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RIDING
HIGH Offshore law firms are enjoying a new wave of key roles in global deals. LB talks to the leading lawyers involved in the headline transactions and assesses the wider implications for the prime offshore jurisdictions JULIAN MATTEUCCI
In May 2011, Swiss-based international commodities trader Glencore International launched its huge joint London and Hong Kong flotation, raising $10bn and making it the largest IPO in the world so far this year. It also became London’s largest ever listing and left Glencore valued at around $60bn. Linklaters acted as Glencore’s main UK and Hong Kong counsel, Clifford Chance advised the underwriters and Pestalozzi represented Glencore on Swiss law. But it was offshore law firm Mourant Ozannes that was fortunate enough to serve as sole adviser to Glencore on the Jersey legal aspects of the flotation, with the holding company being incorporated in Jersey.
Corporate and finance partner Robert Hickling led the Mourant team and believes that the firm’s involvement as the principal Jersey legal adviser on one of the largest listings of all time has helped consolidate Mourant’s position as a leading Channel Islands firm for FTSE 100 and FTSE 250 listings work. But fellow Channel Islands rival Ogier was also involved, with a team led by Hong Kong-based partner Nathan Powell advising several underwriters, including the Hong Kong branches of Banco Santander, BNP Paribas, The Royal Bank of Scotland and UBS – as well as the joint global co-ordinators, Citigroup Global Markets UK Equity, Morgan Stanley & Co u International and Credit Suisse Securities
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u (Europe) – offering Jersey law advice in both
the London and Hong Kong time zones. Ogier was well placed to advise on the Hong Kong listing as it had acted on the first listing of a Jersey company on the Hong Kong Stock Exchange (HKSE) at the beginning of 2010 – the world’s largest aluminium company, Moscow-based United Company RUSAL (see ‘Worlds Colliding’, LB211, page 80). Following the HKSE’s 2009 decision to approve Jersey as a jurisdiction of incorporation for admission to the HKSE, the ability to list Jersey companies in Hong Kong opened the possibility of dual listings on those markets. Because of RUSAL, Glencore did not throw up any material issues; much of the hard work had already been done. ‘We were able to point to RUSAL as a precedent transaction so the whole process was incredibly smooth,’ says Powell. But at the time of RUSAL, the main challenge was the line-by-line comparison between Jersey and Hong Kong law so as to satisfy the HKSE that Jersey offered equivalent shareholder protection to Hong Kong. The Glencore IPO was also made easier by Jersey’s status as a tried and tested jurisdiction for London listings. It now ticks all the boxes for the HKSE as it can follow a streamlined process and the Hong Kong authorities are comfortable with the shareholder protection requirements. Deals like Glencore serve to throw a positive spotlight on the offshore world, with such listings demonstrating the ability of offshore jurisdictions to meet the structuring needs of clients and the corporate governance and regulatory requirements of metropolitan exchanges. ‘The offshore world appeals because an institutional client wants the sort of flexibility that can facilitate capital flows in an efficient manner and where the regulatory requirements can be processed in a transparent and seamless way,’ says London-based Leonard Birmingham, the global corporate head at international offshore firm Harneys. It’s not just Jersey pulling in the big instructions. The British Virgin Islands (BVI) remains the top destination for Russia-CIS assets, while the Cayman Islands is considered by many practitioners, financial institutions and corporate clients to be the leading offshore jurisdiction for the Hong Kong financial community. Furthermore, both the Channel Islands and the Caribbean have shown that investors can feel as comfortable conducting disputes offshore as they can onshore while also producing precedent-setting litigation.
‘The offshore world appeals because an institutional client wants the sort of flexibility that can facilitate capital flows in an efficient manner.’ Leonard Birmingham, Harneys ON A ROLL More of the same is expected. Because of the strength of Asian markets right now, HKSE listings are of great appeal in the search for lucrative offshore work (see box, ‘Shanghai calling’, page 64), while many believe that the RUSAL deal demonstrated a clear intent on the part of Russian investors to look to Hong Kong as well as to London. And with a high-profile Swiss-based company like Glencore listing on the Hong Kong market, growth in dual listings on the London Stock Exchange (LSE) and HKSE is also anticipated. Certainly the fact that Glencore chose Jersey for its listing vehicle puts it on the map in Asia in a powerful way, while reflecting its reputation as a well-regulated jurisdiction, acceptable to investors globally, and which offers robust but flexible corporate laws. ‘Jersey’s Companies Law, being derived from English Companies Law,
is familiar to advisers,’ says Volaw’s managing director Robert Christensen, ‘and offers a greater degree of flexibility in certain areas, which makes Jersey an attractive jurisdiction in which to incorporate a group holding company for overseas companies that wish to list their shares on the LSE – or, indeed, on other major exchanges.’ By way of example, Jersey is fast becoming a partner for Chinese companies wishing to list in Europe and there are currently around 90 Jersey companies listed on worldwide exchanges, with a combined market capitalisation of over £103bn, while a quarter of the 60 Chinese companies listed on AIM are incorporated in Jersey. As a reflection of this, Ogier’s Hong Kong office, which used to focus entirely on BVI and Cayman law, has made a conscious effort in recent years to introduce Asian clients to what Jersey and Guernsey have to offer. At Jersey Finance, a non-profit organisation that promotes Jersey as an international finance centre, technical director Heather Bestwick believes that there’s no doubt that Jersey’s flexible company law is gaining wide recognition on the international stage. ‘We hear time and again from major industry players that a key reason for this is reputational advantage, which plays an absolutely vital role in the jurisdictional decisions of individuals and businesses.’ Jersey companies already had an outstanding reputation for high-value, high-quality listings in London but have made raising Jersey’s profile in Asia a priority so as to compete with offshore jurisdictions such as Bermuda, BVI and the Cayman Islands which are more established in Hong Kong. And since gaining approval to list on the HKSE, Jersey is seen to be gaining momentum there too, believes Mourant’s Hickling. Bestwick would agree: ‘The ability for Jersey companies to list on the HKSE has undoubtedly helped Jersey gain recognition and credibility both in that geographical market and in corporate work more generally.’ It is not just Asia-based assets that are generating the juiciest transactions. Mourant advised Vallar, a Jersey-incorporated company, on its £700m-plus July flotation on the LSE’s Main Market, the second largest flotation on the LSE this year to date. Vallar is a special purpose mining investment company backed by British financier Nat Rothschild. Mourant’s Jersey-based partner Jacqueline Richomme led the team, alongside fellow partner James Hill. As for Guernsey, although it is also now on the HKSE’s list of acceptable jurisdictions u and a Guernsey company wishing to list
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u its shares on the HKSE is now able to
follow a streamlined listing process, a Guernsey-incorporated company is yet to list in Hong Kong. ‘We expect this to happen soon though,’ Ogier’s Powell says. At Collas Crill, Guernsey-based joint managing partner Jason Romer believes that because of the greater focus on regulation in the Channel Islands, some clients will switch from jurisdictions like BVI or Cayman to the Channel Islands when the mainstream listings market resurges. However, most offshore lawyers do not expect the Channel Islands to supersede the Caribbean any time soon as the leading destination for Asian businesses looking for offshore structures. Although Ogier is in Asia to offer the broadest range of options possible – whether a BVI, Cayman or Jersey structure – to clients who appreciate the firm being in the same time zones, Powell tells LB that it will take longer for the Jersey and Guernsey offerings to establish themselves in Asia. ‘The Cayman Islands and the BVI remain the preferred choices for new structures,’ he says.
