HKALB July 2012 by Yvette Chiu

King & Wood Mallesons

Q & A : ‘A c o m b i n at i o n o f e q u a l s ’

p. 4 2

juLY2012

NORTH ASIA EDITION

DARK DAYS A crucial next few months for India

PAGE 20

IPO ACCOUNTABILITY

BEYOND THE GAMING

INSIDE

Tougher rules for sponsors

Macau’s infrastructure boom

n Deals SPOTLIGHT

n THE BIG STORY

PAGE 26

PAGE 32

n LEAGUE TABLES

n SUNDRIES

CONTENTS

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“It (social housing) can be very profitable because the government pays for all the variations, all the changes, and all the extra costs that are required to complete these projects in a timely fashion.” Carlos Duque Simoes, DSL Lawyers

COVER STORY Next Generation Cities

ALB’s Next-Generation Cities identifies the best full-service law firms in emerging commercial centres across Asia. As Osaka, Guangzhou, Bangalore and Penang become increasingly important to the global economy, the market demands a corresponding growth in superior and sophisticated legal services. ALB has identified and profiled the top full-service law firms in these next generation cities.

FEATURES Women in law

Almost one out of every two people in the world is female. Yet, women still face myriad issues when it comes to business. How do they make it to the top? What obstacles do they face? How do they juggle their family commitments and professional obligations? Has female participation at senior management levels increased over the last few years in Asia? Seher Hussain investigate.

India’s hour of doubt

It is hard to imagine that India was, until a mere couple of years ago, one of the most attractive of the world’s new economies. The lustre has noticeably faded in the last few months, with growth slowing, the deficit gap widening, and the rupee falling through the floor as a result of stalled reform, government paralysis, and a variety of other factors that have made investors circumspect. There is no question that the fundamentals of India are just as strong as they were half a decade ago, and the country is expected to turn things around in the near future. But the next few months could be crucial, finds Ranajit Dam

Turning the screws

Economic uncertainty has translated into a marked slowdown of IPO activity in global markets. Facebook’s botched listing in May this year did little to restore market confidence. In Hong Kong, investors finally have a reason to smile, following the Security and Futures Commission’s proposals to toughen rules for IPO sponsors,

including making them criminally liable for listing prospectuses. Kanishk Verghese reports

Macau: Beyond the gaming

The gaming industry may be the core driver of Macau’s economy, but there is a lot more happening apart from the casinos. Construction extends to landmark infrastructure projects, public housing, and various residential and commercial developments. However, the continued boom times are exacerbating a problem that has been plaguing the former Portuguese colony for several years now: a severe labour shortage. Candice Mak explores the other aspects of Macau.

One of a kind

When Australian market leader Mallesons Stephen Jaques and Chinese powerhouse King & Wood officially merged on March 1, the new combined firm became a game changer. Global managing partner Stuart Fuller and China managing partner Wang Ling sat down with Candice Mak to discuss the integration of the firms’ cultures, why the King & Wood Mallesons model cannot be replicated, which elements are crucial for success, and the challenges they tackle as leaders.

Best of the best

Allen & Gledhill are among the big winners of the ALB 2012 SE Asia Law Awards, as Stephenson Harwood walks away with the SE Asia Deal of the Year

NEWS 32

DEALS

BRIEFS

LEAGUE TABLES

APPOINTMENTS

INDEX SPONSORED Regional Updates 42

— China Paul, Weiss — Singapore Loo & Partners — Malaysia Wong & Partners — Philippines Sycip Salazar Hernandez & Gatmaitan

IN CASE YOU MISSED IT

THIS MONTH’S TOP HEADLINES FROM WWW.LEGALBUSINESSONLINE.COM

REUTERS/Siu Chiu

Four firms star in CNOOC’s $2 bln bond issuance

Davis Polk & Wardwell, Walkers, Linklaters, and Commerce & Finance recently acted in CNOOC Finance’s $2 billion guaranteed bond offering worth. The two part Reg S/144A notes comprised $1.5 billion tenyear notes at 3.875 percent yield due 2022, and $500 million 30-year notes at 5 percent due 2042. The notes were listed on the Hong Kong Stock Exchange.

REUTERS/Tony Gentile

Women urged to consider all options when returning to law A senior legal practitioner has urged women in law to seriously consider what they want in returning to work after a career break and what options are available to them. “Given that women lawyers spend a lot of time getting qualified and working in law, it makes sense for them to return to law at an appropriate time for them and their family,” said Kathryn Kearley, a sole practitioner and lecturer at The College of Law.

REUTERS/Kacper Pempel

China eases restrictions on corporate forex transfers China will allow domestic firms to use foreign currency loans from domestic banks to finance operations overseas in a move to promote overseas expansion by Chinese companies, the country’s foreign exchange regulator told Reuters on Friday. The loosening of foreign exchange restrictions on domestic firms is intended to support China’s “Going Out” policy.

REUTERS/Bobby Yip

Freshfields, CC, S&C advise on Telefónica’s buyback of China Unicom stake

Freshfields Bruckhaus Deringer, Sullivan & Cromwell, and Clifford Chance have acted in the China United Network Communications Group’s (CUNCG) share buyback of its subsidiary China Unicom from Spain’s Telefónica SA. In the transaction, CUNCG is expected to acquire 4.56 percent of China Unicom’s stake at 1.1 billion euros ($1.4 billion) through a wholly-owned subsidiary.

REUTERS/Tim Wimborne

Hong Kong auditors battle against criminal liability law

Auditors in Hong Kong are mounting an increasingly vocal campaign against a proposed new law that would make them face criminal sanctions for shoddy audit work. A new Companies Bill is being considered, which includes a clause that would make auditors criminally liable if they knowingly or recklessly omit a required statement from an audit report.

REUTERS/Tim Chong

U.S. lawmakers probe China telecoms for ties, contracts

U.S. lawmakers are pressing two top Chinese technology companies to disclose their inner workings in a probe into security threats to U.S. telecommunications. Closely held Huawei Technologies Co and ZTE Corp were asked by letter to document, among other things, their interactions with the Chinese Communist Party and advice given to them by five consultancies.

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NEWS

REUTERS

Insight: Nomura collides with Japan’s insider trading crackdown By Nathan Layne and Taro Fuse

TOKYOJapanese regulators reached breaking point in March after months of stonewalling by the country’s largest broker, which they suspected of leaking confidential information to clients ahead of share sales. A trail of evidence in a near 2-year probe into pre-sale tip-offs, the most extensive in Japan for years, had taken investigators deep inside Nomura Securities, part of the 87-year-old group at the heart of Japan’s capital markets, but the firm’s top executives kept stalling, say people involved in the investigation. In late March, bankers waiting outside the office of Shozaburo Jimi, then Financial Services Minister overseeing the regulatory agency, were startled to hear him bellow to aides: “I haven’t had one call from Nomura yet. What the hell’s going on?” From interviews with more than a dozen bankers, regulators and lawyers with direct knowledge of the investigation emerges a picture of a reluctant watchdog roused into action in 2010 by whistleblowers with statistical evidence that the Tokyo market was rigged against share issuers and investors. It is also a tale of a ‘too-big-to-punish’ broker - Nomura - skirting around flimsy insider trading laws, and cosy ties with longstanding clients, cemented by a culture of entertaining and gift giving that set the backdrop for sharing corporate secrets. Nomura this month acknowledged for the first time that its employees had leaked confidential information on three separate public share offerings in 2010. On Monday, it was omitted from a list of institutions chosen by the Ministry of Finance to underwrite a government sale of around $6 billion worth of shares in Japan Tobacco. Nomura declined to comment on specific issues for this article, but referred to a June 8 statement it issued after Japan’s Securities and Exchange Surveillance Commission (SESC) recommended fining a U.S. company for trading on non-public information about a share offering by Tokyo Electric Power - one of the three cases involving Nomura. “Nomura takes this matter seriously and will implement improvement measures and disciplinary action in accordance with the results of the internal investigation and the Commission’s inspection,” the broker said

then. By the middle of 2011, the SESC had contacted the U.S. Securities and Exchange Commission, and was poring over data that showed Nomura failed to protect sensitive information on companies planning share issues, the sources say. The showdown between the SESC and Nomura developed behind the scenes for months, according to the sources, who could not speak publicly about the matter as the probe is ongoing. Regulators are likely in the weeks ahead to order Nomura to improve its internal controls, sources say, after finding that confidential information leaked from its syndicate desk to its institutional sales team, in breach of basic banking safeguards, and then was passed on to clients. It could even be ordered to close some operations for weeks, and regulators may flex their muscles and push for a leadership shake-up at Nomura. In past insider trading cases, Japanese regulators have tended to slap wrists rather than go for the jugular. Under weaker insider trading rules than most developed markets, the person leaking information is practically immune from prosecution unless they trade on that inside knowledge. But Nomura has lost a third of its market value since a first insider trading case was announced, reflecting investor worries about the impact on its business. In addition to being left off government deals, some investors may stop trading with it for a certain period in line with their own compliance rules. “If Nomura were dropped from deals there would naturally be an impact on its business. Their reputation would take a hit and its market share would fall,” said Azuma Ohno, a brokerage analyst at Barclays in Tokyo. “There’s nothing but risk here.” BORN AGAIN? On April 25, investigators charged into Nomura’s offices and set up base on the 14th floor of the Urbannet Otemachi Building, a high-rise that was once a showpiece of the financial district but had earned the nickname “bubble tower” because it was finished in 1990 right after Japan’s economic bubble collapsed. Yet even in the days after the rare escalation to an on-site investigation, SESC of-

ficials struggled to gain traction with lowerlevel executives who insisted there were no systemic problems. Investigators believed CEO Kenichi Watanabe and Chief Operating Officer Takumi Shibata were getting a censored version of events. “Watanabe and Shibata are not getting straight information from the sales force, who are in their own world,” one of the sources said in early May. “Once senior management understands and reveals the bad practice, Nomura can be born again.” In one case, when investigators identified a junior Nomura equity saleswoman in her 20s as the source of a leak on a $6 billion offering by energy firm Inpex in 2010, they were told by the brokerage she couldn’t answer further questions because the stress of the investigation had become too much. The stonewalling became harder to defend after March when Chuo Mitsui Asset Trust and Banking, now part of Sumitomo Mitsui Trust Holdings, admitted to insider trading on Inpex and privately told regulators Nomura was the source of the leak. That kind of leak had been widespread in Tokyo after 2008, an almost sure-fire way for funds to turn an easy bet by shorting shares and a simple way for brokers to boost commissions in a weak market. A recapitalizing boom in 2009 and 2010 in the wake of the financial crisis lit a fire under such trades. In secondary offerings, existing shareholders can see their stakes diluted as more shares come on the market. A Reuters analysis shows shares of companies in 20 of the top 25 secondary offerings in 2010 underperformed the benchmark TOPIX index finance/markets/ index?symbol=jp%21ixj”>.TOPX by an average of nearly 4 times in the three weeks prior to the deal being announced. The analysis did not account for media reports that sometimes preceded announcements. That stock performance gap nevertheless equated to $16 billion in market value, hurting shareholders and increasing the issuers’ cost of capital.

