allen & OveryClifford ChanceDavis Polk & WardwellLinklaters

Tier 2

Cleary Gottlieb Steen & HamiltonMilbank Tweed Hadley & McCloySkadden Arps Slate Meagher & Flom

Tier 3

Freshfields Bruckhaus DeringerHerbert SmithMallesons Stephen JaquesShearman & SterlingSidley Austin

Tier 4

Baker & McKenzieRichards ButlerSullivan & CromwellWhite & Case

Hong Kong debt markets

When a company chooses tolaunch the world’s biggestever IPO on an exchangethat just a few years ago saw

half the number of listings as the London,New York or Nasdaq markets, something isgoing on. In fact, a lot is going on in HongKong, and UK law firms are among thosetaking full advantage.

According to data from Dealogic, in thefirst nine months of 2006 Chinese equityissuance was up 83% over the same periodlast year to a record $25.2 billion. And thatwas before ICBC hit the streets last monthwith its world-beating $22 billion IPO. Thedeal outshines the previous largest offering,NTT DoCoMo’s $18 billion flotation in1998, and makes a bold statement aboutglobal equity market competition.

For years, critics have been warning thatwhat they see as the over-regulation ofcompanies who list their shares in the US willdrive away foreign companies who havetraditionally listed in what is still the world’slargest capital market. They point to

developments such as the 2002 Sarbanes-Oxley Act and in particular Section 404,which requires companies to review theirown financial reporting processes, as well asUS generally accepted accounting principlesrequirements, the perception of higherlitigation and liability risks, and thecomplexity of deregistering from the SEC asstrong disincentives to listing on US stockexchanges.

These warnings seem to be bearing fruit.Although unregistered 144A tranches haveremained a feature of most offerings, thenumber of foreign companies listing on theNew York Stock Exchange has fallen to anaverage of 18 per year between 2003 and2005 from an average of 48 per year between2000 and 2002.

And the winners in all this? On one handexchanges in Brazil and India are attracting ahealthier proportion of their domesticissuers. At the same time markets perceivedto have a lighter regulatory touch, such asLondon’s Aim and the Hong Kong StockExchange, are winning foreign listings that

All aboardUS stock exchanges’ loss is UK law firms’ gain in Hong Kong

“Winning work inthis area is becoming more self-perpetuating. Doingthe last deal pushesyou onto the next”Ben Dulieu, Linklaters

“The number oftimes I have toadvise on Englishlaw could be count-ed on one hand”Michael Fosh, Herbert Smith


ASIAN EQUITY

Top 20 Chinese/Hong Kong IPOs 2006 YTDIssuer

ICBC

Bank of China

Shui On Land

Champion Real

Estate

Investment Trust

Shimao Property

Holdings

Nine Dragons

Paper (Holdings)

Greentown

China Holdings

China

BlueChemical

Dalian Port

China National

Building Material

Hunan

Nonferrous

Metals

Golden Eagle

Retail Group

Shanghai Prime

Machinery

Tianjin Port

Development

Holdings

SPG Land

(Holdings)

Lingbao Gold

Win Hanverky

Holdings

Advanced

Semiconductor

Manufacturing

Corp - ASMC

Biosino Bio-

Technology &

Science

Beijing

Jingkelong

Bookrunner

Merrill Lynch,

Deutsche Bank,

CSFB

Bank of China

International;

Goldman Sachs;

UBS

JP Morgan;

HSBC;

Deutsche Bank

Citigroup; JP

Morgan;

Merrill Lynch

Goldman Sachs;

Morgan Stanley

BNP Paribas;

Bank of China

International;

Merrill Lynch

JP Morgan;

UBS

JP Morgan;

UBS

BNP Paribas;

UBS

Morgan Stanley

Bank of China

International;

Morgan Stanley

ABN AMRO

Rothschild;

Goldbond

Capital (Asia)

Credit Suisse

ABN AMRO

Rothschild;

Calyon

DBS;

Macquarie

Securities

Bank of China

International

DBS

Bank of China

International;

Goldman Sachs

Partners Capital

International;

SBI Crosby

DBS

Hong Kong

law

Herbert Smith

Freshfields

Freshfields

Baker &

McKenzie

(to manager)

Freshfields

Sidley Austin

Herbert Smith

Baker &

McKenzie

Morrison &

Foerster

Slaughter and

May

Sidley Austin

Sidley Austin

Freshfields

Sidley Austin

Jones Day

Mallesons

Stephen

Jaques

Deacons

Freshfields

Li & Partners

Richards

Butler

US law

Davis Polk &

Wardwell

Sullivan &

Cromwell

Freshfields

(and English

law)

Baker &

McKenzie

(to manager)

Freshfields

Sidley Austin

Herbert Smith

Baker &

McKenzie

Morrison &

Foerster

Davis Polk &

Wardwell

Sidley Austin

Freshfields

Freshfields

PRC law

King & Wood

Jun He Law

Office

Jin Mao Law

Firm

Commerce &

Finance

Jingtian &

Gongcheng

T&C Law Firm

Jun He Law

Offices

Jingtian &

Gongcheng

Jingtian &

Gongcheng

Jia Yuan Law

Firm

Chen & Co

Jun He Law

Offices

Global Law

Office

Jun He Law

Offices

Commerce &

Finance

Jingtian &

Gongcheng

Jingtian &

Gongcheng

JunZeJun

Law Offices

Zhonglun

Wende Law

Firm

Issuer counsel

Hong Konglaw

Freshfields

Allen & Overy

Allen & Overy

Freshfields

Herbert Smith

Baker &

McKenzie

Sidley Austin

Herbert Smith

Norton Rose

Linklaters

Lovells

Coudert/Orrick

Sidley Austin

Lovells

Johnson

Stokes &

Master

Jones Day

Norton Rose

Linklaters

Chiu &

Partners

Deacons

US law

Shearman &

Sterling

Shearman &

Sterling

Allen & Overy

(and English

law)

Freshfields

Herbert Smith

Baker &

McKenzie

Sidley Austin

Herbert Smith

Norton Rose

Linklaters

Lovells

Coudert/Orrick

Sidley Austin

Linklaters

PRC law

Haiwen &

Partners

King & Wood

Commerce &

Finance

Fangda

Partners

Commerce &

Finance

King & Wood

Commerce &

Finance

Haiwen &

Partners

Commerce &

Finance

Global Law

Office

Commerce &

Finance

Haiwen &

Partners

JunZeJun

Law Offices

Underwriter counselValue $ million

$ 22,000

(approx.)

$ 11,186

$ 879

$ 812

$ 551

$ 504

$ 395

$ 393

$ 321

$ 267

$ 263

$ 210

$ 187

$ 161

$ 154

$ 128

$ 101

$ 96

$ 85

$ 76

Deal values and ranking supplied by Dealogic


would traditionally have gone to New York.For Aim, these have included notable Russianlistings. For Hong Kong it is Chinesecompanies.

“The ongoing obligations have cast a bit ofa shadow over listing in the US,” saysFreshfields’ Teresa Ko, who advised the bankson ICBC’s IPO. “It doesn’t take much topersuade an issuer to do an A and H listingrather than an A and N listing.”

Law firms with offices in Hong Kong havebeen among those to benefit from this trend.And among these, UK firms such asFreshfields have been particularly successful,even while English law has fallen out of use.Of the biggest IPOs of this year only one, forShui on Land, involved a UK component. AsMichael Fosh, Herbert Smith’s chiefrepresentative in Beijing and issuer counsel toICBC notes: “The number of times I have toadvise on English law could be counted onone hand.”

Despite this, of the 10 largest Hong KongIPOs of 2006 to date, eight of the HongKong law underwriter mandates and six ofthe Hong Kong issuer roles have gone to UKfirms. UK firms are also enjoying increasing

success on the US law side of the equation.Aside from the occasional multi-billiondollar deal such as Bank of China and ICBC,the same firm usually now advises its clienton both Hong Kong and US law.

In part this is a result of the decliningimportance of the US law component of thedeal. With none of this year’s top 20 ChineseIPOs including a US listing the work islimited to 144A advice, which is less involvedand does not require a tie-in to a substantialUS practice. But it is also a reflection of thefact that several UK firms have a longertradition of putting feet on the ground inHong Kong and have been building strongerHong Kong teams by hiring local trainees aswell as US lawyers. Herbert Smith, forexample, recently hired John Moore, a US-qualified senior counsel at Goldman Sachs.

Winning work on PRC listings stilltypically requires firms to leap beauty paradehurdles. According to lawyers who take partin them, Chinese clients are as interested astheir counterparts elsewhere in factors suchas pricing, track record and expertise. Havingthe right relationship also helps. HerbertSmith, for example, had worked with ICBCfor years and in 2003 advised its Hong Kongsubsidiary ICBC (Asia) on the acquisition ofFortis Bank’s local retail and commercialoperations. For its part Freshfields, in wooingthe underwriters, can point to having advisedon the first dual Hong Kong-New Yorklisting in 1993, for Shanghai Petrochemical,and a number of landmark deals right up toChina Construction Bank, last year’s biggestIPO, and Bank of China, the largest ChineseIPO until ICBC.

Aside from its size, the ICBC IPO was alsonotable for being the first to involvesimultaneous A and H listings, posting itsshares on both the Shanghai and Hong Kongexchanges. In the past many companies havelisted first in Hong Kong and then later inShanghai, but doing so at the same timerequires careful negotiation of two verydifferent regulatory regimes with differentdisclosure requirements, timings andprospectuses.