LEADING THE PACK Others also believe that businesses listing in Hong Kong and Singapore are more likely to use a BVI or Cayman Islands vehicle. The Cayman Islands has a long-established track record in Asia and is the second most popular jurisdiction for companies listed on the HKSE. So far this year, 54 companies have listed on the HKSE’s Main Board, with 34 (63%) registered in Cayman. ‘Capital raising is a delicate exercise,’ says John Collis, the Bermuda-based chairman of Conyers Dill & Pearman. ‘New companies are reluctant to distract investors with anything other than the tried and tested formula.’ Cayman is exceedingly popular with Asian businesses for this reason. Maples and Calder also reports a strong pipeline of Asia-based listing work for Cayman Islands exempted companies, emanating principally from mainland China. ‘The Cayman Islands in particular remains the domicile of choice for overseas listings of China businesses in the technology sector,’ says Greg Knowles, a partner in Maples’ Hong Kong office. Maples recently advised on the IPOs of several high-profile China businesses on NASDAQ, the New York Stock Exchange (NYSE) and HKSE. Examples include Renren, which is listed on NYSE, valued at $5bn and operates China’s largest social networking site; and Tudou Holdings, which operates a videosharing site listed on NASDAQ. Harneys has also pulled in big capital markets transactions. Lawyers from its Cayman u and London offices advised South African
SHANGHAI CALLING Europe and the US may still be in the dumps but Asia is generating major mandates. According to John Collis, chairman of Conyers Dill & Pearman: ‘Around a year ago, we saw Asia pick up tremendously, especially Hong Kong and China, with Taiwan, Indonesia and Malaysia following closely behind.’ The offshore law firms are responding accordingly in terms of resource allocation. ‘The Asia region is certainly vibrant and we expect it to be a continued source of strong demand for offshore legal services,’ says Gareth Griffiths, joint Hong Kong managing partner at Maples and Calder. Mark Walters, the London-based head of international at legal recruitment firm Taylor Root, has also noticed that Asia is forming a larger part of offshore firms’ focus as time goes on. ‘Asia clients are looking to use the Channel Islands as well as Caribbean services,’ he says. ‘That means legal work of a transactional nature for the firms, as well as litigation instructions.’ Mourant Ozannes’ plan to open in Hong Kong shortly is indicative of the interest it perceives among clients for a partner-led and commercially aware Cayman law offering on their doorsteps. ‘It stands to reason,’ says Robert Duggan, a London-based partner at Mourant, ‘that offshore firms are amenable to opening offices close to concentrations of their clients to facilitate the high-quality service which clients deserve and rightly expect.’ In June this year, Ogier went one step further when it opened an office in Shanghai, becoming the first offshore legal/fiduciary firm in mainland China. Ogier Shanghai is headed up by Kristy Calvert, who was previously the legal director at Rio Tinto China/Asia. Chinese clients will particularly benefit from Ogier’s Hong Kong office, the fastest growing office in the group. Heather Bestwick, technical director at Jersey Finance, a non-profit organisation that promotes Jersey as an international finance centre, believes that Ogier opening in mainland China and Collas Crill opening an office in Singapore (see box, ‘Singapore sling’, page 66) signal the strength of the offshore legal market. ‘Jersey firms are reporting that business is generally healthy, and Asia, in particular, is a growth area for them,’ she says. Bestwick also believes that Jersey’s reputation as a jurisdiction of substance
and sound regulation specifically appeals to Asian clients; and that having lawyers on the ground is essential for building relationships. ‘Being able to offer the Jersey proposition in the same time zone means that Jersey firms are able to take market share from the more established players who have operated in Asia for some years,’ she says. Jersey Finance itself has had an office in Hong Kong since 2009 and has built on that presence with frequent visits by government, regulatory officials and industry practitioners, and by launching a microsite in Mandarin. Many believe that it is inevitable that other offshore firms will open in the People’s Republic of China (PRC). ‘The appetite for and familiarity with offshore products in the PRC is staggering,’ says Phillip Kite, the BVI-based litigation head at Harneys, which itself is evaluating the market very closely. Appleby is also keeping a careful eye on mainland China. Bermuda-based group chairman Peter Bubenzer says: ‘The dilemma is that, in addition to Shanghai’s growth as an international financial centre, Singapore is fast becoming a significant centre for private wealth management.’ Nonetheless, for the moment Appleby is more focused on one day having a team on the ground in mainland China. Conyers is one firm not considering a mainland China office any time soon. Collis says Shanghai is an important city for the firm and it does a lot of work with Shanghai-based companies but argues: ‘We do not think one can properly service that client base with only a representative office and without a licence to practise law in China.’ Like its Hong Kong office, Conyers would prefer to be in the city itself where it can go into clients’ boardrooms and spend time working with local lawyers, rather than operate from an outpost where it would have to refer the work to another office. ‘No serious client wants to deal with a salesman of legal services in a representative office,’ adds Collis. Appleby’s Bubenzer does see the sense in putting a team on the ground in China to build relationships with local clients, accounting firms and law practices, with a view to feeding the work back to Hong Kong. ‘You do not have to replicate the same model in each office in each jurisdiction in order for a strategy to be successful,’ he says.