The rest of this report can be found on reuters.com

LEAGUE TABLES

ASIAN LEGAL BUSINESS july 2012

CHINA Announced M&A Legal Rankings

HONG KONG Announced M&A Legal Rankings

Jingtian & Gongcheng

5,109.3

DEALS: 11 RANK

Freshfields Bruckhaus Deringer

11,949.8

VALUE ($mln)

DEALS: 5

MARKET SHARE: 6.5

LEGAL ADVISeR

VALUE ($MLN)

DEALS

MARKET SHARE

RANK

VALUE ($mln)

MARKET SHARE: 31.4

LEGAL ADVISeR

VALUE ($MLN)

DEALS

MARKET SHARE

Baker & McKenzie

4,627.4

5.9

Fangda Partners

7,100.0

18.7

Linklaters

4,551.6

5.8

Skadden

7,100.0

18.7

Stikeman Elliott

4,538.4

5.8

Fenwick & West LLP

7,100.0

18.7

Weil Gotshal & Manges

4,538.4

5.8

Munger Tolles & Olson

7,100.0

18.7

Tian Yuan Law Firm

3,778.6

4.8

Oâ&#x20AC;&#x2122;Melveny & Myers

7,100.0

18.7

Clifford Chance

3,680.9

4.7

Wachtell Lipton Rosen & Katz

7,100.0

18.7

Davis Polk & Wardwell

3,093.2

3.9

White & Case LLP

7,100.0

18.7

Sullivan & Cromwell

3,053.6

3.9

Weil Gotshal & Manges

7,100.0

18.7

Grandway Law Offices

2,869.8

3.6

Allen & Overy

6,248.1

16.4

(*tie) Based on Rank Value including Net Debt of announced M&A deals (excluding withdrawn M&A)

JAPAN Announced M&A Legal Rankings

SOUTH KOREA Announced M&A Legal Rankings

Lee & Ko

Nagashima Ohno & Tsunematsu

26,484.3

DEALS: 36 RANK

6,220.0

VALUE ($mln)

MARKET SHARE: 34.8

LEGAL ADVISeR

DEALS: 29

VALUE ($MLN)

DEALS

MARKET SHARE

RANK

VALUE ($mln)

MARKET SHARE: 26.0

LEGAL ADVISeR

VALUE ($MLN)

DEALS

MARKET SHARE

Nishimura & Asahi

20,214.2

26.6

Jipyong Jisung

3,526.1

14.7

Jones Day

8,306.4

10.9

Freehills

3,309.1

13.8

Skadden

7,753.5

10.2

Latham & Watkins

3,309.1

13.8

Paul, Weiss

6,133.2

8.1

Kim & Chang

2,778.7

11.6

Mori Hamada & Matsumoto

5,807.0

7.6

Bae Kim & Lee

2,383.2

10.0

Blake Cassels & Graydon

5,600.0

7.4

Yulchon

1,018.6

4.3

Hogan Lovells

4,255.2

5.6

Shin & Kim

1,009.1

4.2

Sullivan & Cromwell

3,810.8

5.0

Yoon & Yang

447.2

1.9

Bennett Jones

3,347.2

4.4

Allen & Overy

429.9

1.8

(*tie) Based on Rank Value including Net Debt of announced M&A deals (excluding withdrawn M&A)

160 140 120 100

Series1 94.5

94.0

64.0 63.0

72.8 54.5

Series2 112.5 103.4

130.3 104.8

99.7

92.2

70.6

61.7

3,000 137.3 126.4 130.2 128.3 127.9 2,500 114.7 112.2 107.5 107.3 101.1 2,000 97.9 83.8 81.8 1,500

143.7

75.4 54.1

1,000 500

40 20

0 1Q 05

3Q 05

1Q 06

3Q 06

1Q 07

3Q 07

1Q 08

3Q 08

1Q 09

3Q 09

1Q 10

3Q 10

1Q 11

3Q 11

1Q 12

NOTES: League tables, quarterly trend, and deal list are based on the nation of either the target, acquiror, target ultimate parent, or acquiror ultimate parent at the time of the transaction. Announced M&A transactions excludes withdrawn deals. Deals with undisclosed dollar values are rank eligible but with no corresponding Rank Value. Non-US dollar denominated transactions are converted to the US dollar equivalent at the time of announcement of terms. North Asia includes China, Hong Kong, Taiwan, South Korea, Japan. Data accurate as of June 27, 2012

No. of Transactions

Rank Value US$ Billion

ANY NORTH ASIA INVOLVEMENT ANNOUNCED M&A ACTIVITY - QUARTERLY TREND

APPOINTMENTS

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LATERAL HIRES NAME

Leaving

GOING TO

PRACTICE

LOCATION

Seung Chong

Proskauer Rose

Orrick, Herrington & Sutcliffe

Private equity and M&A

Hong Kong

Jie Huang

Telstra Australia Corp.

Daniel Lee

Shanghai Leaven Attorneys-at-Law (affiliate law firm of Taiwan firm Lee & Li)

Jingtian & Gongcheng

Capital markets & Corporate

Shanghai

Matthew Lewis

Morgan Stanley

Orrick, Herrington & Sutcliffe

Capital markets

Beijing

Jun Liu

Morrison & Foerster

Jingtian & Gongcheng

Private equity and M&A

Beijing

Spencer Park

Asia Pacific Land

Paul, Weiss, Rifkind, Wharton & Garrison

Private equity and M&A

Hong Kong

Benjamin Qiu

Innovation Works

Cooley

Business & Technology

Shanghai

Phillip Rompotis

Melbourne TEC Chambers

Stephenson Harwood

Construction & Dispute resolution

Hong Kong

Sean Tai

O’Melveny & Myers

Paul Hastings

M&A and Private equity

Shanghai

Dirk Walker

Dewey & LeBoeuf

King & Wood Mallesons

Energy & Resources

Beijing

Paul Weidong Wang

DeHeng Law Offices

Dechert

Venture capital & Private equity

Beijing

Dina Yin

Linklaters

King & Wood Mallesons

Energy & Resources

Beijing

Christina Zhang

Johnston Controls

Cooley

Business & Technology

Shanghai

Ingrid Zhu-Clark

Dewey & LeBoeuf

Morgan Lewis

Energy & Resources

Beijing

Cadwalader, Wickersham, & Taft

Finance and M&A

Beijing

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WOMEN in women IN law LAW

ASIAN LEGAL BUSINESS JULY 2012

WOMEN IN LAW ALMOST ONE OUT OF EVERY TWO PEOPLE IN THE WORLD IS FEMALE. YET, WOMEN STILL FACE MYRIAD ISSUES WHEN IT COMES TO BUSINESS. HOW DO THEY MAKE IT TO THE TOP? WHAT OBSTACLES DO THEY FACE? HOW DO THEY JUGGLE THEIR FAMILY COMMITMENTS AND PROFESSIONAL OBLIGATIONS? HAS FEMALE PARTICIPATION AT SENIOR MANAGEMENT LEVELS INCREASED OVER THE LAST FEW YEARS IN ASIA? SEHER HUSSAIN INVESTIGATES.

irst, a quick overview of the state of play. A 2012 Grant Thornton report indicated that 32 percent of senior management roles were held by women in Southeast Asia, a significant increase over the EU (24 percent), Latin America (22 percent) and North America (18 percent). From ASEAN, the Philippines and Thailand easily swept the top spots with a resounding 39 percent female participation rate, while India with 14 percent and Japan with 5 percent lagged behind. Several factors play into these statistics, the most notable being that of a built-in support system. The resounding refrain from marketplace sources was that female professionals in Asia have access to affordable childcare and an extended family network, lending them greater freedom than their Western counterparts. However, the problems faced by female

lawyers in Asia are also unique to the region ranging from traditional-minded clients, who may prefer male partners on their accounts, to conservative societal pressure where ambition may be frowned upon. From India to Indonesia, Hong Kong to Singapore, ALB takes a closer look at these pressing issues, presenting a snapshot of powerful and influential female lawyers in Asia; combining a Q&A with Tilleke & Gibbins’ powerhouse duo Darani Vachanavuttivong and Tiziana Sucharitkul and profiles of Indian trailblazer Zia Mody, corporate M&A maven Akiko Mikumo, capital markets pundit Teresa Ko, and Indonesia’s redoubtable Melli Darsa. Alongside is the coverage of ALB’s Singapore Women in Law forum, a recent event that brought together over 60 in-house counsel and private practice lawyers to frankly discuss today’s hot button topics.