Convergence between the offering regimesof Hong Kong’s Securities and FuturesCommission (SFC) and the China SecuritiesRegulatory Commission is unlikely any timesoon. “I don’t think you’d ever see a situationwhere they’re exactly the same – they’re verydifferent markets,” says Paul Chow ofLinklaters in Hong Kong. But observersbelieve ICBC has set an important precedentthat will lead to similar deals and interesting

mandates for the law firms who work onthem. Increasing numbers of A and H listingswill also help further stimulate the growingsophistication and involvement of PRC lawfirms in the listing process. Some lawyers atforeign law firms predict that these firms willeventually become tough competitors forHong Kong law work.

While Hong Kong is enjoying its day inthe equity sunshine, it is also looking to keepevolving on a regulatory level to make surethis is not a brief summer. “The Hong Kongsecurities market needs to look at what it cando better,” says Teresa Ko. “One priorityshould be designing a prospectus that peoplewould be able to read.”

In August 2005 the SFC issued aconsultation paper on possible reforms that ithopes will do just that. It recently announcedthat it will be looking at some measures inmore detail, including enabling informationto be disclosed in a prospectus by reference toanother source. The Hong Kong authoritiesare also looking to attract issuers fromoutside the usual ranks of Chinese, CaymanIsland and Bermudan companies to newcountries such as Australia. But for the timebeing they are doing fine without them. BM

ASIAN EQUITY

“Hong Kong shouldbe designing aprospectus that people would beable to read”Teresa Ko, Freshfields

“Of the 10 largest IPOs this year, eight ofthe Hong Kong-law underwriter mandateshave gone to UK firms”


Davis Polk & WardwellFreshfields Bruckhaus DeringerLinklatersShearman & SterlingSullivan & Cromwell

Tier 2

Allen & OveryBaker & McKenzieCleary Gottlieb Steen & HamiltonHerbert SmithSimpson Thacher & BartlettSkadden Arps Slate Meagher & Flom

Tier 3

Latham & WatkinsMallesons Stephen JaquesMilbank Tweed Hadley & McCloyNorton RoseSidley Austin

Hong Kong equity markets


LinklatersPaul Hastings Janofsky & Walker

Tier 2

Freshfields Bruckhaus Deringer Jones DayMallesons Stephen Jaques

Tier 3

Allen & OveryClifford ChanceSidley AustinSimmons & Simmons

Hong Kong structuredfinance


US DEBT

The capital markets occasionally liketo indulge in passing fads. In the USthis year, the hottest financialfashion has been the debt-equity

hybrid security. The market for hybrids has grown up fast.

According to Dealogic in the first ninemonths of 2005 US hybrid capital issuancewas worth $6 billion. Over the same periodthis year hybrids generated $28.4 billion. Inless than 18 months the market has celebrateda new arrival, struggled through an awkwardadolescent phase and now stands on the brinkof assured maturity.

During this journey it has been helped by asmall group of investment banks and lawfirms, among which Sullivan & Cromwell,Simpson Thacher & Bartlett, Cleary GottliebSteen & Hamilton and others have playedprominent roles. But the story begins in themid-1990s, when firms such as Sullivan &Cromwell helped financial institutions selltrust-preferred securities. Around that time

ratings agency Moody’s began looking athybrids, which are attractive to issuersbecause they can secure the favourable creditratings associated with equity without losingthe tax-deductibility and lack of shareholderdilution achieved by debt.

It was not until early 2005, however, thatMoody’s liberalized its framework for ratinghybrids following complaints that, in order toqualify for its basket C, securities had to bemore equity-like than equity. In doing so itopened the door for a new type ofinstrument, which duly arrived in August2005 in the form of Lehman Brothers’Enhanced Capital Advantaged Security(Ecaps). Sullivan & Cromwell representedLehman as issuer while Simpson Thacheradvised Lehman, with which it has a long-standing relationship, in its underwritercapacity.

The next stage in the development ofhybrids saw a handful of corporate issuers,including Stanley Works and BurlingtonNorthern Santa Fe, reach first basket C thenbasket D, the Holy Grail for many issuers.Sullivan & Cromwell was again involved,advising Citigroup Capital Markets andGoldman Sachs as the lead initial purchaserson the Stanley Works offering.

Arrangers then began to search for ways toachieve the same results for bank holdingcompanies. Although the product can beuseful in boosting the credit ratings of capital-intensive companies such as utilities andrailway operators, it is only likely to appeal toa limited range of corporate issuers. Financialinstitutions are a much bigger potentialmarket. The equity treatment of hybrids helpsthem achieve the investment grades theyneed, and with billions of dollars of trustpreferreds due to expire many are looking forattractive alternatives.

One of the difficulties in designing hybrids

for banks is including a mandatory paymentdeferral trigger in order to satisfy Moody’sdemands for equity credit without falling foulof Federal Reserve requirements. Not to bedenied, this summer JP Morgan developed astructure to that helped first Capital One andthen the bank itself achieve this. Sullivan &Cromwell was special product counsel on theCapital One deal having worked with JPMorgan to design the structure. Morrison &Foerster, Capital One’s designatedunderwriter counsel, acted for the banks on

Hybrid approachShould firms have dedicated teams for US hybrid securities?

Highlights from a busy year for US hybrids

Hybrid deal picks

Issuer

Lehman Brothers Ecaps

Stanley Works

RGA

Zurich Financial

Swiss Re

Lincoln National

UBS

American Express

Capital One Capital III

Great-West

Citigroup Capital XV

Dominion Resources

$ million

300

450

400

1,300

750

800

1,000

750

650

300

1,100

500

Underwriter counsel

Simpson Thacher & Bartlett

Sullivan & Cromwell

Davis Polk & Wardwell


Willkie Farr & Gallagher (US)

Sullivan & Cromwell

Davis Polk & Wardwell

Skadden Arps Slate Meagher & Flom

Morrison & Foerster, Sullivan & Cromwell

(special product counsel)


Cleary Gottlieb Steen & Hamilton

Troutman Sanders, Sullivan & Cromwell

Issuer counsel

Sullivan & Cromwell

NA

Bryan Cave

Willkie Farr & Gallagher

Paul Weiss Rifkind Wharton & Garrison

LeBoeuf Lamb Greene & MacRae

Sullivan & Cromwell




Skadden Arps Slate Meagher & Flom

McGuireWoods

“Nine months fromnow if a bank wantsto do a basket Doffering there’ll be acommonly agreedstructure”Robert Buckholz, Sullivan & Cromwell


Cravath Swaine & Moore Davis Polk & Wardwell Sullivan & Cromwell

Tier 2

Cleary Gottlieb Steen & Hamilton Shearman & Sterling Simpson Thacher & Bartlett Skadden Arps Slate Meagher & Flom

Tier 3

Cahill Gordon & Reindel Gibson Dunn & CrutcherLatham & Watkins Sidley Austin Weil Gotshal & Manges

US debt and equity markets


two deals by the credit card issuer includingthe breakthrough $650 million in August.Cleary Gottlieb, which has advised CapitalOne on all its major financings since 2001,was issuer counsel.

In March the National Association ofInsurance Commissioners’ (NAIC) SecuritiesValuation Office, which regulates the USinsurance industry, threw the market intodisarray by classifying Lehman’s Ecaps ascommon equity rather than preferred stock.Despite dire warnings, however, dealscontinued through the summer. Earlier thisautumn the NAIC released a proposeddefinition and treatment of hybrids that hasbeen welcomed in the market and is expectedto be adopted at the NAIC’s winter meetingin December.

Although hybrids continue to be in vogueas high profile and high value work, they haveso far had little practical impact on the lawfirms working in the area. Hybrids aresubstantially more labour intensive – andhigher fee earning – than vanilla structuredfinance deals, and can take anything from amonth to more than a year to prepare. To beable to service this kind of deal firms need tobe able to deploy an interdisciplinary team ofcapital markets, tax and bank regulatorylawyers. But none of the firms IFLR spoke tohas so far set up a formal hybrids team,although they generally have a handful ofpartners and associates who spend the bulk oftheir time on such work. Sullivan &Cromwell has given internal hybrids trainingto its staff but, like other firms, does notappear to anticipate imminent hires to meetthe demands.

That strategy could be under pressure if thehybrids sector takes off as many expect it to in2007 now that the NAIC threat seems to beresolved. Lawyers who work in the field saythey do not anticipate any further regulatoryhiccups.

So what’s next in the evolution of hybrids?According to Sullivan & Cromwell’s RobertBuckholz, who has advised on Stanley Worksand Capital One among other deals, the mostimportant developments have already beenmade now that banks can achieve basket D.Although questions will arise about thedrafting of replacement capital covenants,Buckholz predicts a rapid move towardsstandardization. “Nine months from now if abank holding company wants to do a basketD offering they won’t be trying to decidewhether to use this bank’s product or another

bank’s product, there’ll be a commonly agreedstructure,” he says.

Like all new instruments hybrids willbecome commoditized – Buckholz predicts itwill take one to two years. In the process theywill lose some of their prestige and become lessexciting to lawyers, who prefer to work onbespoke deals. Not that they will turn the workdown, of course. The firms that have alreadyworked on the early hybrids will be hoping toturn that into a reliable income source. “As thelandscape becomes more predictableinvestment banks will compete more

intensively for hybrid work, including onprice. At that point there will be an advantageto those law firms with the most experiencethat can do the work most efficiently,” saysMorrison & Foerster’s James Tanenbaum,counsel to Capital One on its hybrid.