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SINGAPORE SLING Singapore is also drawing the offshore legal practices in. Newly merged law firm Collas Crill (see ‘Worlds colliding’, LB211, page 76) decided during its merger talks to open up in Singapore, with the new office going live on 1 August 2011. ‘It is not enough for us to be a pan-Channel Islands firm,’ says Guernsey-based joint managing partner Jason Romer, ‘and we recognise the huge opportunities offered by Asia. Hong Kong is already a mature, saturated market while Singapore is predicted by some to overtake London, Switzerland and Hong Kong as the world’s primary centre for private wealth management by 2015.’ Not only is Singapore a fantastic hub into markets like India, but it is also being eyed up by the increasing numbers of Chinese clients who are turning away from Hong Kong because of its perceived closeness to the Chinese government. In addition, Asian clients find Channel Islands trusts law much more flexible than Singapore law, believes Richard Pirie, Jersey-based head of fiduciary at Collas Crill, who has also noted interest from Singapore in Jersey Foundations (see ‘Shine a light’, LB198, page 80). Meanwhile, Collas Crill’s Jersey-based joint managing partner, Kathryn Purkis, is looking forward to the speed of response that can be generated from being in two time zones, and being able to provide an overnight service
u beverage producer SABMiller and its
Columbian subsidiary Bavaria on Bavaria’s listing of $1.325bn in corporate bond securities on the Cayman Islands Stock Exchange (CSX) in March this year. ‘The listing was a milestone for the CSX,’ says Harneys’ Birmingham, ‘because it was the first listing of its kind by a Latin American company.’ The Bavaria bond issue threw up an array of challenges in response to the clients’ demands; such as being able to deliver speedy, yet accurate responses to the CSX’s regulatory challenges, seamlessly work alongside several jurisdictions such as Columbia and South Africa, and also cover the financing aspects coming in through the Bank of America in New York. The Harneys team was led by Latin America specialist Marco Martins.
RUSSIAN POWER The BVI is also popular in the Russian/CIS market for innovative and unique structures, especially in the natural resources sectors such as oil and gas and mining.
to the firm’s Singaporean clients by doing their urgent work during a Channel Islands day. Other offshore law firms, such as Conyers Dill & Pearman, Cains, and Walkers, which arrived in 2001, 2008 and 2009 respectively, preceded Collas Crill’s arrival in Singapore. At Isle of Man (IOM) firm Cains, managing director Andrew Corlett tells LB that the office was opened with a view to servicing existing clients with interests in the region, but also to raise the profile of the IOM in key areas such as shipping, capital markets, asset and project finance. The island appeals to a number of Asian investors looking for stable company legislation that is based on English law in a stable AAA environment with developed infrastructures and familiar professional standards. Given the increasing predominance of Singapore in the private wealth management arena, Collas’ arrival did not surprise the other offshore law firms already present. Conyers’ chairman John Collis believes that the entry is an interesting one and a good move on Collas’ part. It demonstrates not only the importance of Singapore as a hub, but also the significance that most offshore firms, both large and small, attach to being close to clients. Cains also welcomes Collas Crill to Singapore. ‘It further boosts the Crown Dependencies’ profile in
‘Fund formation queries are more frequent than they were 18 months ago in the IOM but they are from varied sources.’ Simon Harding, Appleby Whether investors choose a BVI or a Jersey structure often depends on what they are familiar with. But of the four jurisdictions that Ogier covers, the BVI is still considered to be the most flexible. ‘The BVI corporate legislation provides the ability to shape a vehicle to make
Asia,’ says director Richard Vanderplank, ‘and perhaps lessens the chances of corporate structuring work defaulting to the Caribbean.’ To date, Conyers’ Singapore office has seen significant demand for listings of offshore companies on stock markets in the South-East Asian arena and Walkers is also pleased with its growth in Singapore. ‘We have been delighted with the response that we have received from the Singapore market,’ says Ashley Gunning, Walkers’ Singapore managing partner, ‘in particular from local law firms and associated service providers.’ Because Singapore is such a fantastic regional hub extending all the way to India, many expect to see other new entrants either from the Crown Dependencies or the Caribbean. But adding a note of caution, Conyers’ Collis says that he does not know if Collas Crill’s move has been built on the opportunity to service an existing client base. ‘It may be difficult to make deep inroads with only a Channel Islands offering and they may need to expand further in Asia,’ he says. For the moment Collas Crill does have clients who are already established in Singapore and new opportunities are in the pipeline. Recently, says Collas’ Romer, a Jersey trust company that Collas has never worked for got in touch as soon as it heard of the opening.