WOMEN IN LAW

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Tending Tilleke A formidable pair, Darani Vachanavuttivong and Tiziana Sucharitkul are co-managing partners of the Southeast Asian firm Tilleke & Gibbins. Focusing on intellectual property and dispute resolution work, here they chat about the challenges of being female lawyers, juggling their roles as mothers and managing partners, and the advantages of living in Asia

Women handle a variety of roles - acting as a mentor, a leader, a mother and a professional - all in one sometimes. How do you balance them all? TS: It’s certainly not easy to balance everything. Both Darani and I have families and young children and our lives are very full, especially with travel schedules to work with our international client base. You have to be organised and you have to prioritise, be systematic, but also flexible because once in a while things go wrong, and you need to be able to adapt quickly. You have to have a good support system, both at work as well as at home. We both find that if everything clicks, the rewards can be great. But it hasn’t been easy. We are also fortunate to live in a place like Thailand where cultural and structural factors come into play to our benefit. We have, and rely on, great family support. It’s not unusual for in-laws or parents to live close by and help take care of the children. There is also affordable child care unlike some countries in the West, so we are very lucky. Technology is also a factor; being able to work remotely gives us the flexibility to leave the office early sometimes or to come in a little later, or just to get work done while sitting in the Bangkok traffic. DV: It’s not easy to balance a working life and personal life, but I’m quite lucky that I receive good support from my husband and my family so I can feel free to work. But I also balance time with my family whenever I have time to give to them. So I don’t feel that I have any problem in balancing my working life and family life. Top tier lawyers are well known for working long hours. Realistically speaking, is this going to change in the future? TS: Providing legal services is a very personal thing. It is often based on the one-on-one relationships that you have developed with clients. So if you have managed to

build your career to become a top-tier lawyer, it’s often you that the clients want. I don’t think this will change; so in fact, the more reputable you become, the busier you will be. DV: I do not think the long hours will change much. You can, however, reduce long hours by having a very strong supporting team. Research continues to show that having women in senior management roles is beneficial for business. Yet the path for many women to the top of the legal industry is difficult. What are some of the main factors that you would pick out as being major hurdles? TS: The major hurdle that I think most women face—especially in this industry—is that the legal profession is

(L-R) Darani Vachanavuttivong and Tiziana Sucharitkul

a male-dominated field with many men in leadership positions. We’ve been very lucky to work at Tilleke & Gibbins as our firm is a very supportive place for women. It’s not easy to balance work and family, but we are in a place that has been as supportive as it could possibly be. The firm has always promoted women to leadership roles at all levels, and being a woman at this firm is not an obstacle to climbing the ladder. Within our firm leadership, 40 percent of our partners are women and 75 percent of non-legal department heads are women. This essentially means that 92 percent of employees in the firm work in

WOMEN IN LAW

“You have to be organised and you have to prioritise, be systematic, but also flexible because once in a while things go wrong, and you need to be able to adapt quickly. You have to have a good support system, both at work as well as at home.” TIZIANA SUCHARITKUL

departments which are headed by women. So there’s a very strong feeling here that you are not going to be discriminated against for being a woman. We have a strong family support system in place. Quite often, people bring their children to work if somehow their daycare falls through for the day. All our social activities, New Year parties, lawyers’ retreats and firm outings are for families, not just for the lawyers or staff members themselves. So we do have things in place that lead people to believe that this is a very family- and womenfriendly environment. In the market generally, however, it’s difficult to overcome the basic fact that women are primary family caregivers. In this male-dominated industry, some of the male leadership can be unforgiving in that they don’t take that into account and don’t allow flexibility for the way women must manage their work-life balance. DV: This is part of the process and development of a culture changing and evolving. In the past, families would only send their sons to study abroad, so it was men only who rose to become the top management. Now, however, things are changing. Sons and daughters are being given equal educational opportunities, and hopefully this will result in more and more women being represented at the top management levels. One hurdle that remains is that women tend to devote themselves to the family more than men, and that will probably not change any time soon. Do you think those obstacles will still be in place for the next generation of female lawyers, or are things improving? TS: In countries which face greater problems of retention of female lawyers, there is a lot being done to improve the working environment for women. The workplace realises how valuable women are to the industry, and are implementing various schemes and programmes to improve the retention problem; for example, allowing for part-time partners, implementing flexible working hours, organising day care at work, etc. So the situation is improving. However, simply because women are the ones who bear children and are usually the primary family caregivers, it will be very difficult to completely overcome all current obstacles. DV: Thailand has improved a lot, as well as Malaysia, Hong Kong and the Philippines. There have been recent studies that show that Thailand is ranked in the top three in terms of having women in senior management positions, together with the Philippines. We have many

ASIAN LEGAL BUSINESS JULY 2012

females at the top management level of the law firms and opportunities for female lawyers are open — just look at our female prime minister! How well would you say Thai firms are performing when it comes to female participation? TS: If you try to think of predominant women in other firms in Thailand, there are immediately five or six names that come to mind. To name a few firms, Weerawong C&P, Linklaters, Chandler & Thong-ek and Baker & McKenzie all have very senior women partners. The percentage of women lawyers in Thailand continues to increase every year. We see that in our own recruiting process, when students apply here as new graduates or even in internship programmes. Currently, the numbers reflect that more than half of our applicants are women. This is a positive trend. Do you think there is evidence of any direct discrimination against women in law firms in your region? DV: Not within the law firm itself. However, we have experienced a small number of clients who have expressed a desire to be represented by male lawyers. This is thankfully rare, but it does happen. Do you think effective networking is an integral skill for female lawyers? TS: Absolutely; networking is a critical skill for all lawyers. Here in Asia, for cultural and other reasons, women may face more challenges when networking than in other places. However, there are challenges everywhere and we just have to learn to work around them. How about mentoring? Is that something you place importance on? DV: Mentoring is very important; at this firm, it is one of the first priorities. We provide that to all lawyers whether they are male or female. TS: Mentoring is an important aspect for any firm. For the growth and continuance of the firm, we have to make sure that it’s part of the culture. Of course, some people are better at mentoring than others, but everyone is encouraged to do their best and we do have a system in place to acknowledge senior associates and partners who contribute in mentoring our more junior lawyers. Do you have any advice for up-and-coming female lawyers? DV: Work hard, have patience, learn new things and make a commitment to keep learning, even as you progress further in your career. Always be interested in learning more and more, because new legal and business developments are always happening, and you have to keep up with the changes. TS: Work hard and practice in areas that are of interest to you and that you enjoy. I believe that if you enjoy the work that you do, you’re more likely to be successful and to find personal fulfillment in your career. That’s the most important thing. Have a goal and work towards it with the support of those around you.

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Blazing a trail in India Zia Mody, premier corporate attorney a n d w e l l- k n o w n trailblazer, moved back to Bombay in the mid 1980s to start her own litigation practice. From there, her ascent has been dizzying; h e r f ir m, A ZB & Partners, is now a top tier corporate law firm that has succeeded hand in hand with India’s global rise to power. Looking back however, it clearly wasn’t the easiest of paths to tread. “I had come back from America, where there was a very different environment, and when I started practicing law in India, the first thing I did was actually litigation,” says Mody. “So really, I was exposed from day one to the cour t and there you found very few women, if any at all.” Despite the intimidating profile of the other litigators, Mody stuck to her father ’s advice, which urged her to be well-prepared and work harder than anyone else if she wanted to see results. Fast forward thirty years, and her firm, AZB & Partners, one of India’s largest, most prestigious law firms has a sizable chunk of female lawyers in its ranks. However, despite the business environment having changed so rapidly for women, hurdles inevitably remain. Mody says: “For women, it is really a struggle to maintain a work-life balance issue; nothing else. It’s just the guilt that continues non-stop. Do you sacrifice a children’s party because a client has a crisis, even though you have committed to that party? Do you not watch a movie over the weekend because

something has come up, but your daughter has bought the tickets? It is the guilt that prevents many women from really going the whole nine yards. The problem is, as with most other professions, the legal profession is completely exacting and demanding.” She does not see that changing in the future; pointing out that top lawyers are in demand constantly, whether it is from their clients, from people within the firm itself, or familial and community responsibilities. “I am a very committed Baha’i by religion, and I really feel that I have not given that part of my life and that passion enough of its due. There is never enough in your 24 hours!” Mody traces back her drive and ambition to her childhood. As the eldest of four children and the only daughter, she credits her mother for instilling the notion of equality in the family. “She believed that as the eldest, I should be afforded all the opportunities. So I ended up being the only child that went for an undergraduate education abroad. My three brothers stayed at home.” Now, her family network also plays a crucial part in her success as a female lawyer. “I have personally looked for a lot of support from my immediate family, from my in-laws, and a lot of real s up p o r t f r o m my husband in terms of being ver y secure of himself.” The environment clearly has evolved throughout her career, and she identifies a clear positive trend when she says: “Women are being recruited almost in the ratio of 50/50. It is a function of how they just do so much better in school, they work that much harder, are so much more committed. The sticking point is what happens to these women five or six years down the line; that is when it gets upsetting. When the pressures of maintaining a work-life balance becomes too much for many of us.” What is her advice to these young women? “What is most important is for her to stay the course, for her to understand that other people have the same problems,” says Mody, “The good news is that she is not alone in her stress. That other people have done it! She should look forward to that as well.”

WOMEN IN LAW

All-star dealmaker Akiko Mikumo, head of Weil, Gotshal & Manges’ Hong Kong office, managing partner for Asia and a member of the firm’s management committee, has clearly scaled many towering heights in her 30 years as a practicing corporate lawyer. However, when she first started out, the world was a very different place for women. “There were fewer women in the profession; it was very male- dominated,“ recalls Mikumo, “We are one of the firms that are way ahead in terms of making opportunities available. We had two or three women partners back then.” She continues, relating how stories would float around about how pregnant women could not appear before a judge. “Despite how shocking that may sound now, of course that was a different world back then. Women did not wear pants; we all had to wear suits and little bow ties. Thirty years is a short time, but (it is) a long time when it comes to social changes. So the world has changed for the better.” Mikumo asserts that although the business environment has become hospitable for women, the challenges that remain have become personal, not external. “It’s very difficult to still have a family, unless you live in Asia where there is affordable child care, especially when you are a young attorney.” What about when it comes to actually chasing that career? Has it become easier for women? “I work all the time,” affirms Mikumo, “Doesn’t matter what sex you are; if you want to succeed or if you want to achieve certain positions, you need to have passion, you need to have ambition, and you need to work hard.” She has seen professions and employers gradually become more understanding of female professionals. “Now, it’s not seen as an accommodation, but seen as something that you need to do in order to keep the talent; it’s more of an economic decision. If you want talent, you need to adjust your work

WOMEN IN LAW

environment. It is very tough to have children in this profession, but it’s more doable now, certainly.” Mikumo deals with an elite echelon of corporate law practitioners, but has this traditionally male field posed any problems? “M&A tends to be dominated by men as is the banking world,” she says, “But you certainly see a lot more women in high positions in banking and law, so I don’t find that to be a hurdle. The world in general is still male-dominated but it can’t be that bad if I’m doing this!” Mentoring is one of the methods she singles out as an integral part of any lawyer’s progression, male or female. It just shows you the path forward, she says. It makes you want to work harder, it gives you more confidence, and you are happier at the workplace if you have older people who are going to take you under their arm. “I have had some very key mentors at the firm from the minute I joined; people who really showed me things, and that contributes to the lawyer I am right now.” Any other advice for up-and-coming female lawyers? “Just make sure you really like what you are doing,” says Mikumo, “The legal profession, is it the greatest job on earth? No, it’s just like any other job. But you have got to like what you are doing; you have got to find something that really excites you. There are so many things that you can do with the law, becoming a lawyer at a private firm, go in-house, go to a bank, public interest law, etc. That is definitely the key to any success. You are not going to be good at it otherwise. It’s just going to become a job.”