For the time being, however, there are stillplenty of challenges to overcome. SimpsonThacher’s Andrew Keller, who advised on theoriginal Ecaps deal, says: “We have gone pastthe stage of having to reinvent the wheel witheach deal, but the banks are still coming upwith better mousetraps.” BM

US DEBT

“The banks are stillcoming up with better mousetraps”Andrew Keller, Simpson Thacher &

Bartlett

Who says trade groups aren’tworth the membership fees?The International Swaps andDerivatives Association (Isda),

for one, has proved its value over the last 18months. By creating model documentation fortrading in credit default swaps (CDS) on asset-backed securities (ABS) it has sparked a gold rushin synthetic collateralized debt obligations(CDOs).

Rather than referencing a pool of physicalassets such as loans and bonds, as with cash flowCDOs, synthetics pull together a pool of CDS toshift the credit risk of assets into the CDOwithout transferring the assets themselves. Theyoffer greater flexibility than cash deals and havebeen popular in Europe for several years,accounting for roughly 90% of the CDOmarket.

Synthetics have been slower to take off inthe US, where they make up only 9% of newissuance. In June and December of last year,however, Isda published templates fordocumenting trades of CDS on ABS. Oneapplies to CDS on ABS intended for cash orphysical settlement; the other (which appearsin two versions) is for use with CDS on ABSemploying a pay-as-you-go (PAUG)settlement policy. In June of this year, Isdawent on to release a similar template for CDSon CDOs.

The templates were based on a prototypedeveloped by a group of dealers and have provedto be extremely successful in removing barriers totrading. Doing so has attached a rocket to the USsynthetics sector, in part by promoting syntheticABS on CDOs that use the PAUG template, andby enabling larger synthetic buckets incash/synthetic hybrid CDOs.

According to Dealogic, while in 2003 therewere just five synthetic deals, last year there were57, worth $14 billion. So far this year there havebeen almost 100 deals, setting course to doublelast year’s total. With the CDS market worthtrillions of dollars, the scope for further growthin synthetic CDOs is vast.

The arcane world of credit default swaps andsynthetic CDOs yields little information to theoutside. Deals are private and difficult tocategorize, making keeping track of the marketdifficult. It is therefore unclear how much worklaw firms are winning, and who is getting themost. Talking to lawyers reveals a long list ofcompetitors that are active, including big-hittersecuritization firms such as Sidley Austin, McKeeNelson and Cadwalader Wickersham & Taft aswell as firms with strong corporate groupsincluding Cleary Gottlieb Steen & Hamiltonand Schulte Roth & Zabel. It also includes UKfirms with New York offices, notably Freshfields,which has used CDO work to spearhead its USstructured finance practice. What all firms need,however, is expertise on both derivatives andstructured finance.

So far the boom in synthetic CDO work hashad little impact in terms of staffing on theestablished US firms. Those looking to breakinto the market are taking on board newpeople, however. For example, Linklaters hiredpartner Adam Glass, who specializes in CDO work, from Sidley Austin in 2004 andtook on board Stan Renas from Cadwaladerearlier this year. BM

Thank you IsdaNew templates have caused an explosion in synthetic CDOs

US STRUCTURED FINANCE


Cadwalader Wickersham & TaftMayer Brown Rowe & MawOrrick Herrington & SutcliffeSidley AustinSkadden Arps Slate Meagher & Flom

Tier 2

McKee NelsonThacher Proffitt & Wood

Tier 3

Cleary Gottlieb Steen & HamiltonDewey BallantineSimpson Thacher & BartlettWeil Gotshal & Manges

US structured finance


The London Stock Exchange’sAlternative Investment Market(Aim) has raised $19 billion in 65foreign listings this year. Freshfields

says that more than half of its London listingsin 2006 came from non-UK issuers. This islargely a result of a flight of capital from theUS, driven by the expensive compliancerequirements of the Sarbanes-Oxley Act (Sox).But how are US and UK law firms reacting tothis boom in work?

Firms began by looking for issuerinstructions, which are more attractive thannominated adviser (Nomad) work for brokerssuch as Collins Stewart and Peel Hunt. But theelite investment banks have also becomeinterested in bringing bigger deals to thealternative market, justifying internationalfirms accepting Nomad instructions. The topbanks are careful about the deals they act on,says one equity lawyer, and they are prepared topay higher fees. Also, while Aim is a big sourceof work for many law firms of different sizes,leading firms are finding that only the top Aimwork is worth their while.

US firms have suffered as their UKcounterparts have prospered. The success ofLondon’s alternative market in attractingforeign issuers came at the expense of NewYork’s National Association of SecuritiesDealers (Nasdaq). Lawyers say that USauthorities are aware of the need to review Sox,while London knows it needs to tighten itsregime. Speaking at September’s Live from theSEC event, Ethiopis Tafara, director at theOffice of International Affairs at the SEC, saidthat capital markets are now internationalizedand oblivious to borders. Tafara, who prefacedhis comments with a statement that hisopinions were his own and not those of theCommission, said that investors still demandprotection and identified the need for greater

cooperation between securities regulators inpromoting market integrity. Issuers andinvestors both have an interest in the integrityof global markets, said Tafara, and theregulatory race should be one to optimalityrather than the bottom. He had detailedsimilar opinions in the cover story ofSeptember’s IFLR, arguing that regulatorystandards around the world are convergingtowards Sox. At the time of writing, theLondon Stock Exchange is reported to bereviewing Aim’s regulations and introducing anew regime next year.

And it seems the adage about the USsneezing and the rest of the world catchingcold could no longer be true. Practitioners saythat the influence of the US is not as great asbefore with China, Japan, the European Unionand emerging markets becoming moreindependently viable. Lawyers see evidence ofthis trend away from US market dependencyin the success of Aim. The New York StockExchange is reported to have commissionedconsultants to answer why the exchange haslost ground to Europe and London inparticular. “Most big deals include a Rule 144Atranche,” says Nick Eastwell, global head ofcapital markets at Linklaters. “But Sarbanes-Oxley has led to a major decline in New Yorklistings and SEC registrations.” Foreigncompanies need only be rated by one of theratings agencies to tap the US market throughRule 144A and the Section 4(2) exemption ofthe US Securities Act, which allows qualifiedinstitutional buyers to participate in theprimary and secondary 144A market.

Lawyers are interested to see what theresponse from US firms will be to the successof European capital markets in attractingChinese, Russian and other foreign issuers.Practitioners surveyed by IFLR have theimpression that the elite New York firms,which do not have the spread of the bigEuropean firms, are not putting the sameresources into global capital markets. Insteadmany of these firms are focusing on their homemarket. US firms are unlikely to change theirbusiness models due to a relative lack of size(compared to international European firms)and, most importantly, concerns aboutprofitability dilution. But there are a variety ofbusiness models in operation at internationalUS firms and European competitors areinterested to see what firms like White & Caseand Baker & McKenzie are doing in emergingmarkets.

Over the past decade the European capitalmarkets have become deeper, broader, moreintegrated and more innovative. Managementconsulting firm McKinsey & Companypredicts the global capital stock could rise toover $200 trillion by 2010 and Nick Eastwellthinks there has never been a better time to be

an equity capital markets lawyer. “The role ofthe lawyer is becoming more important asincreased regulation and high profile corporatefailures have led to a more risk averseenvironment,” he says.

Opportunities for firms to enter the equitymarket are scarce. Lawyers say equity is themost competitive market of all, more so thandebt where the Eurobond market is sewn up bythe top UK firms, with the exception of high-yield debt which remains a US product. “It’sdifficult for new firms to break into the marketwithout major investment,” says Eastwell.“The same firms that dominated the market 20years ago are still the top firms today.”

Linklaters has over 500 lawyers in its globalcapital markets group while fellow magiccircle firm Allen & Overy has over 200 capitalmarkets lawyers in London alone. But it isstill not enough and firms are havingproblems staffing deals, leading to brutalhours for associates over the summer. Successbreeds its own challenges and lawyers say thatbusy markets can pose problems whenmanagement’s attention wanders from careerdevelopment. “While we rarely lose people toour competitors, some associates are movingto banks that can offer an alternativeproposition in terms of lifestyle,” says BoyanWells, who stepped down as head of Allen &Overy’s international capital markets group inOctober following his appointment to thefirm’s board. Wells thinks that law firms mustdo more to strike the right sort of lifestylebalance and examine opportunities in flexibleworking.

It is difficult for practice leaders andmanaging partners to focus on careerdevelopment during what equity lawyers terman explosion of business. Initial publicofferings (IPOs) are buoyant and the mainmarkets in Europe are characterized by thegeographic diversification of issuers. Eastwellputs his firm’s regular appearance at the top ofthe various rankings for IPO instructionsdown to the depth of the firm’s internationalnetwork. He also cites the introduction of Soxin the US as a helpful factor in driving foreigncompanies from the US to Europe. Linklatersis placed first in both Thomson Financial’s andBloomberg’s second quarter 2006 EuropeanIPO manager advisers tables, both in terms ofdeal volume and number of issues. Accordingto data from both providers Linklaters hasmore than double the number of instructionsof its nearest competitor. DA

EUROPEAN EQUITY

Stock picking How firms are reacting to the stampede of equity to Europe

“Sarbanes-Oxleyhas led to a majordecline in New Yorklistings and SEC registrations”Nick Eastwell, Linklaters

“The investmentbanks have alsobecome interestedin bringing biggerdeals to the alternative market, justifying firmsaccepting Nomadinstructions”


CAPITAL MARKETS REVIEW

Bond issuance enjoyed healthygrowth this year in Australia andthe Kangaroo bond market (debtsecurities issued in Australia byforeign investors) showed no signof losing momentum – 2006 isexpected to be another recordyear. One area of new business isexpected to be AAA-ratedsupranational borrowers oragencies in Europe, which haveyet to invest in any numbers inthe Kangaroo bond market.