it as palatable as possible to investors while still achieving the commercial objectives that a client may have,’ says Simon Dinning, Ogier’s London head. It is also easy to establish a BVI entity, and at relatively low cost, as compared to other jurisdictions. A typical structure will involve a Russian asset with a Cypriot company taking advantage of the double taxation agreement that is in place between the two countries. But only a small number of Cypriot companies are themselves listed. In some lawyers’ experience, investors generally do not feel as comfortable investing into a Cypriot entity. As a consequence, many offshore law firms frequently see a BVI or Jersey company placed on top of the structure. Nonetheless, because of the double taxation treaty with Russia, Cyprus is likely to remain a significant factor in its dealings. In order to accommodate Conyers’ Russian clients’ needs for Cyprus legal services, the firm has seconded a Cyprus lawyer to its Moscow office. This has u been well received by Conyers’ clients there
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LITIGATION: JERSEY STYLE Offshore law firms have also been picking up leading litigation that has far-reaching implications for the conduct of litigation onshore. Following the landmark Privy Council ruling in Spread Trustee Company Ltd v Hutcheson & ors (Guernsey), which impacts on trust law in the UK and Guernsey (see LB216, page 19), the case of In the Matter of the S Trust recently delineated Jersey law from English law over the legal implications of giving a gift by mistake when it decided not to follow the English Court of Appeal decision of Pitt v Holt, which upheld the distinction between effects and consequences. ‘This reinforces Jersey’s reputation as a mature, independent jurisdiction which is willing to make pragmatic decisions,’ says Edward Bennett, an international private client partner at Bedell Cristin’s Jersey office. Carey Olsen’s Jersey-based partner Robert MacRae acted as lead counsel during S Trust. He acted for the applicant, R, where R sought to have set aside, on the grounds of a mistake, a gift of shares to a Jersey resident trustee and the subsequent transfer of those shares to three US trusts. Bedell’s Bennett and litigation partner Mark Taylor were the key lawyers involved on behalf of the trustees of the S Trust. Because the Royal Court chose to follow the 2009 Jersey case of In Re the A Trust, S Trust serves to demonstrate independence
u because it vastly simplifies the process, with
everything now being done in one place, rather than three locations. The BVI has also benefited from the resurgence in listings, particularly listings on AIM. Things have picked up significantly and the Moscow market remains an important focus for the BVI and Jersey offerings of firms like Ogier. ‘The CIS seemed to go into the recession around six to nine months later than most other countries affected by the global downturn, and then suffered a double dip,’ says Ogier’s Dinning. ‘However it has recovered quickly and is, once again, a very significant source of work for us.’ Furthermore, with the HKSE approving the listing of BVI companies on the exchange in late 2010 and given the popularity of BVI companies across Asia, Maples is, unsurprisingly, starting to see more enquiries from owners of BVI businesses looking to list in Hong Kong. In late 2010 Maples’
from English law in a significant part of trust law. In the A Trust decision, the Royal Court had concluded that the right test was whether the donor was under some mistake of so serious a character as to render it unjust on the part of the recipient to keep the gift and that the donor would not have entered into the transaction but for the mistake. ‘It establishes a clear and easily understood test, based on fairness and justice, for mistake,’ says Taylor. Consequently, there may be opportunities for litigants to use the Jersey court instead of the English court to try trust cases of this sort. The landmark ruling could, in circumstances where a case could be brought either in Jersey or England, attract similar cases to the Jersey court, as it is now clear that the test to be applied in Jersey is fundamentally different from the test applied in England. There may now be an advantage, in certain cases where either court has jurisdiction, for a donor to choose to bring their application in Jersey rather than in England. ‘In light of the S Trust decision,’ says MacRae, ‘London law firms, when advising their clients on setting up trusts, may advise them to opt for trusts governed by Jersey law, or at least to appoint a Jersey trustee who will administer the assets in Jersey.’ This is because if it later transpires that there was a sufficiently serious mistake as to the tax
Hong Kong-based partners John Trehey and Barry Mitchell were the BVI legal advisers to Winsway Coking Coal Holdings, the first BVI company to list on the HKSE. Walkers’ BVI office also experienced a recent upturn in listings. Its BVI partner John Gosling led the advice to the investment banks – Bank of America, Merrill Lynch, J.P. Morgan, Morgan Stanley, Citi and Itaú BBA – which were the underwriters on the $3bn NYSE IPO of Arcos Dorados Holdings (Arcos), the world’s largest McDonald’s franchisee in terms of system-wide sales and number of restaurants, on its launch in April this year. And in July, Walkers’ BVI office again acted for the underwriters in a R$400m notes issuance, listed on the Luxembourg Stock Exchange by Arcos. Maples acted for Arcos on both deals, traditionally the larger role in an IPO. But Gosling argues that it may be preferable to be the choice
consequences of the establishment of the trust, it is more likely that the transaction will be set aside if the proper law to be applied by the court is Jersey law. Taylor also believes that so far as litigation is concerned, the decision may result in an increase of cases in the Jersey courts involving non-Jersey law trusts, albeit with a Jersey connection, as was the case in the S Trust matter. ‘So far as non-contentious work is concerned,’ says Bennett, ‘the decision in the S Trust case should encourage high-value wealth management business to the island, especially for those families looking for a low-risk jurisdiction.’ The S Trust decision adds to the island’s body of jurisprudence and may well mean more work for the jurisdiction but it also serves to demonstrate the quality of judgments produced by offshore jurisdictions such as Jersey. The island has 50 years of law reports and its own Institute of Law, as well as excellent judges who produce solid judgments, and a good body of law and authorities. Trust cases in Jersey, in particular, can be dealt with relatively quickly, while in areas such as mistake, Jersey has had ten decisions in the last four or five years. As for sham cases and cases concerning the disclosure of information to beneficiaries, ‘Jersey has more reported trust decisions than England,’ says MacRae.
of the investment banks from a repeat business perspective. Meanwhile, some commentators believe that the part played by Bermuda-incorporated companies in the revival of the IPO market is illustrated by the May 2011 IPO of Kosmos Energy, an international oil and gas exploration and production company with major oil discoveries off the coast of West Africa. Kosmos’ decision to use a Bermuda company for the IPO underlines the island’s attractiveness for large public transactions of this kind and was a landmark deal due to the high-profile nature of Kosmos’ African oil assets and the strong investor appetite for the IPO shares. Conyers’ director Marcello Ausenda led the team providing Bermudian law advice while partner and head of Conyers’ Cayman office Richard Finlay offered the Cayman law perspective. Led by associate Jason Piney and assisted u by associate Guy Cooper, Conyers was also
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u involved in the $95m SeaCube Container
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SECURITISE THIS On the debt side of capital markets, things are also looking brighter. Carey Olsen has pulled in new securitisation work, although corporate and finance partner James Mulholland believes it would be premature to describe securitisation as back in vogue while the industry is still recovering. In Cayman, Walkers enjoyed a comeback in one of the more emblematic types of securitisation, the collateralised loan obligation (CLO), which was at the centre of the rise and fall in the securitisation market during the boom five years ago. The market, as Walkers knew it, essentially shut down between 2008 and 2010, so it was encouraging to see securitisation techniques coming to the fore again when the first big public CLO came to market in May 2010. ‘It is still a cautious revival,’ says partner Philip Paschalides, ‘and the participants are still few, with the deals involving the same big players. But only the big players will be around in a few years.’