An icon in Indonesia Melli Darsa, senior partner and founder of Melli Darsa & Co, is acclaimed for her high-profile securities, corporate f inance and M&A practice, and is frequently at the table for most of Indonesia’s multimillion dollar deals.

ASIAN LEGAL BUSINESS JULY 2012

“Sometimes, there is inherent pressure not to be so successful in Indonesia. There is a culture of not standing out, and women who are ambitious are not exactly the most admired people in this country.” MELLI DARSA

She struck out to establish the firm in 2002, but has always had ambitious goals. “Not working was never an option,” she says, “I had to work to basically fulfill the needs of a family. Nowadays, women do need to work even if their husbands work, and that was the situation that I faced when I first started this career.” Rising to the top in Indonesia has not been easy, given the somewhat conservative societal pressure. “In terms of ability, I find so many talented women, but the same numbers are not actually reaching the top ranks,” says Darsa, “It is also their own mindset; they sort of slow themselves down. Sometimes, there is inherent pressure not to be so successful in Indonesia. There is a culture of not standing out, and women who are ambitious are not exactly the most admired people in this country.” She emphasises that women who successfully scale the ladder are those that leave traditional firms to start their own ventures, those with a keen sense of entrepreneurial spirit. “What I have seen are women like myself getting out of a firm, setting up on my own, and then showing what we can really do because we have our own platform. That is still a challenge because at the moment, women are not able to reach the top by actually going through the normal motions.” Apart from structural problems, other roadblocks remain - long hours, demanding clients, and the elusive work-life balance. “Unfortunately, this is a service industry and the client is king,” says Darsa, “…and when transactions are under deadline, you have to fulfill them by working late. It’s not possible to demand that the profession changes, but the work environment and law schools have to change the way that they are training people and managing the firms.” The biggest issue is that of keeping women motivated, Darsa says, identifying a trend of a large proportion of females going into law

school, but within the third or fourth year of practice, dropping out due to the challenges of balancing their personal and professional needs. “They are trying to be a young mother and a young wife, and that is when they start saying ‘maybe this is way too tough’,” she says. “They basically get out of the rat race and do not fulfill their true potential, which could have been to become a very strong long-term lawyer. You need policies that are more sensitive and more supportive to women who are raising children.” At her firm, such policies include part-time nannies at the office, and flexible working hours. Mentoring is another key aspect. “It’s not just supervision, but really trying to find out what their potential is and helping them through the complexity of a career that is not as clear-cut for women as it is for men,” she says. Looking back, Darsa points out that many female professionals initially tried to undermine their femininity, and hid the fact that they are mothers. But given the change in the working environment, “mentoring has become more important than ever in order to encourage women to stay on if they do have the talent, the potential, the willingness, and the commitment.” “My life has not been perfect,” she says, “I divorced six years ago, I am a single mom, so of course there are pressures of a career. But what I share with young female lawyers is that basically you do have to focus on your relationships with your family and your spouse.” She continues, saying there are costs to success, “but some say that balance is about being the perfect mom and the perfect wife and the perfect lawyer. That may be, and some people are very fortunate to have achieved that, but that is not happiness to everybody. You need to know what is important to you, and I always say that it helps to love the profession because if not, they will be very easily discouraged.”

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Commanding capital markets Teresa Ko is a founding par tner of Freshfields’ equit y capital markets practice and th e f ir m ’s China chairman. Based in Hong Kong and having practiced corporate law for over 25 years, she has a keen insight into the life of a powerful and successful female lawyer. Having started her career in the City of London at a firm which did have a number of female partners, she recalls that she did not come across any particular obstacles in the beginning of her career. Was she encouraged to be a working professional from a young age? “Not at all, though I was told by dad that being a fashion designer is not exactly a serious enough profession,” says Ko, “He didn’t steer me in any other way, but I liked the fact that a law degree is intellectually stimulating and it is a career that I know my father would approve of.” Much like any other high-powered professional, Ko also places priority on work-life balance: “It is not always easy to find, but multitasking and being hugely efficient certainly helps. I do try to find some balance in my life. These days, I enjoy visiting arts exhibitions and galleries, cooking at home with my children, and finding new shops as I still love fashion.” She affirms that “doing high-quality work for our clients and helping to develop and shape the market”, is a professional achievement she is proud of, while “personally, having a successful career with a very supportive husband and two teenage children who still want to talk to, and hang out with their mother, is my biggest achievement”. Long hours are another struggle, which realistically, is not going to change in the future. “Top tier lawyers are well known for working long hours because a prerequisite for being a good lawyer is to show commitment and hard work, “ says Ko, “But with modern technology, a commitment to teamwork, and accommodating firm policies, top lawyers

should also have a life outside work.” What does she think are some of the main hurdles facing female professionals today? “The main challenges are managing work and family responsibilities, the lack of role models in the workplace, and the effects of unconscious bias/ stereotyping,” she says taking from a research survey commissioned by Freshfields. Much like many other interviewees, she is

WOMEN IN LAW

fully committed to mentoring, believing that good mentoring gives mentees a trusted sounding board for support, advice, and guidance. Mentors can offer so much from their own experience and this is an important part of the nurturing of our talent, she says. As for advice for the next generation, she says: “Follow your dreams. Be yourself. Continue to learn. And remember, don’t give up!”

ALB Singapore Women in Law Forum In late May this year, ALB held its first ever Women in Law Forum event, bringing together over 60 in- house counsel and private practice lawyers to discuss the hot button topics of the day. The panel consisted of Deirdre Stanley, EVP and general counsel of Thomson Reuters; Maija Burtmanis, associate general counsel Alcon Asia, Novartis Pharmaceuticals; Rachel Eng, managing partner, WongPartnership; Lee Suet Fern, senior partner, Stamford Law Corporation; and moderator Tara Joseph, producer, Reuters Insider. One of the topics discussed was the importance of mentoring and support, a refrain that comes up over and over again when it comes to overcoming obstacles in the work place. Maija Burtmanis recalled that: “I look back and I am very conscious

that as I was growing as a lawyer, so many women gave me an opportunity. (And) that is not women within the law firm, just women within the banking sector. So many women are out there working, and when somebody stuck their neck out to give me that piece of work when I was young and was not very established, it was a big piece of work and it really meant something. She was a voice in the community who said, ‘Give it to her, she can do it.’ You cannot underestimate the importance of that support.” Other issues discussed included overcoming the challenges that are particular to women in the workplace, including work-life balance, external and internal obstacles, and the importance of hard work and networking. The panel discussion is part of an ongoing series of Women in Law events that will take place throughout Asia and the Middle East.

OP-ED

ASIAN LEGAL BUSINESS JULY 2012

WOMEN IN THE LEGAL JOB MARKET: IS IT A LEVEL PLAYING FIELD? ALMOST HALF OF ALL LAWYERS IN HONG KONG ARE FEMALE AND THE NUMBERS ARE CONTINUING TO RISE. ROB GREEN AND CLARA CHEUNG EXPLORE WHAT IS DRIVING THE INFLUX.

n a city where everyone is fighting for success, and law firms in particular are battling for the best talent and the leading position in the market, female lawyers are certainly at the forefront of this battle. Over the past 10 years, Hong Kong’s legal profession has seen a remarkable increase in the number of female lawyers. Where there were once only a handful of women in any position at all within law firms, female lawyers now constitute almost 50 percent of Hong Kong’s 10,000 lawyers, and in fact, 24 per cent of local law firm partners are women, according to the Law Society of Hong Kong. The supposed reasons behind the influx of female lawyers vary greatly, yet, whatever the reason, the resounding truth is that female lawyers are no longer a small minority in Hong Kong’s legal market, and the already significant number is on the increase. Many of the most well-respected firms in Hong Kong, whether local, U.S. or UK-based, are led by women; women who most likely started out as associates and have moved their way up through the ranks due to their sheer passion to succeed in the city’s competitive workplace. Stefania Lucchetti, partner at Howse Williams Bowers in Hong Kong, comments on the reasons why top level roles have traditionally been held by men as opposed to women, even though the majority of junior and midlevel roles tend to be successfully covered by women. “This sudden drop in numbers at top levels is not due to a lack of skill or ambition,” says Lucchetti. “But is often a consequence of