In the first nine months of lastyear 101 investment-gradecorporate bonds were issued, at avalue of slightly under $27

billion. Fast forward to the sameperiod in 2006 and that volumehas grown to 113 bonds issued ata combined $35 billion. Thebond business is booming andlaw firms are well placed to reapthe rewards.

Allens Arthur Robinson hasdropped down to tier two ofrecommended debt market firmsas the dominance of MallesonsStephen Jacques sees them patrolthe first tier alone.Unsurprisingly, Mallesons hascemented its supremacy bygaining the upper hand inKangaroo bond deals. The firm

offers an intimidating 17-stronglist of clients that have beenadvised in Kangaroo bondtransactions over the last 12months, ranging from ScottishPower to Morgan Stanley toLandesbank Baden Wurtemberg.

With high yield corporatebonds on the increase this year aswell – from inactivity in 2005 tofour deals worth over $2 billionin the first nine months of 2006– the Australian debt marketshows no sign of cooling off.Mallesons’ reputation as the pre-eminent firm for bond issuanceaugurs well for the firm’s next 12

months.IPO activity in Australia has

slowed between the first ninemonths of 2005 and the sameperiod this year. The number ofdeals has fallen from 86 to 77with a corresponding fall in totaltransaction value of $4.5 billionto $3.7 billion. The shortlist oftop tier firms in this sectorcomprises the same names thatmade up the 2005 group: AllensArthur Robinson, Blake DawsonWaldron and Freehills.

Allens remains a favouriteamongst investment banks and itdominated the initial publicofferings (IPOs) in the first sixmonths of 2006. In this periodAllens advised on 39% of theIPO market, according toBloomberg. This impressivestatistic was powered by Allens’role as issuer’s counsel on theA$1.8 billion ($1.36 billion) IPOof explosive manufacturer DynoNobel in April this year. Freehillshad led the market last year interms of deal size and volumewhile Blake Dawson Waldroncame second to Allens in terms ofcombined IPO transaction value,providing advice on deals worth atotal of $496 million.

DebtRecommended firms Tier 1

Mallesons Stephen Jaques

Tier 2

Allens Arthur RobinsonBlake Dawson WaldronClayton UtzFreehills

Tier 3

Baker & McKenzieMinter Ellison

EquityRecommended firms Tier 1

Allens Arthur RobinsonBlake Dawson WaldronFreehills

Tier 2

Clayton UtzMallesons Stephen Jaques

Tier 3

Baker & McKenzieMinter Ellison

Structured financeRecommended firms Tier 1

Allens Arthur RobinsonClayton UtzMallesons Stephen Jaques

Tier 2

Blake Dawson Waldron Freehills

Tier 3

Henry Davis York Minter Ellison

Kangaroo market looks to another record yearAustralia


Barbosa Müssnich & AragãoMachado Meyer Sendacz eOpice – AdvogadosMattos Filho Veiga Filho MarreyJr e Quiroga AdvogadosPinheiro Neto AdvogadosWhite & Case

Tier 2

Lefosse AdvogadosLevy & Salomão AdvogadosMotta Fernandes RochaAdvogadosPinheiro Guimarães – AdvogadosSouza Cescon AvedissianBarrieu e Flesch AdvogadosTozzini Freire Teixeira e SilvaAdvogados

Brazil has enjoyed a strong year asit leads the economic improvementseen across much of Latin America.The initial public offerings (IPO)market has boomed, with the valueof deals more than doubling fromjust under $1.8 billion in the firstnine months of 2005 to $4.2billion in the same period this year.

With its equity market growing

at an extraordinary rate banksacross the world have beenscrambling to establish a footholdin Brazil. A glance at the dealstaking place explains why. InFebruary tier one firm BarbosaMüssnich & Aragão handled theIPO of construction companyGafisa, a transaction valued at $436million. July saw the biggest equitydeal in Brazil’s history as CESPcompleted a $1.5 billion secondaryoffering while MMX Mineração eMetálicos went public for $475million the same month. But it willtake time before Brazilian equity isseen as a safe bet, particularly givenits reliance on internationalcommodity prices, especially oil.

The equity markets aredominated by a handful of legaladvisers. Machada Meyer Sendacz eOpice led the way in 2006,handling 16 equity offerings dealsat a total value of over $7 billion.Davis Polk & Wardwell, Shearman& Sterling, and Clifford Chancetop the list of international counsel,each handling seven or eighttransactions this year.

Brazilian IPOs boomBrazil


Davies Ward Phillips & VinebergOsler Hoskin & Harcourt Stikeman ElliottTorys

Tier 2

Blake Cassels & GraydonGoodmansMcCarthy Tétrault

Tier 3

Fasken Martineau DuMoulinOgilvy Renault

Canada experienced rapid andimpressive growth in its Maplebond market in 2005 after liftingan anachronistic law limitingpension plans’ ability to invest inforeign issuers. The overall capitalmarket appears to be stabilizing thisyear as figures for bond issuanceand initial public offerings (IPOs)have begun to plateau.

Opportunities for law firmswithin the equity market havefallen somewhat this year as IPOdeals tail off. The number of IPOsdeclined from 135 in the first ninemonths of 2005 to just 59 in the

same period in 2006. However theoverall value of the deals has notfallen as much, dropping from $4.9billion to $4.5 billion. Similarly, thetotal value of bonds of investmentgrade has dropped only slightly –from just over $31 billion in 2005to slightly under $30 billion thisyear – despite a more markeddecrease in the number of bondsissued (143 to 95).

Notable deals in 2006 includedthe C$600 million ($528million) IPO of the Tim Hortonscoffee and donut chain. Thechain was advised by Davies WardPhillips & Vineberg, which hasrisen into tier one of the IFLRrecommended firms this yearfollowing a series of impressivetransactions and hires. Morerecently, in June 2006, Torysrepresented Royal UtilitiesIncome Fund in a C$172.5million IPO. Neither firm couldmatch the number of dealsStikeman Elliott provided adviceon; the firm has been involved in53 transactions in the first ninemonths of 2006.

Equity hits a capital plateauCanada




Hannes SnellmanRoschier HolmbergWhite & Case

Tier 2

Castrén & SnellmanMerilampi Marttila LaitasaloWaselius & Wist

Tier 3

Borenius & Kemppinen

Equity in the Nordic region provedextremely popular in 2006, withthe few large initial public offeringsheavily oversubscribed. The lack ofIPOs, together with the compe-titiveness of bond or bank issuanceas a source of funding for Finnishcompanies, made secondaryplacements a more fertile source ofdeals for bankers and their lawyers.These included two placings forSampo Housing Loan Bank.

Finland also led the way oncovered bond issuance in theNordic region, finding twoenthusiastic users of the product inSampo and Aktia Real EstateMortgage Bank. The €5 billion

issue for Sampo in October was thefirst jumbo covered bond in theregion and the first Finnish coveredbond involving a transfer of theunderlying assets to the issuer(rather than the issuer originatingthe assets itself ). It was also one ofthe few covered bonds to addstructured finance techniques to astatute-based covered bond system.

The joint lead managers wereadvised on Finnish law by HannesSnellman, one of the top firms forcapital markets, led by partnerHenrik Mattson. Fellow top tierfirm Roschier Holmberg advisedthe issuer, led by partner DimitriosHimonas. Although better knownin M&A, Borenius & Kemppinenremains a strong competitor in tierthree, with Kaupthing Bank a keyclient.

On sovereign issuance,meanwhile, Finland had asuccessful year typified by its €5billion bond due 2017. The issuewas originally planned as a €4billion transaction, but an orderbook of €9 billion allowed the dealto be increased by €1 billion.

Covered and sovereign successFinland

Recommended firms* Tier 1

Gorrissen Federspiel KierkegaardKromann Reumert

Tier 2

Bech-BruunPlesner Svane Grønborg

Tier 3

AccuraDLA NordicJonas Bruun

*This table reflects the banking andfinance capability of law firms,including capital markets

The waters of the Danish equitymarket are starting to stir again.October saw the IPO of insurancecompany TrygVesta. At €838million, it was Denmark’s biggestflotation in a decade, and investorsin the country are clamouring formore. ISS, whose sale to privateequity investors paved the way forthe €13 billion leveraged buyout ofTDC, is among targets beingmooted for re-listing. Denmark’sbiggest energy company, Dong, is

also gearing up for a listing in 2007,which promises to be the country’slargest ever IPO.

Until these promises bear fruit,investors are fighting over scraps –the TrygVesta offering wasreportedly oversubscribed by 16times, and other IPOs in thejurisdiction have met with similarfeeding frenzies.

No such shortage on the debtside, however. Copenhagen haskept up with its neighbours with aseveral large deals including JyskeBank’s €4 billion MTN issue.TDC and Nordic TelephoneCompany also raised the bar onhigh-yield bond issues, withofferings both in excess of €2billion.

Most of these deals have beenpicked up by Bech-Bruun,Gorrissen Federspiel Kierkegaard,Plesner Svane Grønborg andKromann Reumert. But a wideningof the market can only be goodnews for the four firms’ mid-marketcompetitors, including the rapidlyclimbing finance team at DLANordic.