‘New companies are reluctant to distract investors with anything other than the tried and tested formula.’ John Collis, Conyers Dill & Pearman
By way of example, Walkers acted on the Fraser Sullivan-managed deal, COA Tempus CLO, which reopened the CLO market. ‘This was a real A-list of CLO professionals,’ says Paschalides. ‘As well as the first new deal since the crisis, this was also the first application of our new Companies Law merger provisions in a structured finance context.’ The same team then went on to put together Apollo’s second ever CLO deal – itself a first because it involved the merger of a Cayman and a foreign company – advising the issuer, ALM Loan Funding, on Cayman Islands law and marking the first cross-border merger in this space. Maples also experienced significantly increased activity in the US securitisation sector in 2011. Mark Matthews, a partner in Maples’ Cayman office, says: ‘In addition to a notable increase in domestic securitisation in the US, especially in auto loan and credit card securitisations, the US cross-border CLO market has rebounded, with total issuance volume for the year to date already at, or near, 2010 levels, with a number of new deals slated for the remainder of the year.’ Maples has worked on CLOs for most of the larger managers, including KKR, Ares, Oak Hill, GSO Capital and Symphony Asset Management. As the CLO market conditions continue to improve, with investors comforted by the strong performance of existing programmes, Appleby’s Bermuda-based group chairman u Peter Bubenzer believes that his firm is also
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u
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LITIGATION: CARIBBEAN STYLE Although the British Virgin Islands (BVI) may not have the same volume of jurisprudence as a jurisdiction like Jersey, it is perceived to be a reliable place to litigate because of the speed, efficiency and quality of its judgments. In 2011, Harneys successfully led two major hedge fund cases that have set the BVI apart from other jurisdictions. In Westford Special Situations Fund Ltd v Barfield Nominees, Harneys acted for the defendant, successfully appealing a winding-up order on the basis that the redeemed investor did not have the requisite standing to petition for the winding-up of the fund. And in Aris Multi-Strategy Lending Fund Ltd v Quantek Opportunity Fund, Ltd, Harneys acted for Quantek, where the BVI court decided against following Cayman practice and found that just because a solvent hedge fund had been suspended and was in wind-down mode, it did not mean that it was no longer possible for it to carry on its business. In both these cases, the BVI has, like Jersey (see box, ‘Litigation: Jersey style’, page 68), demonstrated that it is not shy of detracting from existing case law. There
are marked differences in the approach that Cayman and the BVI have taken in interpreting the law applicable to the extraordinary economic circumstances of the last three years, but Andrew Thorp, a litigation partner at Harneys’ BVI office, believes that the Westford and Quantek decisions have provided clarity to funds and their investors on their rights and powers should things go wrong. ‘With the hedge fund industry making up lost ground, a number of valuable lessons have been learned which have fed into fund documents,’ he says. Huge, ongoing cases like the Maan Al-Sanea $9.6bn fraud claim, involving 43 defendants (17 of which are now in liquidation) and related litigation in at least nine jurisdictions, prove the ability of the Cayman courts to handle big-ticket litigation. ‘This is the largest and most complex piece of litigation before the Cayman courts,’ says Jeremy Walton, litigation and insolvency group head of Appleby’s Cayman office. The principal fraud claims concern disputes between two Saudi families, the Algosaibis and the Al-Saneas, each of which control substantial
u poised to receive more structured finance
transactions. Appleby’s Cayman-based partner Julian Black recently acted as Cayman Islands counsel to issuer Babson on a note issue arranged by Citigroup that closed in August 2011. The deal – a refinancing of a CLO originally introduced by Babson in 2008 – was a landmark deal for both Citigroup and Babson, the CLO being in excess of $513m and consisting of an AAA-rated tranche. ‘The CLO market is highly regarded,’ says Black, ‘and generally very significant for the law firms involved. It often provides a gauge of the success of various law firms.’ Bermuda is also picking up securitisation mandates, reinforcing the message that it is a vital part of the global financial economy. Conyers’ Bermuda-based associate Neil Henderson acted for the issuing company on the GE Capital Aviation Services (Gecas) $290m asset-backed securitisation for a pool of 30 aircraft engines, including the issue of e-notes. This closed in June 2011 and, according to Airfinance Journal, was the first aviation securitisation placed into the global capital markets since 2007. Walkers’ Cayman office has been benefiting from the recent spike in risk aversion within the financial markets. Cayman is the home to
business empires. Al-Sanea founded the Saad Group, one of Saudi Arabia’s largest diversified companies, and is alleged to have siphoned off billions of dollars from a business that was owned by the Algosaibis. The Al-Sanea group is alleged to have used the Cayman-incorporated Saad companies to assist in the fraud by acting as repositories for the misappropriated funds. Following the issue of proceedings, there were a number of interlocutory battles. The Grand Court and Court of Appeal have ruled on: allegations of contempt of court; applications seeking to discharge or vary a worldwide freezing order; challenges to the court’s jurisdiction; and an application to stay the proceedings pending the outcome of related proceedings in Saudi Arabia. Most of the offshore world’s law firms have been involved in the case in some capacity. Maan Al-Sanea, plaintiff Ahmad Hamad Algosaibi & Bros, the court-appointed receivers of various Saad corporate defendants, and the 34th defendant (a feeder fund now in liquidation) have been advised by Appleby, Mourant Ozannes, Ogier and Harneys respectively.