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the fact that – at least based on my personal experience and perception – the last leg of the journey to partnership often happens when professionals are in the early to mid thirties, and, therefore, it coincides with a time when many individuals are also building families and having children. For obvious reasons, this often leaves women behind, as the biological and emotional change of pace required during pregnancy and in the first months of taking care of a newborn will rarely be physically and logistically compatible with a bid for partnership.” However, as time progresses, competition becomes greater and the fight for leadership goes on. Attitudes towards career progression are also changing, meaning women are rapidly seeking, and indeed succeeding in senior roles. “This is due in part to women becoming smarter about managing their career and not giving up their options,” says Lucchetti. “ Also the higher flexibility in office face hours, enabled by technology, helps take care of some of the logistical issues. I, therefore, believe that in a short period of time, we will see a levelling in gender diversity in partnership roles.” With increased competition inevitably comes an increase in opportunities for women in the legal job market. Female lawyers succeeding in senior roles create hope for other women, who will continue to work towards partnership, knowing it can be achieved. Christine Chang, joint managing partner at Maples and Calder, reaffirms this positivity, as she has personally seen the change in female leadership in Hong Kong. “For quite a few years from when I started at Maples, I was the only female lawyer in the Hong Kong office,” she states. “Nowadays, we are almost at 50:50. I am also pleased to see that many of my female peers from the early days are now in senior positions in their respective firms.” Chang believes that given the disproportionately high percentage of women graduating from law schools, the trend of women moving into senior positions in the legal job market will inevitably continue. “I understand that around 70 percent of Hong Kong law school graduates these days are women. This can only result, I hope, in the ratio of female to male partners in law firms increasing across the board. For one thing, at my firm we are certainly focusing more attention on women, as part of our overall diversity programme,” she says. The obvious question is, aside from firms

appearing to be more in favour of diversity, what effect does having more women in senior positions have on the legal market? It is important to note that the number of women professionals has increased across the board, not just in law firms but also in financial services. Anne-Marie Godfrey, a partner at Bingham McCutchen, thinks that “law firms in Asia are relatively meritocratic when it comes to promoting women. We find that many of the general counsel and chief operating officers at hedge funds with whom we work are female... and across our firm, we have a higher proportion of female partners than our peers.” This suggests that as many of the law firms’ clients are women, it may make it easier to understand one another and work well together if the senior roles at law firms are also filled by women. Godfrey goes on to say that she believes the reason for the increase in women in senior

OP-ED

is still predominantly a man’s world,” says Swartz. “For the most part, I don’t think that these mandates are necessary as the world’s view of women in business appears to be naturally evolving. In Hong Kong, we are witnessing an increasing presence of women in the corporate sphere, in senior managerial positions, serving on the board of directors and being appointed as CEOs.” “Over recent years, the legal profession has seen a steady increase in the number of female partners, so it is to be expected we are now witnessing them reach senior legal positions,” she continues. “As the first woman ever to manage a Blank Rome office in the 65-year history of the firm, I must say that I hope to be the first of many more to come.” Luccheti agrees with this view, but also notes that a temporary regulation that would promote a higher degree of diversity in boards of directors for the benefit of good

“I understand that around 70 percent of Hong Kong law school graduates these days are women. This can only result, I hope, in the ratio of female to male partners in law firms increasing across the board.” Christine Chang, Maples and Calder positions is due in part to the ease and lower cost of childcare in Asia: “It is true that gender balance at a senior management level in law firms should be more even, but I feel that the imbalance has arisen to a degree as a result of women exercising personal choices.” At Bingham, she comments there are a “number of firmwide initiatives to facilitate female partners and senior associates who have children, for example, by providing access to a life coach both before and after maternity leave”. It is undeniable that the world in general has recently been pushed towards an increased awareness about gender and racial equality in the workplace. However, Kristi Swartz, the managing partner at Blank Rome’s Hong Kong office, argues that this shift in the gender dynamics of managerial structures, both in law firms and the corporate world, was a phenomenon waiting to happen. “With many governments worldwide currently debating the relevance of introducing mandates for women in the boardroom, it seems undeniable that the corporate world

corporate governance, such as what has been implemented in several European countries, could help create more opportunities and accelerate the process. “I am in any event optimistic that an increasing number of excellent women professionals will take on senior leadership roles in the near future,” concludes the successful HWB partner. It is apparent, therefore, that times are changing in Hong Kong’s legal market, meaning that in comparison to 20 or even 10 years ago, women are adapting their career goals and are being given the opportunity to succeed in higher level positions. The demand for talent is ever-increasing, as it will across all professions in this fast-paced city, and women, quite rightly, are capitalising on these demands, giving themselves now-attainable targets and creating the hope of more opportunities for today’s female lawyers; a hope that can only continue to grow. This article was contributed by CML Recruitment

INDIA COUNTRY REPORT

INDIA’S

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HOUR

“THERE IS NO POINT BLAMING THE GREEKS OR THE SPANIARDS FOR INDIA’S ECONOMIC WOES. NOR ARE THE USUAL SUSPECTS, THE RAIN GODS, AT FAULT THIS TIME. GROWTH SLOWDOWN IS ESSENTIALLY HOME-MADE.” THE ECONOMIC TIMES

INDIA COUNTRY REPORT

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OF DOUBT IT IS HARD TO IMAGINE THAT INDIA WAS, UNTIL A MERE COUPLE OF YEARS AGO, ONE OF THE MOST ATTRACTIVE OF THE WORLD’S NEW ECONOMIES. THE LUSTRE HAS NOTICEABLY FADED IN THE LAST FEW MONTHS, WITH GROWTH SLOWING, THE DEFICIT GAP WIDENING, AND THE RUPEE FALLING THROUGH THE FLOOR AS A RESULT OF STALLED REFORM, GOVERNMENT PARALYSIS, AND A VARIETY OF OTHER FACTORS THAT HAVE MADE INVESTORS CIRCUMSPECT. THERE IS NO QUESTION THAT THE FUNDAMENTALS OF INDIA ARE JUST AS STRONG AS THEY WERE HALF A DECADE AGO, AND THE COUNTRY IS EXPECTED TO TURN THINGS AROUND IN THE NEAR FUTURE. BUT THE NEXT FEW MONTHS COULD BE CRUCIAL, FINDS RANAJIT DAM

REUTERS/Arko Datta

he recent statement from Leif Lybecker Eskesen, HSBC’s chief economist for India, describing the country as "a gasping elephant" would have been unthinkable a few years ago, as would have been the comment from Jim O'Neill, former chief economist at Goldman Sachs and the man who coined the famous "BRIC" moniker - that India was the "biggest disappointment" of the BRIC nations. An interplanetary traveler visiting Earth in the 2009, shortly after India had weathered the global financial crisis with a sense of relative calm, and then returning sometime in the first half of 2012 would be encountering a completely different country, particularly if the newspaper headlines were to be believed. Much of the negativity, however, has been justified. India's GDP grew a mere 5.3 percent in the quarter compared to a year earlier, its slowest quarterly pace since early 2003 and below economists' forecasts of 6.1 percent. For those used to the 8 percent the country had registered in recent years, it certainly felt like the growth party was over. This was the hangover setting in. As of the time of writing, the rupee had breached the mark of 56 to the dollar, and did not look like it was headed the right way anytime soon. India’s trade deficit in April amounted to $13.48 billion, with oil imports which account for the single largest chunk of India’s import bill, standing at $13.9 billion. When you combine all these with stifling red tape, a lumbering bureaucracy, and some distinctly investor-unfriendly moves by the Congress-led coalition government of Manmohan Singh, the picture begins to look grim indeed. The government has attributed much of the slowdown to the falling growth seen elsewhere around the globe. But India’s current situation owes much to problems at home, and has been on the horizon for a while now. "There is no point blaming the Greeks or the Spaniards for

INDIA COUNTRY REPORT

India's economic woes. Nor are the usual suspects, the rain gods, at fault this time," noted The Economic Times, possibly the most influential business newspaper in India. "Growth slowdown is essentially home-made." New Delhi has been spending massively on welfare programmes, which, while politically popular, have widened the budget deficit and exacerbated inflation. Oil imports (as stated above) have widened the trade deficit, weakening the rupee and pushing up the cost of imported goods. To rein in inflation, the Reserve Bank of India doubled benchmark interest rates over a period of two years – from 4.25 percent in January 2010 to 8.5 percent in January 2012 – and this has led to a drop in the pace of investments in the infrastructure and manufacturing sectors. In April, Standard & Poor's downgraded India’s rating from stable to negative, citing “lower GDP growth prospects and the risk that its external liquidity and fiscal flexibility may erode”. Clearly, the alarm bells have begun ringing. Much of the blame is laid at the feet of the current government. “Certainly six months back, if not earlier, there was realisation of the eurozone crisis and (the) weakening of the Indian economy (deficit and inflation included) would have an impact on India,” says Jyoti Sagar, founder partner at J. Sagar Associates. “However, since November

ASIAN LEGAL BUSINESS JULY 2012

2011, the acts of commission and omission in governance, or the lack of it, have clearly and disproportionately impacted India.” The Indian authorities have been accused of paying scant respect to Indian firms, while displaying a condescending attitude towards investors. Additionally, it has made no moves toward reforms of any variety as corruption and red tape have run unchecked. Examples like the scandal surrounding the sale of 2G licences and the Vodafone case, which has led to a Finance Bill containing extraordinary retrospective provisions that go back 50 years, have not helped either. “From purely a lawyer’s perspective, the casualty has been the belief that we are a country governed by the rule of law,” says Sagar. LEGAL WORK IMPACTED According to Sagar, the gloom pervading the

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“Certainly six months back, if not earlier, there was realisation of the eurozone crisis and (the) weakening of the Indian economy (deficit and inflation included) would have an impact on India. However, since November 2011, the acts of commission and omission in governance, or the lack of it, have clearly and disproportionately impacted India.”