Equity offerings snapped upDenmark

A PROBLEM SHARED WITH US IS A PROBLEM SOLVED.

Legal problems in Finland or the Baltics?Visit www.borenius.com



Large-scale privatization hasunderpinned France’s equityactivity. November 2005 saw theIPO of Electricité de France, whichraised €6.35 billion for thecompany and showed HervéLetréguilly’s team at Shearman &Sterling competing on even termswith Cleary Gottlieb Steen &Hamilton and Sullivan &

Cromwell. This was followed up byIPOs in 2006 for Arkema, Legrand,Aéroports de Paris and ZüblinImmobiliére France kept ECMlawyers busy.

On the debt side, the end of2005 had been characterized byinnovation. Axa’s triple-award-winning securitization broke newground as the world’s first deal of its

kind to involve mass insurancerisks. The deal was another featherin the cap for Gide Loyrette Nouel.After the Axa notes, issued by FCCSparc, Gide followed up in 2006with deals for FCC Minotaure2004-1 and FCC Odysseus.

The international firm toppedthe rankings this year for structuredfinance and securitization, as well as

for debt issuance. Gide stands tobenefit from the growing appetitefor sophisticated finance structures.It houses a team with plenty ofexpertise in fonds communs decréances (FCCs), the standardFrench securitization vehicle.

Gide’s varied securitization work,along with that of fellow top-tierfirm Freshfields BruckhausDeringer, shows the range ofpossibilities in France’s structuredfinance market. This diversity haslong been held as one of thejurisdiction’s attractions forinvestors. The trend is reflected bybanks, which are taking up-frontarrangement fees for variousstructured products andtransferring their long-termholdings to investment funds, soeffectively acting as middlemen.

Nevertheless, the country stilllags behind its neighbours forvolume, accounting for less than3% of European securitizationissuance in 2005. But the flexibilityof the FCC regime, combined withthe maturity of the legal market,has brought a new optimism to thecountry’s legal profession. If thesehopes are founded, the future ofFrench finance – once uncertain –is securitized.

Firms look forward to a securitized futureFrance


Cleary Gottlieb Steen & Hamilton Shearman & SterlingSullivan & Cromwell

Tier 2

Freshfields Bruckhaus DeringerGide Loyrette NouelLinklatersSkadden Arps Slate Meagher &Flom

Tier 3

Allen & OveryBredin PratClifford ChanceDebevoise & Plimpton


Allen & OveryGide Loyrette NouelLinklaters

Tier 2

Clifford ChanceFreshfields Bruckhaus DeringerShearman & Sterling

Tier 3

Jones DayLatham & WatkinsLovellsOrrick Rambaud MartelSkadden Arps Slate Meagher &FlomWhite & Case


Freshfields Bruckhaus DeringerGide Loyrette Nouel

Tier 2

Allen & OveryClifford ChanceLinklatersShearman & SterlingSkadden Arps Slate Meagher & Flom

Tier 3

De Pardieu Brocas MaffeiJones DayLatham & WatkinsLovellsOrrick Rambaud MartelWhite & Case

15th-16th November 2006

Asia Capital Markets Forum, Shangri-La, Hong Kong

31st January – 1st February 2007

IFLR Asia M&A Forum, Shangri-La, Hong Kong

April 2007

May 2007

US Capital Markets Forum, New York

Register your interest and find out more at: www.legalmediagroup.com/eventsOr contact Pippa Martin on: +44 (0)20 7779 8614

Receive a 10% discountto all LMG events as a subscriber to IFLR

“Today saying the transaction is legal is not enough.That's the start but not the end of the enquiry.”Ed Greene, Citigroup

Events Calendar 2006/07

European Capital Markets Forum, Chancery Court Hotel, London



The statistics for the Germanequity market in 2006 makehappy reading for law firmshandling equity brokerage inEurope’s largest economy. Whilethe overall value of initial publicoffering (IPO) deals nearlydoubled from $3.3 billion in thefirst nine months of 2005 to $6billion in the first nine months of2006, the really impressive jumpwas in the sheer volume oftransactions. The $3.3 billion wasgenerated by just 12 IPOs whilethe number of deals in 2006

soared to 51. Simultaneously, though,

investment grade corporate bondissuance has declined both interms of volume and value. Therewere 347 transactions worth$123.6 billion in the first threequarters of 2005 but those figureshave fallen to $104 billion from210 deals in the same period thisyear. Overall, however, theeconomic outlook remains sunnyfor German firms emerging froma long downturn.

One firm that has clearly

rediscovered its client base isHengeler Mueller. As the marketshave recovered business seems tohave flocked back to Hengeler, afirm particularly badly hit bypast years of poor Germanmarket performance given itslack of US advice for equityofferings abroad. This yearHengeler was engaged in several,diverse equity transactions,including a capital increase forchemical and pharmaceuticalcompany Bayer, a transactionworth €1.2 billion. Linklaters

has also been very involved in theequity market this year, advisingNuremburg Bio-Gate during anIPO that was eventually worth€16.6 million.

Hengeler has maintained itsposition as the market leader inGerman debt work despitestrengthening competition fromthe growing number of domesticand international firms. In March2006 the Federal Republic ofGermany released its first everinflation-linked bond with avolume of €5.5 billion and aterm of 10 years; Hengeler wasthe advisory firm to thegovernment. Corporate clientsinclude Bayer, Deutsche Bank,Hypothekenbank and Eurohypo.Hengeler remains, therefore, thesole member of tier one of IFLR’srecommended firms for debtcapital markets.

A number of firms are takingon an increasing volume of workin the debt field, though. Allen &Overy has moved into the secondtier after a very successful year anda number of complextransactions. Clifford Chanceremains a key presence, too,advising Siemens this July on twobond issues with a combinedvalue of around $5 billion.


Hengeler Mueller

Tier 2

Allen & OveryClifford ChanceFreshfields Bruckhaus DeringerLinklaters

Tier 3

Cleary Gottlieb Steen & HamiltonLovellsShearman & SterlingWhite & Case

Equity Recommended firms Tier 1

Hengeler MuellerLinklatersSullivan & Cromwell

Tier 2

Allen & Overy Clifford Chance Freshfields Bruckhaus DeringerShearman & Sterling

Tier 3

Cleary Gottlieb Steen & HamiltonWhite & Case

Structured finance Recommended firms Tier 1

Hengeler Mueller

Tier 2

Allen & OveryClifford ChanceFreshfields Bruckhaus Deringer

Tier 2

Baker & McKenzieLinklatersLovellsWhite & Case

Equity capital markets quadruple in a year Germany

The number and total value ofinitial public offerings (IPOs) in theItalian capital market has shownstrong growth between 2005 and2006. The first nine months of lastyear heralded nine deals worth atotal of $1.8 billion, figures whichrose to 15 and $4.8 billion in thesame period this year. The

continued growth in this area hasconfounded gloomy predictions inthe middle of the year about anatural slow down in EuropeanIPO activity after a heady five yearsof activity.

Investment-grade corporatebond issuance has remainedreasonably steady, with a small fall

in the volume of deals but a rise inthe overall value of the transactionswhen comparing 2005 and 2006figures. The number of issuancesfell from 84 to 78 while the overallvalue of the deals rose from $41.7billion to $54.6 billion. Thenumber of high yield bonds issuedin the first nine months of 2006 istwo greater than the same periodlast year (five as opposed to three)while the combined value of thedeals has soared from $718 millionto $3.7 billion.

The capital market in Italy (bothin debt and in equity) is a fiercelycompetitive one for law firms. Thisyear Bonelli Erede PappalardoStudio Legale has preserved its tierone status while Clifford Chancehas swapped places with GianniOrigoni Grippo & Partners as theUK firm moves up to the top tier.

This year Bonelli worked on theItalian scooter manufacturerPiaggio’s €315.4 million IPO aswell as acting for Famiglia Morattion the Saras IPO. Clifford Chance,meanwhile, provided advice to theItalian listed banking group BPI onits rights issue to existingshareholders and convertible noteholders amounting to €719.4million. This deal forms a part of

the firm’s excellent record in theequity market in 2006, especiallyregarding IPOs. This year CliffordChance has acted for Caboto andJP Morgan on the Intercos IPO,advised Mediobanca and GoldmanSachs on the Ansaldo IPO,represented Mediobanca andMorgan Stanley on the MarazziGroup IPO, advised the issuers onthe Api and Nice IPOs, and actedfor UBM and JP Morgan as globalcoordinators on the Elica IPO.

It is activity of this intensity thathas propelled the firm into the toptier this year. However it is Bonellithat dominated the debt capitalmarkets in 2006. The firm advisedthe EBRD on three domestic bondissues while Andrea Novarese (aleading lawyer at the firm) acted forCitibank and BNP Paribas on €1billion-worth of senior notes issuedby Fiat. Novarese has also advisedCaboto, Deutsche Bank andLehman Brothers on the €150million issue of senior notes byPiaggio Finance. Comparablydominant performances by Bonelli,in debt, and Clifford Chance, inequity, see the two firmsunaccompanied in the top tier in astubbornly strong Italian capitalmarket.

Strong IPO growth Italy

Debt and equityRecommended firms Tier 1

Bonelli Erede PappalardoStudio LegaleClifford Chance Studio Legale

Tier 2

Allen & OveryChiomenti Studio Legale Freshfields Bruckhaus Deringer Gianni Origoni Grippo & Partners

Tier 3

Cleary Gottlieb Steen & HamiltonD’Urso Munari Gatti StudioLegale AssociatoLatham & Watkins NCTM


Bonelli Erede Pappalardo Studio LegaleClifford Chance Studio Legale

Tier 2

Allen & Overy Chiomenti Studio Legale Freshfields Bruckhaus DeringerGianni Origoni Grippo &PartnersSimmons & Simmons



Growing IPO activity over thepast year in contrast to decliningfigures for bond issuance suggestsa potentially unbalanced capitalmarket in Japan’s recoveringeconomy. But volatility has hadone benefit – a surge in thepopularity of high yield bondissuance.