‘Offshore firms are amenable to opening offices close to concentrations of their clients to facilitate highquality service.’ Robert Duggan, Mourant Catastrophe (Cat) bonds, which protect against natural disaster risks, and is a market that expanded significantly in 2010. It is expected to continue growing at a dynamic pace following the natural disasters in Japan earlier this year. Paschalides says that Walkers is well resourced to support this market. In the summer of 2011 it launched an insurance-linked securities (ILS) group and a securitisation group in its Cayman and Dublin offices, that advise on the
legal and practical aspects of trading, financing and securitising risk involving Cayman Islands and Irish entities. The key people in Walkers’ ILS group are Paschalides, the Dublin-based tax head Anthony Smyth, and Dublin partners Garry Ferguson and Petrina Smyth. In Bermuda, Appleby served as Bermuda counsel for Embarcadero Reinsurance, a Bermuda special purpose insurer, which issued a $150m u Cat bond that collateralised a reinsurance
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TAKING THE FIGHT TO ASIA Litigation is not only on the rise for offshore legal practices in their home jurisdictions. International offshore law firm Harneys recently launched an offshore disputes practice out of its Hong Kong office when Asia litigation and restructuring head Ian Mann relocated to Hong Kong in May. Harneys’ British Virgin Islands (BVI) and Cayman Islands litigation workload originating from Hong Kong clients has increased exponentially over the past two years, particularly in the areas of shareholder disputes and contentious trust litigation. Phillip Kite, the BVI-based litigation head at Harneys, says: ‘We think that we are at a natural stage in the life cycle where there has been a long enough gestation period for offshore structures to have been in operation in this part of the world and for disputes to begin to arise.’ In addition, it became increasingly obvious to Harneys that its offshore litigation lawyers did not necessarily have to be located where the court is situated full time. ‘In fact, clients began to demand that there were offshore litigators to advise them here in Asia,’ he says. ‘It makes the world of difference to have actually met face-to-face with the lawyer that will be representing you in court.’
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Authority (CEA). The transaction, which closed in August 2011, was significant in that it marked the CEA’s move away from traditional reinsurance coverage and reinforced the trend of using a Bermuda special purpose insurer for Cat bond offerings.
M&A REVIVAL Offshore law firms are also feeling the benefits of a renaissance in M&A. In particular, the Channel Islands have attracted a number of significant M&A deals and new regulations implemented this year in Jersey have simplified the process for mergers between Jersey companies and foreign ones, further widening Jersey’s appeal for corporate work. Headline deals have included Close Brothers Group’s £29m sale of its trust, fund administration, asset management and banking businesses in Jersey and Guernsey to Kleinwort Benson in March 2011. Carey Olsen corporate partners Graham Hall in Guernsey and Mike Jeffrey in Jersey led the team advising Close. With
Harneys decided to make the investment to satisfy client preference and its clients have responded very positively to having real-time access to barristers who have appeared before the BVI court and who can therefore give very detailed advice on law, procedure and tactics. Many are saying that they wished Harneys had done this a long time ago. Because the market for contentious work is booming, some commentators think it is only a matter of time before other offshore firms follow. Mark Walters, the London-based head of international at legal recruiter Taylor Root, tells LB that it will depend on clients and the demand to have a litigation capability present in the time zone or jurisdiction. ‘If Harneys is successful then I am sure other firms will follow suit,’ says Walters. ‘If firms feel they are missing out on work and there is a business case to open in Asia or elsewhere, they will be there.’ Conyers Dill & Pearman is sceptical. Chairman John Collis tells LB that the vast majority of work coming to offshore firms from clients in Asia relates to corporate or capital markets transactions and that this is the focus of Conyers’ Hong Kong and Singapore offices. In addition, ‘big litigation typically requires high levels of support,’ he
a team headed by managing associate Matthew Shaxson, Mourant acted as Kleinwort Benson’s primary offshore contact, co-ordinating legal resources in Jersey, Guernsey, the Isle of Man (IOM) and South Africa. And in August 2011, Mourant acted as sole Jersey legal adviser to KazakhGold Group and OJSC Polyus Gold in the combination of the two companies, consisting of a reverse takeover of Polyus Gold by KazakhGold. As a result, Polyus became the largest pure gold mining company listed on the LSE in terms of gold production and mineral resources, with a market value of approximately $13bn. Partner James Hill led the Mourant team. Walkers’ Jersey office has also witnessed a number of M&A transactions, ranging from big-ticket acquisitions of a well-known global financial services company, through to the acquisition of Jersey holding companies of diverse trading operations, to smaller scale acquisitions of real estate holding structures. ‘The variety reflects the range of business carried out using Jersey vehicles,’ says Jersey-based partner Nigel Weston.
says, ‘often involving attorneys with a wide variety of skills and expertise, and is best serviced by a large, experienced team in the jurisdiction of the litigation’. The clients may be Asia-based but BVI litigation takes place before the BVI courts, so lawyers based anywhere else still have to return to that relevant jurisdiction each time they need to appear before the courts on behalf of a client. In response, Kite says that Collis makes a good point about needing a big team in the BVI. ‘We have the biggest here,’ he adds, ‘with three partners and a total of ten litigators in the BVI team.’ Harneys is also interviewing for one more English barrister, who will hopefully join later this year. And because every matter dealt with in Hong Kong by Mann and his team has a corresponding fee-earner/team in the BVI, Harneys is able to work around the clock on matters. It is fundamental to Harneys’ strategy that all of its Hong Kong-based BVI and Cayman litigators travel back to appear in the offshore courts regularly to maintain current skills, knowledge and market credibility. In any event, the bigger cases tend to have a limited number of very big hearings; in which case, Mann’s clients have asked him to come back for those hearings in the BVI.
In the IOM, Appleby partner Nick Verardi has similarly charted an increase in M&A work. The firm acted for HgCapital and CPS Partners in the 2010 acquisition of Manx Telecom from Telefónica; and IOM firm Cains advised Close Brothers on the IOM aspects of the deal with Kleinwort mentioned above. The Cayman Islands’ well-developed corporate law regime means it has become the natural domicile for cross-border joint ventures. Significant recent deals requiring Cayman expertise include Tongjitang Chinese Medicines Company (TCM)’s go-private transaction, where Conyers advised the buying consortium: Hanmax Investment, Fosun Industrial and Tonsun International Company. David Lamb, a partner in Conyers’ Hong Kong office, devised the structure and worked with a team of lawyers from Baker & McKenzie, led by partner Scott Clemens. Walkers’ Hong Kong-based partner, Arwel Lewis, acted as international counsel, alongside Hogan Lovells, to China CITIC Bank, which provided the u acquisition finance.