REUTERS/Rupak De Chowdhuri

JYOTI SAGAR, J. Sagar Associates

Indian economy has led to market sentiment being definitely bearish, especially when compared to the bullish waves of the recent past. Another outcome has been a fall in foreign investments, both financial as well as strategic. “This is characterised by lower (and perhaps more realistic) valuations in the M&A and private equity space, as contrasted by the more bloated valuations one would witness up until four or five years ago,” he says. “While mid market M&A activity is still prevalent, it is the transactions having a larger ticket size which are only few and far between and less forthcoming.” Sagar adds that there has not been any significant capital markets activity. Rabindra Jhunjhunwala, partner at Khaitan & Co, agrees with regard to the capital markets work. “With the economy being what it is, there has definitely been a dent,” he says. “Investor confidence is low, which has resulted in IPOs being stalled, and hence the volume has dropped significantly, even though clients are still interested in listings.” According to Ashwin Ramanathan, partner at AZB & Partners, part of the reason for the slowdown in capital markets work is that IPO promoters have very little incentive to go through with them. “Companies are currently waiting for markets to turn,” he says. Jhunjhunwala adds that a lot of the firm’s capital markets lawyers are now helping out on the M&A side, which seems to be awash with work. “There is so much buying happening, and it is pretty much across all

sectors,” he says. “We honestly do not know how to handle all this work.” Arun Balasubramanian, a Singapore-based partner with Linklaters’ India practice, notes that his firm has seen a fall in plain vanilla transactions, and an increase in more complex structured deals like IL&FS Transportation Networks Ltd (ITNL), which through its Singapore-based subsidiary, is looking to raise money by issuing yuan-denominated bonds. He adds that an interesting trend has been the appetite of Indian companies to acquire assets overseas, despite the prevailing global economic conditions, and cites the example of auto parts maker Motherson Sumi’s acquisitions in Europe. “Also, there is a great deal of potential for M&A activity in the healthcare and pharma sectors,” he adds. Ramanathan also says that in a way, the larger law firms are hedged against market turbulence since they can provide a wider range of services. “As the capital markets work reduces, our litigation side is positively booming,” he says. “What is different now from other financial crises is that clients have much less patience when it comes to initiating litigation. They are willing to pull the trigger much earlier.” Sagar says that his firm is seeing continuing activity in the dispute resolution sphere, apart from the regulatory and infrastructure space, “given the uncertainty in the regulatory climate and contractual defaults”. RETAIL TO THE RESCUE? Lawyers agree that one of the brightest spots in India’s road to recovery is the introduction of foreign direct investment into the country’s massive retail sector [See box on p.24] - something the government has been unable to carry out in full in the face of fierce opposition from across the political spectrum and from traders' unions. The annual sales of the sector amount to an estimated $450 billion, with nearly 90 percent of the market being controlled by tiny family-run shops. The country recently allowed 100 percent FDI in single-brand retail subject to certain sourcing restrictions, but no ownership in multibrand retail. “The opening up of the insurance and retail sector to foreign

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ASIAN LEGAL BUSINESS JULY 2012

KEY FACTS: INDIA’S RETAIL

LOCAL COMPANIES

Supermarket chains are looking for funding in a tough business environment, with foreign partners closed off for now after last year's indefinite suspension of a move to open the $450 billion retail market to giants such as Wal-Mart.

• Pantaloon Retail, India's largest listed retailer

The government had hoped the major reform would boost investment in Asia's third-biggest economy, but it quickly backtracked when it came up against fierce opposition from across the political spectrum and from traders' unions. Following are some facts on India's retail sector:

• The retail sector in the nation of 1.2 billion

people is estimated to have annual sales of $450 billion, with nearly 90 percent of the market controlled by tiny family-run shops.

• Organised retail, or large chains, makes up

about 10 percent of the market, but is expanding at 20 percent a year. This is driven by the emergence of shopping centres and malls, and a middle class of close to 300 million people that is growing at nearly 2 percent a year.

•

India also allows 100 percent FDI in cashand-carry, or wholesale, ventures. Restrictions on foreign investment in front-end retail exist because of opposition from millions of small shopkeepers, who are valuable vote banks during elections.

• India has recently allowed 100 percent FDI in

single-brand retail subject to certain sourcing restrictions, but no ownership in multibrand retail.

and part of the Future Group, runs apparel and electronics stores under its lifestyle brands Central, E-Zone, and Hometown. Future also operates the Big Bazaar hypermarket chain and supermarket brand Food Bazaar. The group has over 1,300 stores across formats, and occupies a total retail space of 16.5 million square feet in India. Future has, for long, been linked to France's Carrefour for a partnership in hypermarkets. It recently sold controlling stake in its flagship clothing brand Pantaloon to bring down its high debt.

•

Second ranked Reliance Retail is part of Reliance Industries, India's largest listed group headed by Mukesh Ambani, India's richest man. Reliance Retail operates 1,300 stores across neighbourhood stores, supermarkets, hypermarkets, and lifestyle stores. It has said it does not plan to partner with any global retailer.

• Shoppers Stop, part of the K Raheja Group which operates in real estate, has about 265 stores across brands and formats including 12 Hypercity hypermarkets. It operates 4.58 million square feet of retail space, and its loss-making Hypercity is open to partnerships with foreign groups. • Trent, part of the sprawling Tata Group, operates 106 stores across formats and runs the Westside range of apparel stores, in addition to hypermarkets under Star Bazaar. It signed a

investors will certainly augur well for the industry and investor sentiment alike,” says Sagar. Jhunjhunwala agrees. “Liberalisation is key, and I expect it to happen in a number of sectors, including retail and insurance,” he says. “These are hard decisions that the government has to take.” He adds that just a “few small things” in the near future would be enough to turn around India’s fortunes. “We need clarity on the telecom issue, and we need clarity on the issue of tax,” he says. “(And) all these will happen; I am positive.” Another positive for him is the fact that many countries around the world are experiencing slowdowns as well. “The West is presently having a hard time too,” he says. “This is clearly a time of opportunity.” According to Balasubramanian at Linklaters, one trend he is seeing is more foreign investors entering into JVs with Indian counterparts instead of going for outright acquisitions. “This tends to benefit both parties,” he says. “The Indian partner gets the knowledge and the knowhow, while the foreign partner reduces its risk.” He expects to see liberalisation in sectors like retail, and “sensible regulations” in areas like transportation and aviation. “However, you need to keep in mind that this is a sentiment-driven market,” says Balasubramaniaun. “That needs to change.”

franchisee agreement with Tesco under which Star Bazaar shops use the British firm's supply chains and infrastructure.

• Aditya Birla Retail is the unlisted retail arm of

India's telecoms-to-cement conglomerate Aditya Birla Group, headed by Kumar Mangalam Birla, ranked the seventh-richest Indian by Forbes in March 2012. T h e co m p a n y o p e r a t e s a r o u n d 5 0 0 supermarket and hypermarket stores under the More brand. It has said it will evaluate partnerships with global firms. MAJOR FOREIGN COMPANIES

• Wal-Mart has a cash-and-carry operation with Indian partner Bharti Enterprises, the parent company of leading mobile provider Bharti Airtel, and will add 12 to 15 new cash-and-carry stores this year to its 17 existing stores.

• Tesco, Britain's largest retailer, has a tie-up with

Trent's Star Bazaar hypermarket chain. Tesco is also looking to enter the wholesale market through the tie-up.

• Germany's Metro AG operates 11 wholesale stores in India. The company plans to open five cash-and-carry stores every year.

• Carrefour has two cash-and-carry stores in India. The world's number two retailer has been seeking a local partner to enter the hyper or supermarket sectors.

For Ramanathan at AZB, one of the biggest pluses about the current situations is that assets have become cheaper. “Currently, as capital is hard to come by and debt is very expensive, valuations have become more realistic,” he says. “These present great opportunities for investors.” From a law firm’s perspective, he says that one of the strongest areas of growth has turned out to be the competition law practice, apart from the spike in litigation. However, he cautions that much will need to happen for India to come out of the woods. “All the problems that are being discussed need to be resolved,” he says. “A lot needs to be done. Investors are not convinced that this is the best time.” THE BRAND REMAINS STRONG It is worth noting that despite all the headlines, not all the news coming out of India has been depressing. In March, India attracted

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INDIA COUNTRY REPORT

REUTERS/Sivaram V

“THERE’S SO MUCH BUYING HAPPENING, AND IT’S PRETTY MUCH ACROSS ALL SECTORS. WE HONESTLY DON’T KNOW HOW TO HANDLE ALL THIS WORK.” RABINDRA JHUNJHUNWALA, Khaitan & Co FDI of $ 8.1 billion, the highest monthly inflow ever recorded, even though much of it was due to the $ 7.2 billion Reliance IndustriesBritish Petroleum (BP) deal announced in February 2011, which saw BP picking up a 30 percent stake in Reliance Industries' 21 oilfields. According to Sagar, despite its recent troubles, the fundamentals of India “as of now are still sound, be it the demography and be it also democracy. Both (of) these are long term positives. Foreign investors should see that side of the coin too. Bold and positive moves by the government would provide the credibility and the spark that we need urgently to put to work our inherent strengths as a country.” Jhunjhunwala at Khaitan concurs, but says that while the last few months might not have heralded the end of the road for “India Shining”, it has clearly had an impact on the way the India brand in perceived among investors, particularly in the aftermath of the Vodafone tax case. “The announcement of the retroactive General Anti Avoidance Rule (GAAR), slated to come into force in 2013, had

a lot of people asking: ‘What exactly did the Finance Minister have in mind?’,” he says. “Is this the way things happen in a democracy, in a rule of law?” Nevertheless, he sees some positive trends in the next year or so. One is the growing number of outbound transactions, as cashrich Indian companies take advantage of cheap assets overseas, particularly in natural resources. Another trend is that of PE funds selling to other PE funds. “Since exits are currently difficult as IPOs have stalled and funds that have raised money looking for assets to purchase, I see a lot of acquisitions of PE assets by other PE funds,” he says. Jhunjhunwala also sees competition law as a growing practice area for firms as awareness increases, and M&As continuing to be their biggest revenue generator. Another promising area, he notes, is infrastructure, where India has penciled in an investment of about $1 trillion. The country plans to award 9,500 kms of road projects, and commission three new airports in the fiscal year to March end in 2013. Balasubramanian sees a lot of opportunities for India emerging from the so-called “South-South trade”. “I expect to see a lot of trading of resources located in Africa and in Southeast Asian countries,” he says. “There is a great deal of value to be had there.” Additionally, a lot of the larger companies will be looking to grab bigger assets overseas, he says, citing the attempt by Tatas to acquire Cable & Wireless as an example. Sagar, however, has words of caution. “We have to avoid the temptation (and the arrogance) that we will be an attractive investment destination irrespective of what we do or do not do,” he says. “Unfortunately, the world increasingly sees us in negative light. The perception is that we have red tape and not a red carpet for foreign investment. Add to that, we are not considered a business-friendly country… (and also) it was demoralising to see that India ranked 182 out of 183 countries in terms of enforceability of contracts. Now the recent threat that India’s rating could be pegged below investment grade does not really help.”