Japan’s equity market produced

a good number of high value dealsin 2006, improving steadily onthe already healthy 2005 figures.Last year, in the first nine months,there were 120 IPOs worth $6.7billion. In the same period thisyear there have been 144 dealsworth a striking $10.4 billion.Further offerings remainnumerous and high earning,

holding steady at around the 150mark from last year to this.

Impressive equity market workhas been conducted by AndersonMori & Tomotsune. The firmadvised on the global IPO ofLotte Shopping in February ofthis year, a deal worth $3.5 billionincluding an $800 millionoffering of global depositaryreceipts. Linklaters has movedinto tier one, joining last year’sincumbents Anderson, MoriHamada & Matsumoto andNagashima Ohno & Tsunematsu.

Dealogic statistics show thenumber and value of bothinvestment grade and high yieldbond issuances declining slightlyfrom the first nine months of2005 to the first nine months thisyear. Numbers of investmentgrade corporate bonds have fallenfrom 314 to 273, prompting aslump in total value of the dealsfrom $86 billion to $57 billion.Similarly, high yield bondissuance is shown to have droppedfrom 23 to 19 deals between 2005and 2006; a combined value of$3.9 billion has fallen to $2.2billion.

This does not tell the full story,however. It is the debt market

where more recent waves havebeen made. Japanese high yield isoffering distracting returns andpromises to become an area ofintense activity over the next year.On October 17 2006 SoftBankoffered 500 million of 7.75%senior notes due in 2013.Deutsche Bank, represented byWhite & Case, was the sole initialpurchaser in what is one of thehighest-ever high yield offeringsby an Asian firm. Issuers arebecoming happier to enter thehigh yield market in Japan andthe investors exist to make itworthwhile.

The top tier firms in theJapanese capital market will nodoubt be keeping a close eye onthe growing popularity of thehigh yield debt market – an areathat up to now had hardly beenrelevant. Linklaters has propelleditself into tier one with a goodyear on the debt side. Andersonhas also secured its 2005 tier onestatus for another 12 months withan impressive performance in thedebt capital markets. The firmadvised Fuji Photo Film on itsissue of ¥200 billion-worth ($1.7billion) of bonds in March thisyear.

A volatile market Japan

Debt and equityRecommended firms Tier 1

Anderson Mori & TomotsuneLinklatersMori Hamada & MatsumotoNagashima Ohno & Tsunematsu

Tier 2

Davis Polk & WardwellNishimura & PartnersSullivan & Cromwell

Tier 3

Allen & OveryClifford ChanceFreshfields Bruckhaus DeringerShearman & Sterling


Anderson Mori & TomotsuneMori Hamada & MatsumotoNagashima Ohno & TsunematsuNishimura & Partners

Tier 2

Asahi Koma Law OfficesAtsumi & PartnersClifford ChanceLinklaters

Tier 3

Allen & OveryBaker & McKenzie GJBJ TokyoAoyama Aoki Law OfficeFreshfields Bruckhaus Deringer


Allen & OveryClifford ChanceDe Brauw BlackstoneWestbroek

Tier 2

LinklatersNautaDutilhStibbe

The Netherlands has seensubstantial growth in twoparticular areas in 2006, one onthe debt side and one in equity.Firstly, high yield corporate bondshave doubled in deal value. Thefirst nine months of the year saw$3.66 billion-worth of activityacross eight deals. During thesame period of 2005, a mere threedeals totalled $1.8 billion. Despitethe fact that the average deal valuehas fallen by a third, the marketshould be pleased that there aremore deals, resulting in moremoney to be made.

The second area of considerablegrowth is the initial publicoffering (IPO) arena. Again, when

comparing January to Septemberin 2006 to the same months of2005, deal value has increased byalmost five times. The one IPO in2005 was valued at $692 million.One year on and there were sixIPOs with a total value of $3.4billion. Similar to high yieldcorporate bonds, it can be seenthat the average deal value hasfallen, but the market shouldremain in buoyant mood.

Observers have noted thatequity capital markets came out ofa stale period with theenforcement of the ProspectusDirective in July 2005. The firstmajor IPO after this arrived inNovember of the same year in theform of Endemol. NautaDutilhplayed a large role in advisingEndemol in this deal and as aresult, helped create a wave thatthe IPO market has been ridingever since. Most notably, Allen &Overy benefited from this in May2006 by successfully acting asunderwriter’s counsel in the SNSReaal IPO that raised €1.3 billionin return for a 30% shareholding.

High yield doublesNetherlands


Galicia y Robles SCMijares Angoitia Cortés y Fuentes SCRitch Mueller SCWhite & Case

Tier 2

Creel García-Cuéllar y Müggenburg SCGonzález Calvillo SCHolland & Knight – Gallastegui yLozanoJáuregui Navarrete y Nader SCKuri Breña Sánchez Ugarte Corcuera y AznarMartínez Algaba Estrella de Haro y Galván-DuqueSantamarina y Steta SC

In 2006, the Mexican initial publicoffering (IPO) market has grownby over 21 times. January toSeptember saw $1.232 billion ofofferings compared to only $58million in the same months of2005, according to Dealogic. Suchresults go a long way to provingpredictions that improvedcorporate governance wouldincrease foreign investment.

Naturally, the figures for 2006are inflated by the privatization ofGrupo Aeroportuario del Pacifico(GAP) in March. This IPO of theMexican airport operator was thelargest from Latin America sincethe Brazilian listing of Petrobas sixyears ago. On the GAP deal,Cleary Gottlieb Steen & Hamiltonand local counsel Ritch Muellerrepresented the Mexicangovernment in its sale of 85% ofthe airport operator. On the otherside, Shearman & Sterling actedfor the underwriters Credit Suisseand Accival. Assisting the firm wasMexican counsel Creel García-Cuéllar y Müggenburg. The IPOraised over $1 billion.

This takes up a huge proportionof the overall IPO figures forMexico in 2006. However, such alarge transaction proves that thecapabilities to cope with furtherinvestment are there. It is believedthat the GAP IPO will strengthenthe belief that foreign investmentwill bolster the Mexican equitycapital markets in the comingyears.

Greater transparencyMexico




Allen & OveryBaker & McKenzie Grszczynski I Wspolnicy Attorneys at LawWeil Gotshal & Manges

Tier 2

Clifford Chance Janicka Namiotkiewicz i wspolnicy spolka komandytowaDewey Ballantine GrzesiakLinklatersWhite & Case W Danilowicz W Jurcewicz I Wspolnicy

There has been little cheer in thePolish capital markets this year.Although inflation has beenbrought under control, the countrycontinues to face stiff economicchallenges and its markets havereflected that with a dearth of newofferings.

In the first nine months of 200526 Polish companies launchedIPOs, raising a total of $1.85billion, according to Dealogic.Over the same period this yearonly nine companies did so, raisingjust $205 million. The largest of

these, by Famur, raised $91.2million and most of the remainderless than $20 million each. Debtissuance has also struggled, fallingfrom a total value of $11.2 billionin January to September 2005 to$3.8 billion this year.

The legal market, meanwhile,remains stable and dominated by acombination of UK and US firms.Allen & Overy, Weil Gotshal &Manges and Baker & McKenziestood out as top tier firms forcapital markets work.

Firms have managed to carveout a few interesting deals. Baker& McKenzie advised AIG on asecuritization of non-performingloans for Ultimo Group. WeilGotshal was Polish counsel toCredit Suisse on the €375 million($470 million) floating rate noteoffering by French companyBelvédère, which were securedagainst Polish assets. And CliffordChance acted for the arrangers ona €150 million offering ofrevenue bonds for Bydgoszcz’smunicipal water company,MWiK.

A rather quiet yearPoland

Like many of its richest and mostglamorous citizens, Russia’sbigger companies continue to beattracted to foreign markets. Ofthe five largest IPOs by Russianissuers in the first nine months of2006, three were dual listed inMoscow and London andanother listed solely on Nasdaq.Similarly, English and US firmstend to dominate both local andinternational legal advicealthough one local firm, Liniya

Prava, is making a name for itselffor both debt and equity.

In volume terms, the RussianIPO market has fallen off slightlyfrom last year, but in value termsit is surging ahead. Ten flotationsraised a total of $4.3 billionbetween January and September2005, according to Dealogic,while over the same period in2006 eight listings generatedroughly $13 billion. This rapidprice ascent has some worried

that a stock bubble is forming.The standout deal of 2006 has

been Rosneft’s IPO. The $10.6billion offering was the largest ofthe year to date, although it wassurpassed last month by ICBC’sdeal out of China. The oilcompany chose to list its shareson the London Stock Exchangeas well as in Moscow. For its legaladviser it chose Cleary GottliebSteen & Hamilton, which gaveEnglish, US and Russian lawadvice. Linklaters covered thethree bases for the underwriters.

The second largest RussianIPO up to the end of Septemberwas from Comstar, whichretained Latham & Watkins andLiniya Prava. Linklaters wascounsel to the banks. CTC Mediatook the Nasdaq route, raising$380 million in the process andusing the services of WilmerHaleand Cleary Gottlieb in London.Krasnodar Magnit, turned toFreshfields Bruckhaus Deringerfor its $368 million Moscow-onlylisting with a Regulation Sportion.