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u TCM turned out to be a complex deal involving a raft of issues, not only in satisfying the requirements of the US Securities and Exchange Commission, but also in complying with US best practice. ‘The TCM privatisation is a landmark transaction,’ says Lamb. ‘The deal has set a precedent and paved a new way for privatisations to be done in the Cayman Islands.’ This is because it was the first privatisation of a Cayman company listed on a US exchange to use the new merger provisions in the Cayman’s Companies Law since they were introduced in 2009. There are numerous benefits to using this structure, including a lower approval threshold and avoiding the court process required by traditional schemes of arrangement. Lamb says Conyers is currently instructed on the buyer side in similar deals, and companies listed on other exchanges might consider a similar structure, including those listed on HKSE. Maples has likewise advised on a number of Cayman M&A transactions arranged to take advantage of the new structure. The firm acted as counsel to the independent committee of the board on the privatisation of Chemspec International by its chairman and major shareholder, with private equity backing. This transaction was also one of the first takeovers by way of merger of a listed company under the revised Cayman legislation and is significant as it underscores the fact that deals involving listed companies or companies with a broad shareholder base can now take advantage of the new merger regime. Conyers’ Lamb was again involved, providing Cayman legal advice on the privatisation’s structure to buyer group Halogen and Halogen Mergersub. The new regime also demonstrates the maturity of Cayman as an international finance centre as well as its ability to respond to the increasingly sophisticated demands coming from the Asian business market. ‘The Cayman Islands’ importance as an international finance centre for the Asian/Chinese market is clear,’ says Brian Lee, an associate in Conyers’ Hong Kong office. Bermuda remains the leading offshore territory for insurance deals; but equally, although lower profile, Bermuda services the large, bespoke, complex corporate deals of the Fortune 500. Usually when rates are tightened, this leads to increased activity as new capital and investment is required, leading to increased levels of transactional work. And with Fortune 500 companies exuding renewed confidence, what is driving Bermuda is engine room corporate work, debt finance and M&A deals. Conyers has acted for a number of
‘In terms of corporate vehicles and holding companies, I suspect few, if any, jurisdictions outstrip the BVI for sheer volume.’ Simon Dinning, Ogier US-based multinationals using Bermuda companies and partnerships for the reorganisation of their worldwide holdings. Examples of recent high-profile insurance deals in Bermuda include Appleby’s Bermuda partner Timothy Faries leading the Kane Group in the acquisition of the insurance management business of HSBC in Bermuda and the Cayman Islands. As a result of the acquisition, the Kane Group is now the largest global, independent insurance manager. Appleby partner Simon Raftopoulos advised on Cayman matters, and Guernsey-based group partners Helen Crossley and Barney Lee assisted Kane on the Guernsey law aspects of the deal. The Guernsey office also represented Kane on the reorganisation of the Kane Group and the investment by CBPE Capital into Kane in order to fund the acquisition. ‘This deal is a high-profile, significant, cross-border insurance acquisition involving a number of key offshore jurisdictions,’ says Faries. As lead offshore counsel, Appleby offered specialised corporate, employment, regulatory and insurance advice across those offshore territories involved.
FIGHTING FUNDS In Europe, the use of jurisdictions such as the Cayman Islands, Guernsey and Jersey for funds continues to be very popular. The flow of work has recovered strongly following the Alternative Investment Fund Managers (AIFM) Directive. Established to produce a regulatory framework for managers of hedge funds and private equity firms, (see ‘Worlds Colliding’, LB211, page 68) the AIFM Directive was finally approved by the EU parliament in November 2010 in a manner which is less hostile to non-EU jurisdictions than the early drafts threatened to be. A total overhaul of the fund management model was previously feared, but the AIFM Directive confirmed that the private placement within the EU of non-EU (third country) alternative investment funds (AIF) to professional investors is to remain until at least 2018. Because of this lifeline extension, few managers of existing Channel Islands or Caribbean-domiciled funds are now likely to relocate their funds to inside the EU. Tim Morgan, a Jersey-based partner at Ogier, also believes that the buoyant return to the market u in the second half of 2010 was assisted by
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u increased clarity over the AIFM Directive,
which has provided a significantly more stable platform for structural and jurisdictional certainty for funds going forward. ‘This was instrumental in a large number of fund closings taking place towards the end of 2010 and in the first half of 2011,’ he says. The Cayman Islands’ funds industry remains phenomenally strong, with the Cayman Islands Monetary Authority (CIMA) showing registered fund numbers in excess of 9,500, only 5% below the all-time high of 10,000 registered funds in mid-2008. There are also thousands of private equity funds established in the Cayman Islands. And, while a few Europe-based managers and investors are taking steps to move their funds closer to home, there has not been any significant movement away from the Cayman Islands to competitor jurisdictions. Ogier’s Dinning also believes that Cayman is still the prime offshore hedge funds jurisdiction in the Caribbean, with the BVI some way behind in second place. ‘However,’ he says, ‘in terms of corporate vehicles and holding companies, I suspect few, if any, jurisdictions outstrip the BVI for sheer volume.’ At Ogier’s Cayman office, managing partner Peter Cockhill confirms that funds work has been a large part of its growth in recent years. ‘Even through the economic downturn, Cayman fund activity remained relatively flat and did not experience any major declines.’ For 2011, Ogier is seeing strong levels of activity and expects this to continue. Examples of transactions involving Ogier’s Cayman office include Cockhill assisting in the formation of approximately 18 segregated portfolios for incubator funds and nine standalone funds sponsored by JP Fund Foundations. It also acted as lead counsel in the launch of GAMA Capital Opportunities, a CIMA-registered Cayman Islands exempted company managed by Gabelli Securities International, which invests substantially through a master-feeder fund structure. The deal was significant considering the manager is a subsidiary of GAMCO Investors, which is listed on the NYSE. The latest figures for Jersey’s funds industry have also been encouraging, reflecting a strong start to 2011. As at 31 March 2011, the value of funds being administered in Jersey was at its highest since June 2009, having grown 5.4% on the previous quarter to £194.6bn. The total number of funds increased significantly too, with a number of new funds being established. This indicates a surge in confidence among funds professionals following a period of uncertainty
‘It is not enough for us to be a panChannel Islands firm and we recognise the huge opportunities offered by Asia.’ Jason Romer, Collas Crill in the global markets and a real belief in Jersey’s funds capabilities. Commercial real estate funds is another growth area; and Jersey is also working hard to establish its credentials as a specialist jurisdiction for clean tech investment structures. The growth of alternative investment funds is also reflected in a growing number of investment managers relocating to the island. Ogier has picked up instructions involving energy, gas and commodity funds. ‘Across the board,’ says Morgan, ‘there has been a renewed interest in middle market and larger-scale private equity as managers have tended to fully invest their pre-financial crisis funds.’ Ogier’s Jersey and Guernsey funds clients include venture/private equity funds such as Index and Prosperity Quest II; a number of natural resources funds including Gemini Oil & Gas Fund and New City Energy Fund; and alternatives such as Calunius Capital, the thirdparty litigation fund chaired by former Osborne Clarke managing partner Leslie Perrin, which successfully raised £40m earlier this year.