Equity Capital Markets

ASIAN LEGAL BUSINESS july 2012

Turning the

screws

Economic uncertainty has translated into a marked slowdown of IPO activity in global markets. Facebookâ&#x20AC;&#x2122;s botched listing in May this year did little to restore market confidence. In Hong Kong, investors finally have a reason to smile, following the Security and Futures Commissionâ&#x20AC;&#x2122;s proposals to toughen rules for IPO sponsors, including making them criminally liable for listing prospectuses. Kanishk Verghese reports

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he world waited in excitement on May 18 for Facebook to launch its highly publicised initial public offering (IPO). But eager anticipation turned into alarm as the social media giant’s share price plunged from $38 to $27 over the next 10 trading sessions, wiping out roughly $30 billion of its market capitalisation. A few weeks later, Graff Diamonds, a British high-end jeweller, abandoned its $1 billion listing in Hong Kong because of economic uncertainty. Dubious equity markets have resulted in Asian IPOs worth nearly $8 billion being pulled this year. Most recently, the Securities and Futures Commission (SFC) in Hong Kong fined and stripped Mega Capital (Asia) of its licence for its sub-par underwriting of Hontex International Holdings, which was investigated for financial fraud in 2009. A series of fraud scandals last year surrounding Chinese companies that went public in Hong Kong has spurred the SFC to take action. In a consultation paper released on May 9, the SFC proposed, among other recommendations, that IPO sponsors be made both civilly and criminally liable for faulty listings. The proposals, which will give investors some much-needed reassurance, have received staunch resistance, not surprisingly, from IPO sponsors – banks or smaller corporate finance houses that are responsible for preparing IPO documents and ensuring compliance with listing rules. Faced with such rules, the larger investment banks may shy away from some IPOs, which

Equity Capital Markets

REUTERS/Bobby Yip

could potentially create more opportunities for the smaller players. Another related worry for the big banks could be class action lawsuits for investors seeking damages, which has been recommended by the Hong Kong Law Reform Commission. Guiding sponsors The SFC’s two-part consultation paper, which is open for comment until July 6, not only requires IPO sponsors to tighten their due diligence of target companies, but also holds the sponsors liable for the contents of listing prospectuses. The proposals, which look holistically at a sponsor’s role in the IPO process, mark one of the first major initiatives spearheaded by the SFC since its new chief executive officer, Ashley Alder, took charge in October 2011. “I believe the SFC is trying to indicate to sponsors what they should ideally be doing when they are guiding a company through the IPO process. A good due diligence process leads to confidence in the information that is provided to the market from the IPO,” says Jill Wong, a counsel at King & Wood Mallesons in Hong Kong. Regulators stand as the only enforcement mechanism for faulty IPOs since there is at present no meaningful civil litigation in Hong Kong, say lawyers. “As a result, the SFC wants sponsors to act as gatekeepers to make sure listing applicants are doing the right thing,” states Steven Winegar, a Hong Kong-based partner at Paul Hastings.

Equity Capital Markets

ASIAN LEGAL BUSINESS july 2012

“Indeed, there will be a niche created where the up-and-coming banks will try and find their way into the market by taking on more risky roles. This is very natural in terms of business development. By moving in this direction of tighter regulation on sponsors, there will definitely be an opportunity for them.” Jeckle Chiu, Mayer Brown JSM

Wong agrees: “One important thing that comes out of the proposals is that the sponsors are ultimately responsible for due diligence. The SFC recognises that although many other professionals have input, sponsors should not blindly rely – reasonable reliance is acceptable – on them.” For their part, sponsors believe they are already shouldering more responsibility. Many of the companies listing in Hong Kong are from mainland China, and regulators find it difficult to take action against such companies when a faulty offering is uncovered. A series of scandals The SFC is determined to see new regulations enacted. Fierce opposition from financial institutions had shot down similar proposals in 2005. But a lot has happened since then. The Hong Kong IPO market, which raised $97.9 billion between 2009 and 2011, was the world’s largest for two of the last three years, according to Reuters. Despite these mammoth numbers, the city’s stock exchange in recent years has been rocked by scandals surrounding companies that went public, only to be scrutinised for fraud soon after their listing. An SFC inspection of 17 sponsors, conducted in March 2011, found a host of deficiencies in their IPO-related work, including inadequate due diligence and questionable disclosures in listing applications to the Hong Kong Stock Exchange. In the infamous case of Hontex International Holdings, a Chinese textiles manufacturer, Mega Capital (Asia) lost its licence and was slapped with a fine of HK$42 million ($5.4 million). The SFC cited Mega Capital’s sub-standard due diligence work and failure to act independently and impartially as the motivator. According to Reuters, Chien Hung-Wen, chairman of Mega Capital’s parent company, Mega Securities, has said that the company would not appeal the regulator’s decision. Hontex had its shares suspended by the SFC just three months after it went public on the grounds that it had overstated its financial position. The commission has since frozen the $128 million that Hontex raised from its listing, and a court settlement reached on June 20 confirmed that investors will be able to get most of their money back. Under an agreement reached between the SFC and Hontex at the High Court, the textiles maker will repurchase shares held by minority stakeholders at HK$2.06 a share, the last price traded before the stock was suspended. Market segmentation The SFC’s proposals have sparked fierce opposition from the wellestablished investment banks, which are likely to lobby aggressively, in particular against prospectus liability, asserting that sophisticated fraud is near impossible to detect. However, many legal experts

believe that the banks will not be able to prevent tougher rules this time around. A strengthening of rules could cause some larger investment banks to pull back from the market, causing IPO sponsor work to trickle down to less experienced financial institutions. “Indeed, there will be a niche created where the up-and-coming banks will try and find their way into the market by taking on more risky roles,” says Jeckle Chiu, a partner at Mayer Brown JSM in Hong Kong. “This is very natural in terms of business development. By moving in this direction of tighter regulation on sponsors, there will definitely be an opportunity for them.” Even so, some lawyers feel that smaller players will have to reflect on their own due diligence practices if they want to become bigger. “Sponsors should be looking hard at their due diligence process, bring it up to scratch if they think there are inadequacies, and make sure they can meet the expectations of the SFC going forward. Those that do will continue to prosper,” says Wong of King & Wood Mallesons. Regardless of size, sponsors are likely to be more discriminating about the IPO work they take on, lawyers note, even though the Hong Kong market is currently sluggish. “Many sponsors are already selective as to who they work with, but I think you might see that caution increasing if the proposed amendments are effected,” says Matt Emsley, a partner at Herbert Smith. His colleague, Tim Mak, also a partner, opines that sponsors will have to consider their risk-reward framework very carefully: “This is where the rule changes come in. If sponsors risk facing additional regulatory and legal liability, particularly any potential criminal liability, that might well change the risk equation.” The risks are surely piling up. Besides the proposals, recent incidents this year have jolted sponsors. In March, accounting firm Deloitte resigned as the auditor of Daqing

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Dairy Holdings and Boshiwa International Holdings, two mainland Chinese companies. Both are now being investigated for possible financial irregularities. These are not isolated cases. There are others, including Ausnutria Dairy and Ports Design Ltd, who had their shares suspended after they missed deadlines for annual report filing because their auditors wanted more time. Weighing the costs With greater risks may come greater rewards — but at a cost. The heightened level of due diligence required of IPO sponsors may make deals more expensive, which will cut profit margins and potentially drive some banks out of the IPO market. It may also lead to some law firms being squeezed out. “It will introduce costs because the banks will have to put in place more intense procedures, and a lot of that will fall on the lawyers to help implement. Certainly, the cost of providing those services is going up, but whether fees go up as a result is a different story,” says a Hong Kong-based lawyer, who asked to remain anonymous. He adds that the SFC’s measures will hopefully introduce more responsibility, and lead to more experienced people working on the deals. Several of the SFC’s proposals can be found in regulations in other jurisdictions. For example, the requirement to publish early drafts of prospectuses, as well as the liability of sponsors and underwriters are already present in the U.S. However, lawyers agree that the consultation paper explores features that are unique to Hong Kong. “Hong Kong regulators will usually consider what regulators are doing overseas. But regulators elsewhere will probably also be looking at Hong Kong quite closely to see how things develop here, because of the particular characteristics of the Hong Kong market,” says Emsley of Herbert Smith. Class action? Meanwhile, just two weeks after the SFC disseminated its consultation paper, Hong Kong’s banking and financial institutions had another reason to worry. The territory’s Law Reform Commission recommended legisla-

Equity Capital Markets

tion to allow class action lawsuits to help investors seek damages as a single representative. The proposed system would only apply to consumer fraud and product liability cases, but not investments such as securities. “Right now, the incentive for an investor to sue is low. The amount you spend on litigation could easily outstrip any loss you have on your investment,” says Winegar of Paul Hastings. But the introduction of class action could possibly see Hong Kong’s financial houses face a rise in lawsuits, as ordinary retail investors band together with renewed impetus. Banks will have some time to prepare,

A monitor shows a welcoming message for Facebook’s listing on the NASDAQ Marketsite prior to the opening bell in New York. REUTERS/Keith Bedford

however, as lawyers agree that such action may take several years to implement. “I think it would be a seismic event in the market, and for that reason, a class action regime will take years to work through the system. There are no assurances that this will get done,” says Winegar. The SFC’s proposals however, are tipped to see the light of day soon. IPO sponsors will need to carefully monitor their risk profiles and brace themselves for more stringent due diligence procedures and increased scrutiny from regulators. “The SFC is serious about wanting to improve quality and to change behaviour. They said the proposals were influenced by deficiencies they have seen in sponsor work in recent years; now is as good a time as any to do it,” says Wong. Mak agrees: “There is no doubt the regulators mean business, and there is a strong will to tighten regulation. I think the devil is going to be in the detail.”

Equity Capital Markets

ASIAN LEGAL BUSINESS july 2012

Hong Kong IPO Pipeline - June 25 Debut date

Company

Shares (Mln)

Price (HK$/Share)

Managers

Proceeds (US$ Mln)

June 28

Huadian Fuxin Energy Corp

1,500

1.65

BAML, Citic Securities, UBS

319

June 29

China Nonferrous Metal Mining (Group) Co Ltd

870

2.10 – 2.80

ABC Int’l, CICC, JP Morgan, UBS

313

July 6

China Aluminum International Engineering Corp. Ltd (Chalieco)

363

3.93 - 4.73

CICC, Guangfa Securities

200

July/Aug

China Everbright Bank

4,000

N.A.