Securitization has played aminor role in the development ofthe Russian capital markets, butsome groundbreaking deals this

spring have helped bring thetechnology onshore and havegiven a boost to those whobelieve it will be an importanttool in serving the capitalrequirements of a rapidlyexpanding banking industry.Among these innovativetransactions was MorganStanley’s Red Arrow InternationalLeasing, the first Russiansecuritization backed by aportfolio of lease receivables.Linklaters acted for MorganStanley as lead manager, whileBaker & McKenzie advised thelease originators.

Looking abroadRussia

Debt Recommended firms Tier 1

CGS&H Limited Liability Company Linklaters

Tier 2

Allen & Overy Legal Services Baker & McKenzieClifford Chance Skadden Arps Slate Meagher& FlomWhite & Case


CGS&H Limited Liability Company Latham & WatkinsLinklaters Skadden Arps Slate Meagher & Flom

Tier 2

Clifford Chance Debevoise & PlimptonFreshfields Bruckhaus DeringerLeBoeuf Lamb Greene & MacRae


A&L GoodbodyArthur CoxMcCann FitzGerald

Tier 2

Matheson Ormsby PrenticeWilliam Fry

Ireland may still be the Celtic Tigerbut its capital markets have had amixed ride in 2006. Economicgrowth is expected to be around5% both this year and in 2007, butsecurities issuance has been up insome areas, down in others andstatic in still others.

According to figures fromDealogic, there was no growth inthe number of initial publicofferings (IPOs) and secondaryofferings by Irish issuers in the firstnine months of 2006 compared tothat period last year. Both periodssaw 13 follow-ons. Six IPOslaunched in quarters one to threeof 2005 but only five had done soby the end of September 2006.

These results are particularlydisappointing given that Ireland

was one of only six countries tofully implement the EU’sProspectus Directive on time inJuly 2005. A few months earlierthe Irish Stock Exchange hadlaunched its Irish EnterpriseExchange (IEX) market for smalland mid-sized companies in aneffort to compete with London’shighly successful Aim market.

So far more than 20 companieshave joined the IEX, but of thosecompanies that went public in theyear to September three duallisted on Aim and in Dublin, onelisted solely on Aim and one duallisted on the London StockExchange and Irish StockExchange. The latter was the bigfish of the Irish equity market thisyear, Aer Lingus. The airlineraised $940 million with its IPOin September, for which its Irishcounsel was Arthur Cox. WilliamFry acted for the Irish governmentas selling shareholder andMcCann Fitzgerald representedthe underwriters AIB, UBS,Goldman Sachs and MerrionStockbrokers.

Disappointing resultsRepublic of Ireland

The law firm rankings includedin this Review are abridgedversions of the tables in IFLR'sannual guide, the IFLR1000,which is published everyOctober. To see the fullrankings, visit IFLR1000.com.A CD-ROM of the full guide willbe sent out to IFLRsubscribers with the Januaryedition of the magazine.

IFLR rankings



Singapore, like a number of Asianeconomies, has been recoveringsteadily after the disasters of theprevious decade. Governmentalschemes directed at improvingthe performance of the debtmarket have dragged upcorporate bond issuance. Thedebt market has been the subjectof a great deal of attention fromthe government and the financialindustry in Singapore, and it ishere that steady growth in thevolume and value of deals can beseen. The equity market has not

enjoyed such a sustaineddevelopment between 2005 and2006.

Twenty-three initial publicofferings (IPOs) in the first ninemonths of 2005 has become 14in the same period this year, withthe cumulative value of IPOtransactions falling from $1.4billion to just under $1.3 billion.While economists will be happythat the values have remainedsimilar, the deals available for lawfirm consultancy have fallen by39%.

The Singaporean legal marketis led by Allen & Gledhill.Capital markets are a key practicearea for the firm and it has beenbusy in the equity market in2006. Notable work includedadvising on the IPO of the ThaiBeverage Company, a deal whichraised $863 million in May thisyear. Allen & Gledhill is joined intier one of local firms byWongPartnership, another firmthat excels in capital marketswork. Most recentlyWongPartnership acted for theluxury hotel and resort companyBanyan Tree in its IPO that raisedS$424 million ($269 million).

The top tier of foreign firms isoccupied by two joint lawventures. WongPartnershipenjoys a relationship withClifford Chance called CliffordChance Wong, while the othertier one firm is Linklaters Allen& Geldhill.

Regarding the debt market, thenumber of high yield bondissuances has fallen from one,valued at $150 million, inJanuary-September 2005 to nonein 2006. The positive movementin the Singaporean capital marketis to be found in the number and

value of investment gradecorporate bond issuances.Healthy figures for the first ninemonths of 2005 showed 21 dealsvalued at $4.3 billion. Thesenumbers were improved upon inthe same period in 2006, whichboasted 27 deals worth $4.5billion.

The fragmented nature ofAsia’s capital markets has longbeen identified as a hindrance toinvestment. It has, therefore,been the focus of public andprivate initiatives to improve theperformance of the debt marketand alleviate Asian companies’dependence on banks forfinancing. This has resulted inplenty of work for law firms inbond issuance deals.

Allen & Gledhill andWongPartnership again dominatethe scene. Earlier this year,WongPartnership acted for K-Reit Asia as the originator on thecompany’s first commercialmortgage-backed securitization(CMBS) involving theestablishment of a $1.9 billionmulti-currency secured MTNprogramme and the issue of $121million secured floating-ratenotes.

On the road to recoverySingapore

Domestic law firms Recommended firms Tier 1

Allen & GledhillWongPartnership

Tier 2

Rajah & TannShook Lin & BokStamford Law Corporation

Tier 3

Arfat Selvam AllianceColin Ng & PartnersDrew & Napier

Foreign law firms Recommended firms Tier 1

Clifford Chance WongLinklaters Allen & Gledhill

Tier 2

Allen & Overy Shook Lin & BokLatham & Watkins

Tier 3

Herbert SmithLovells Lee & LeeMilbank Tweed Hadley & McCloyShearman & Sterling


Uría Menéndez

Tier 2

Clifford ChanceFreshfields Bruckhaus DeringerGarriguesLinklatersRamón & Cajal

The past year saw a strong returnfor the Spanish initial publicoffering (IPO) market. The firstnine months saw $3.1 billion ofofferings, compared to only $187million the previous year. Thefirst half of 2006 was the busiestperiod for the market since 1999.

One of the strongest trends ofthe year was initial share offeringssold only to institutionalinvestors. The first such dealswere for real estate companyParquesol in May and mobileprovider LaNetro Zed (whichwas registered with the Spanishregulator in July but did notcomplete). These IPOs have agreater degree of flexibility intheir documentation as they only

require one underwritingagreement (typically governed byNew York or English law) andavoid protocolos de aseguramientoand other elements of Spanishlaw.

The Parquesol deal, whichfaced initial troubles frominvestors, saw work forLinklaters, Davis Polk &Wardwell and Garrigues.Linklaters advised the leadmanagers, led by UBS, whileGarrigues and Davis Polk wereSpanish and US advisors to thecompany respectively.

Linklaters and Davis Polk werealso involved with the recent IPOof BME, the holding companyfor the Spanish stock exchanges,which at €857 million is thelargest so far in 2006. Uría &Menéndez, the preeminent lawfirm for capital markets in Spain,advised the issuer on Spanish law,while Davis Polk & Wardwellprovided US law advice to theissuer and Linklaters worked onthe deal advising theunderwriters.

Resurgent equitySpain


Bowman GilfillanDeneys ReitzEdward Nathan SonnenbergsWebber Wentzel BowensWerksmans

Tier 2

Brink Cohen Le RouxCliffe DekkerJowell Glyn & Marais

Like a number of other emergingmarkets South Africa has had asuccessful year. Never likely tomatch the massive growth seen insome areas of Latin America,South Africa has neverthelessenjoyed healthy development inthe value of its IPO transactionsand growing investment gradecorporate bond issuance. This hasbeen a remarkably good year foremerging markets worldwide andthose involved with the SouthAfrican capital market will hopefor more of the same in 2007.

The opening nine months of2005 yielded a single IPOtransaction valued at $15 million.

The same period this year has seena modest development to twoIPOs valued at a combined $143million. Investment grade bondshave risen over the same periods interms of both number and value:from three to five and from $1.2billion to $1.7 billion respectively.

The South African legallandscape was recently alteredpermanently after the mergerbetween tier one firm EdwardNathan and tier three firmSonnenberg Hoffmann Galombikwas approved. Having only beenpracticing as Edward NathanSonnenbergs since October 12006, the full implications are yetto be judged but undoubtedly thenew firm will be a powerful one.

Edward Nathan was already amajor force in the debt market andit had become increasingly activeon the equity side in the yearpreceding the merger.Securitization was Sonnenbergs’speciality as the firm had a strongrelationship with Standard Bank.The unification of these firms willbe a daunting prospect.

Major law firm mergerSouth Africa



As political unrest hits the region,South Korea can at least reflecton a successful year ofperformances in its capitalmarket. While the full economicimpact on South Korea of NorthKorean rogue diplomacy remainsto be seen, both the equity anddebt markets show impressive

figures from 2005 to 2006. Theprospect of war in the region willinevitably make foreign investorswary but South Korean economicsuccess has been founded, in anycase, on domestic efforts. Adecline in the appeal of SouthKorea to foreign investors hasnot, and probably will not, have

as great an impact as may beimagined.