Carey Olsen also represents a large number of leading firms across the funds and private equity sector, such as Altis Partners, Better Capital, Fauchier Partners, Inflexion Private Equity, J.P. Morgan and Nordic Capital, all of which have been active recently. Looking ahead, Carey Olsen’s Mulholland sees a strong pipeline going into the first quarter of 2012. ‘We’re at a crossroads,’ he says. ‘Some general partners and managers are in growth mode and fully focused on raising their next fund or looking at raising funds in other asset classes, whereas others are still working through a restructuring phase or even wind-down.’ Bestwick finds it pleasing that the kinds of funds being administered are in line with the strategic direction Jersey has taken as a jurisdiction, namely to position itself as a specialist centre for alternative funds business. For example, the alternative asset class, including real estate, hedge and private equity funds, now represents 58% of the total net asset value of funds under administration. Jersey is retaining a healthy AIF sector and this is a trend expected to be maintained looking forward this year and into 2012. One of Carey Olsen’s recent Guernsey deals involved advising Neuberger Berman in April 2011 on the Guernsey aspects of its launch of the NB Global Floating Rate Income Fund, which raised $507m, an amount far exceeding the fund’s initial targets of $200m. The fund has been listed on the official list of the LSE and is the second Neuberger Berman fund that Carey Olsen has advised through to launch, the first being the NB Distressed Debt Investment Fund, which was listed on the specialist market of the LSE and the Channel Islands Stock Exchange (CISX). Another groundbreaking deal involving Carey Olsen was the UK’s first-ever listing of a closed-ended real estate mezzanine finance fund on the LSE, where partner Ben Morgan led the advice to Duet Real Estate Finance in April 2011 on the Guernsey legal aspects of the listing. This unique fund raised capital to invest in the European commercial real estate debt market and, upon listing, exceeded the minimum target with interest from a range of investors. Over in the IOM, Appleby partner Simon Harding has not noticed a dramatic change in the tempo of instructions. ‘Fund formation queries and instructions are more frequent than they were 18 months ago but, as has generally been the way in the IOM, they are from varied sources and cover different strategies.’ More of Appleby’s IOM time has been spent with restructuring work, involving property funds with refinancing u
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‘The Cayman Islands in particular remains the domicile of choice for overseas listings of China businesses in the technology sector.’ Greg Knowles, Maples u issues, suspension issues and winding-ups,
such matters occasioned by illiquidity challenges involving the underlying assets, sometimes
compounded – particularly in the case of leveraged property funds – by insolvency issues. For example, Harding has advised property fund
clients that have been suspended for a matter of years and dealt with the challenges of allocating liquidity when it arises. ‘These matters are interesting for lawyers to be involved in,’ he says, ‘and, due to their complexity and non-uniformity, generally result in higher fees than the more commoditised set-up instructions.’ As with capital markets listings, the work appears to be favouring those regions with long-term structural growth prospects for the funds. Ogier’s Morgan continues to see interest from Guernsey and Jersey funds investing into Russia and India. There have also been a number of managers focusing on Africa and this trend is expected to continue. Emerging markets also present an excellent growth opportunity for Ogier’s Cayman office, which has been active in China, Brazil and India for some time, and has the experience and credibility to expand its market share. Ogier’s
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Latin America practice is growing significantly in the areas of funds and with the addition of private equity and capital markets work, instructions from this region now account for 10% of the practice. ‘We have always recognised the sophistication of the market,’ says Cockhill, ‘and for close to 20 years now, have been offering an exemplary team and providing Brazilian clients with unparalleled service.’ Recently, Ogier was lead counsel on the establishment of the Ibiuna Fund SPC, developed for Brazilian investors with a multi-strategy investment focus. Maples is likewise highly active in Latin America, particularly in terms of Brazilian fund managers setting up non-Brazilian vehicles for international investors, which often have similar investment strategies to those of their successful local investment funds. But the emerging and pioneer markets certainly play their role and markets closer
to home, such as the UK and Europe, are bouncing back with healthy instructions. ‘These often involve innovative asset classes,’ says Mulholland at Carey Olsen. One example he provides is working on a novel senior film financing fund established because of the funding gap created by the British Film Institute having its budget slashed.
EASING THE PAIN With a big question mark still hanging over the global economy, it is difficult to clearly visualise workflows over the next few years, either onshore or offshore. But as the Asian markets continue to grow, many expect to see more Jersey, and probably BVI, companies listing out in Hong Kong, although not necessarily to the detriment of the LSE and NYSE. ‘For the immediate future,’ says Ogier’s Dinning, ‘I believe that Russian and Asian
investors will continue to dictate patterns in the global markets.’ And having been involved in both the Glencore and RUSAL listings, and with a market-leading position in terms of BVI AIM listings, Ogier, which has significant experience in the ECM space, has already received several new enquiries. Certainly clients are revisiting their plans and reinstating major capital projects that were put on hold back in 2008/09. Very few global businesses actually went bust in the downturn and they are now keen to act on their pent up desire to raise new capital. ‘And that’s where we come in,’ says Harneys’ Birmingham, ‘to smooth the process, on behalf of the international onshore law firms, of cross-border deals that could otherwise turn into painful affairs, especially when so many different laws are involved.’ LB julian.matteucci@legalease.co.uk
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