Indeed, companies havecontinued to list in South Korea:the 47 initial public offerings(IPOs) recorded in the first ninemonths of 2005 only fell by onein the same period this year. Thetotal value of those deals, though,has rocketed from last year tothis. Forty-seven transactionswere worth $1.3 billion in 2005;the 46 seen this year had a totalvalue of $5.5 billion.

High yield corporate bondissuance has suffered in 2006when compared with the sameperiod in 2005. The number ofdeals has fallen from 295 to 153with a corresponding decline intotal deal value from $14.9billion to $8.9 billion.Investment grade issuance,however, has grown from 205deals valued at $18.7 billion in2005 to 253 worth $21.6 billionthis year. This has provided agood deal of work for law firms inthe South Korean debt market.

The leading firms in the capitalmarket are tier one residents Kim& Chang and Shin & Kim, bothof which are well respected inequity and debt markets. Earlier

this year Kim & Chang acted asissuer’s counsel on LotteShopping’s $3.54 billion IPO,the largest in Korean history.

The final member of tier one forthe South Korean capital market isWoo Yun Kang Jeong & Han.Despite being smaller than its toptier compatriots Woo Yun hasenjoyed considerable success in theequity market. The firm advisedthe underwriters on the LotteShopping IPO that Kim & Changwas also involved with. A monthlater Woo Yun was impressingagain when it helped MerrillLynch arrange the asset-backedsecuritization and leaseback of SKBuilding to finance SKCorporation’s acquisition ofInchon Oil Refinery.

In May 2006 Woo Yun alsoadvised the underwriters toGMarkets $139 million IPO onNasdaq. As the first Korean retailcompany to list on the exchange,this high profile deal added toWoo Yun’s impressive record ofwork this year. Deals such asthese plus the continueddominance of Kim & Chang andShin & Kim means that the threetop tier firms this year are thesame as in 2005.

A strong domestic marketSouth Korea

Domestic law firms Recommended firms Tier 1

Kim & ChangShin & KimWoo Yun Kang Jeong & Han

Tier 2

Bae Kim & LeeLee & Ko

Tier 3

Horizon Law FirmHwang Mok & ParkKim Chang & LeeKim Choi & LimYoon Yang Kim Shin & Yu

Foreign law firms Recommended firms Tier 1

Cleary Gottlieb Steen & HamiltonLinklatersSimpson Thacher & Bartlett

Tier 2

Clifford ChanceDavis Polk & Wardwell

Tier 3

Allen & OveryMilbank Tweed Hadley & McCloyPaul Hastings Janofsky & WalkerSidley AustinSkadden Arps Slate Meagher & FlomWhite & Case

Investing in Korea involves a myriad of issues relating to Korean laws, regulations, filings,reportings, deal structure, risk analysis, tax benefits and consequences, corporate governance,enforceability, indemnification, and exit strategy. Horizon Law Group specializes in advisingforeign companies to sort through the various issues and do so in a professional and costeffective manner.

Horizon Law Group is a leading full-service Korean law firm well known locally andinternationally as it has been involved in major transactions and litigious matters. We were alsorecognized by international legal organizations for significant transactions and disputeresolution.

• Mergers & Acquisition• Finance & Banking• Capital Markets• Corporate & Commercial• Bankruptcy• Information Technology• Intellectual Property• Environment

• Insurance• Taxation• Labor• Litigation & Arbitration• Anti-Trust & Competition• Real Estate & Construction• Securities• Maritime

Practice Areas

The Korea Chamber of Commerce & Industry Bldg. 11th Fl., 45 Namdaemunro, 4-ga Jung-gu Seoul 100-743 KoreaTel: 82 2 6050 1600 Fax: 82 2 6050 1700 Web site: www.horizonlaw.com Email: [email protected]

HORIZON LAW GROUP




Advokatfirman VingeMannheimer Swartling

Tier 2

Advokatfirman CederquistGernandt & DanielssonLinklatersSetterwalls AdvokatbyråWhite & Case Advokat

Much of the innovation in theNordic region’s capital markets in2006 surrounded new coveredbond legislation. Although Finlandand Iceland led the way, Swedenwasn’t far behind, seeing twocovered bonds issued in quicksuccession, by Nordea Hypotekand the Swedish Covered BondCorporation in mid-2006.

However, some bankers feel theinitial surge of issues may be a falsedawn, the difficulty being thatSwedish banks already have a veryactive and liquid domestic debtmarket in Krone. Any euro-denominated issue has to havecompelling economics before anySwedish institution will even look

at it. Capital markets leaderMannheimer Swartling advised onboth the transactions, for the issuerand Standard & Poor’s respectively.The firm also advised NordaxFinans on the first consumer loansecuritization in the Nordic region.Key rival Advokatfirman Vinge hada similarly strong year in the capitalmarkets, gaining an advantage fromthe hiring of partner GöranNyström from Mannheimer.

Elsewhere, the growth inprivate equity in Sweden wasevident from the Skr40 billion($5.4 billion) buyout of medicaltechnology company Gambro byEQT and Investor, the largestpeer-to-peer transaction ever inthe country. This had two effectson the corporate bond market:one, bondholders began to callmore strongly for change ofcontrol protection; and two,treasurers and financedepartments began to focus onchanging their capital structure,switching to greater leverage withthe hope of deterring predatoryprivate equity investors.

Covered bond uncertaintySweden


Bär & KarrerHomburgerLenz & StaehelinNiederer Kraft & Frey

Tier 2

Baker & McKenzieNobel & HugPestalozzi Lachenal PatrySchellenberg WittmerWalder Wyss & PartnersWenger & Vieli

The Swiss capital marketperformed steadily in 2006. Smalldeclines have characterized thefigures for initial public offerings(IPOs), high yield bonds andinvestment grade bonds, but therehave been no marked falls.

Law firms’ equity deals took asmall hit as the volume of IPOsslipped from six in the first ninemonths of 2005 to five in the sameperiod this year. The combinedvalue of the IPOs in each periodpredictably fell, from $1.3 billionin 2005 to $1.1 billion in 2006.

The figures for the number and

value of corporate bonds makesimilar reading. High yield bondsslumped from three issuancesworth $1.1 billion in the openingnine months last year to none at allin the same period in 2006.Investment grade corporate bonds,however, remained roughly steady:39 last year became 37 in 2006.The combined values of thesebond issuances fell slightly, from$8.8 billion to $8.4 billion.

This year tier one is made up ofthe same firms as 2005, namely:Bär & Karrer, Homburger, Lenz &Staelhelin and Niederer Kraft &Frey. Notable deals in 2006 includeBär & Karrer advising softwarecompany Temenos in March on asecondary offering and convertiblebond worth SFr2.25 billion ($1.8billion). Homburger has beeninvolved in its fair share of equitywork recently: in May 2006 thepractice was involved in twoofferings, advising Holcim throughthe offering of $1.3 billion ofshares and BNP Paribas, CreditSuisse and UBS on the rightsoffering of Swiss Re.

Steady as she goesSwitzerland

NIEDERER KRAFT & FREYATTORNEYS-AT-LAW

Banking

Securities and Finance

Company

Commercial

Mergers and Acquisitions

Competition and Antitrust

Tax

EC Law

IT and Telecommunications

Litigation and Arbitration

Judicial Assistance

Insolvency and Restructurings

Insurance

Intellectual Property

Project finance

Aircraft Finance

Wills, Trusts and Estate Planning

Sports and Entertainment

Environment

Healthcare

Languages spoken: German, English, French, Italian, Spanish, DutchNumber of Fee-earners: 65

Established 1936

Bahnhofstrasse 13 CH-8001 ZürichTel: +41 58 800 8000 Fax: +41 58 800 8080

Web: www.nkf.ch E-mail: [email protected]

Over 25 years’ of experience and editorial acumen has been honed and invigorated, todeliver more punch and clear thinking in our coverage:

■ Twice as many articles from regulators, in-house counsel and leading lawyers.

■ Now in four dedicated practice sections for M&A, capital markets, financial services, project finance andbanking, each with analysis of the most innovative deals, the trends in the market and the latest legislation.

■ New section on the legal market itself analysing which firms are winning the work on deals, and why -written by IFLR’s journalists in London, New York and Hong Kong.

■ More roundtables collecting opinion and debate on the hot topics, chaired by IFLR Consulting Editor Cliff Dammers, ex-Secretary General of IPMA.

■ Young dynamic Contributing Editors offering a sharp, fresh eye writing candid columns every month on their personal experiences and opinions, from firms such as Cravath Swaine & Moore, Linklaters, and Latham & Watkins.

■ Special feature cover stories looking at one topic every month considered from several angles, with opinions and articles from around the world, and angles from leading players that make you question your outlook.

■ Fresh new look making it easier to find the articles and opinions relevant to you.

See for yourself, take a two week trial at www.iflr.com/freetrial

Or call +44 (0) 20 7779 8999 quoting code 502 to subscribe.

www.iflr.com/clearthinking

INTERNATIONAL FINANCIAL LAW REVIEW is expanding.

“Today saying the transaction is legal is not enough. That’s thestart but not the end of the enquiry.” Ed Greene, Citigroup

Clear thinking for bankers’ counsel. IFLR.

“The Sarbanes-Oxley burden of alisting in the US can be as much as$3 million for foreign companies.”Ronald Kent, Morgan Stanley

evolve or perish - iflr · publicity. what constitutes commoditized business? lawyers disagree on...

Documents