BNP Paribas, BOC Int’l, CICC, Everbright Securities, HSBC, JP Morgan, Morgan Stanley, Shenyin Wanguo, UBS

2,500

2012 Q2

Sany Heavy Industry Co

N.A.

BAML, Citigroup, Citic Securities, ICBC Int’l, Morgan Stanley

2,000

2012 H1

China National Biotec Group (CNB)

N.A.

CICC, Morgan Stanley, UBS

1,315 - 1,578

2012 Q3

China Railway Materials Co Ltd (HK & Shanghai dual listing)

N.A.

CICC, Citic Securities, 1,000 - 1,500 Citibank, Credit Suisse, HSBC, UBS

2012 Q3

Hong Kong Airlines

N.A.

644.7

2012 H2

En+ Group (parent of UC Rusal)

N.A.

2012

Shanghai Fosun Pharmaceutical

476

N.A.

CICC, Deutsche Bank, JP Morgan, UBS

700 - 800

2012

Guangfa Bank

N.A.

BAML, Citigroup, Deutsche Bank, Goldman Sachs

5,500

2012

Graff Diamonds (Pulled)

N.A.

Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley

1,000

2012

People’s Insurance Company of China Group

N.A.

CICC, Credit Suisse, HSBC

6,000

2012

China Shouguang Agricultural Product Logistic Park

N.A.

BOC Int’l, JPMorgan, UBS

800 - 1,000

2012

COFCO’s property business unit

N.A.

N.A.v

N.A.

Equity Capital Markets

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Hong Kong IPO Pipeline - June 25 Debut date

Company

Shares (Mln)

Price (HK$/Share)

Managers

Proceeds (US$ Mln)

2012

Jianhua Concrete Pile Group

N.A.

Citic Securities, Deutsche Bank, Morgan Stanley

500 - 600

2012

Sunshine 100 Real Estate Group

N.A.

Morgan Stanley, UBS

1,000

2012

EuroSibEnergo (Postponed)

N.A.

BAML, Credit Suisse, RBS, RenCap, Sberbank

1,100 - 1,500

2012/2013

Lukoil

N.A.

1,000

2012/2014

Taikang Life Insurance

N.A.

1,000

2013 Q1

ErdenesTavan Tolgoi coal mine

N.A.

BNP Paribas, Deutsche Bank, Goldman Sachs, Macquarie

3,000

2014/2016

Legend Holdings (parent of Lenovo Group)

N.A.

Zhengzhou Coal Mining Machinery N.A. Group Co Ltd

N.A.

Deutsche Bank, JP Morgan, UBS

1,000

N.A.

Centrobuv

N.A.

Morgan Stanley, BOCI, Renaissance Capital, VTB Capital

800

N.A.

Bluestar Adisseo Nutrition Group (Postponed)

N.A.

BOC Int'l, CCB Int'l, Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley

1,500

N.A.

XCMG Construction Machinery Co Ltd (Postponed)

516

N.A.

BNP Paribas, CICC, Credit Suisse, HSBC, Macquarie, Morgan Stanley

1,200

N.A.

China Xintiandi Co Ltd

N.A.

Altain Khuder

N.A.

BAML

300

N.A.

Inner Mongolia Yitai Coal Co Ltd

N.A.

BNP Paribas, BOC Intâ&#x20AC;&#x2122;l, CICC, UBS

800 - 1,000

The following are some of the major companies planning initial public offerings on the Hong Kong stock exchange. ^ Information based on local media reports (Source: Reuters)

Macau report

ASIAN LEGAL BUSINESS july 2012

Beyond the gaming The gaming industry may be the core driver of Macauâ&#x20AC;&#x2122;s economy, but there is a lot more happening in the territory apart from the casinos. Construction extends to landmark infrastructure projects, public housing, and various residential and commercial developments. However, the continued boom times are exacerbating a problem that has been plaguing the former Portuguese colony for several years now: a severe labour shortage. Candice Mak explores the other aspects of Macau.

REUTERS/Paul Yeung

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hink Macau; think the hottest gaming spot this side of the Pacific – and the most profitable one in the world. Flush with massive money from the mainland and an unparalleled expansion trajectory, the tiny former Portuguese colony off China’s southern coast is bursting with opportunities. Despite reports of a growth slowdown in May, there are absolutely no signs of anything remotely slowing down. Casino kingpins continue to trip over each other, vying to construct their next projects on the Cotai strip, the newest, flashiest stretch of the gaming capital. Joining the Venetian, the City of Dreams and the Galaxy, resort company Las Vegas Sands opened its new $4.4 billion casino on the strip in April this year. Luxury resort Wynn Macau, meanwhile, received approval from the government to develop a 51-acre resort in May, with casino operators MGM and SJM Holdings still awaiting their green lights to build their Cotai casinos. While the gaming industry is the main driver and focus of Macau’s economy, there is much more happening behind the glittering scenes of the casinos. For instance, the government has spurred on infrastructure construction and development to facilitate transportation for locals and the millions of tourists it welcomes each year to support the region’s ambitions. According to data from the Macau Government Tourist Office, there were nearly 2.34 million visitors in April, an increase of 6.3 percent from the year before. There were 28 million visitors in 2011, up 12.2 percent from 2010, with people from mainland China accounting for up to 25 million of all arrivals. Combine these figures with the local Macanese population of about 500,000, and the need for efficient, modern infrastructure is conspicuously evident. CONSTRUCTION Infrastructure Construction of the Delta Bridge – which will connect Hong Kong, Macau and Zhuhai - has been underway from the mainland China side since the end of 2009, and the complete project is expected to be completed in 2016. The Y-shaped bridge will be the longest cross sea bridge in the world at almost 50 kms in length, with 35 kms built over the sea. It will be a six-lane expressway and is estimated to cost more than $10 billion, a sum which will be shared by authorities on the mainland, Hong Kong, and Macau. Upon completion, travel time from Macau or Zhuhai to Hong Kong is expected to get reduced to half an hour compared to the current three hours. Macau-based lawyers tell ALB that from the Macau side, the project is proceeding smoothly and the reclamation area the bridge is due to land on will likely be completed ahead of schedule. Although there were delays last year in the bridge’s construction on the Hong Kong side due to a legal challenge that was brought on by an elderly Hong Kong resident regarding the structure’s environmental impact, the building of the bridge is officially slated to begin in the coming months. On June 6, French construction company Bouygues announced it had been awarded a EUR1.25 billion ($15.6 billion) contract to build the first section of the bridge in a joint venture with Chinese construction company China Harbour. The joint venture will build a 9.4 km section of the bridge from Lantau island in Hong Kong to the boundary of Hong Kong’s territorial waters. According to Bouygues, the deal is the largest ever design-build contract in Hong Kong. Within Macau, the most important project is that of the Light Rail Transit (LRT) system. At present, most tourists rely on taxis and hotel and casino shuttles to get around Macau. With more and more visitors

Macau report

expected each year to the area, a mass transit system is necessary to meet the crushing transportation demand. The LRT is destined to become Macau’s main mass transportation system, and reduce commuting time by 63 percent. An added bonus would be that the use of private vehicles would drop, leading to less greenhouse gas emissions and energy consumption. The foundation work for the first phase of the mass transit system finally began on Taipa island in February this year with the LRTS now aiming for a first phase launch by 2015. The project was first approved in 2007, and was initially expected to be operational by 2011. However, due to numerous delays, the launch date kept getting postponed. A Macau Daily Times (MDT) article from March 2012 said that the construction work for the initial LRT route in downtown Taipa should be ready by May

“Even if it’s not 20 or 30 percent, growth is still very good in Macau. Every year, analysts say the market will crash, and each year the growth statistics keep breaking all the records.” Bruno Nunes, BN Lawyers

2015. This route will be two kms long and will cover five stations. The MDT quoted Union Gaming Research analysts as saying that most casino customers have “an ingrained preference for rail travel, as well as a tolerance for longer journeys in exchange for saving money on transportation costs”. The Transportation Infrastructure Office (GIT) commissioned a study this year that found that the LRT system would boost Macau’s economy and raise the population’s GDP from MOP 15.8 billion ($1.98 billion) to MOP 16.4 billion ($2.05 billion) in its first decade of operation alone. Gonçalo Mendes da Maia, a partner at MdME Lawyers, confirms that civil work tenders for the LRT are underway, and that Japan’s Mitsubishi Heavy Industries is the rolling stock and system supplier. Tenders to build several interchange stations are slated

Macau report

ASIAN LEGAL BUSINESS july 2012

for launch later this year. Mendes da Maia says that one of the most important tenders that many overseas companies are waiting for is that of the operation and maintenance of the LRT, which various sources have hinted will occur in early 2013. Other projects that are ongoing or scheduled to start shortly include the airport’s expansion, a new ferry terminal in Taipa, and several water and waste treatment facilities. Macauhub.com.mo is a good source for investors or companies looking to participate in tenders occurring in Macau – of which there are new ones announced every week. “There are so many direct opportunities in the market open to any investor with the capabilities and qualifications to bid for a particular project,” says Mendes da Maia. Public housing Alongside the breakneck pace of casino and high-end real estate construction is another type of construction that is spiking ahead and reshaping Macau’s landscape: that of social housing. Largely ignored by foreign media, the scope and development of these public housing projects is a big deal for local residents, the government, and Greater China-based construction companies and developers. Public housing in Macau refers to two kinds: social and economic. Bruno Nunes, the founding partner of BN Lawyers, explains that “social housing is leased to people who cannot afford to buy homes and have very low incomes, while economic housing is sold at a slightly higher price by the government to residents who have more income”. The need for public housing has been spurred on by the locals’ discontent over rocketing property prices, out-of-reach rents, and inflation. According to the MDT, the government launched a public consultation in May this year on possible strategies for developing public housing. The consultation includes a recommendation for reserving newly-reclaimed lands for public houses that will be smaller to suit the needs of a declining number of family members and an aging population. The consultation additionally recommends the establishment of a public housing development fund to finance the construction, repair, and maintenance of public houses. The Macau Housing Bureau estimates that in the next five years, about 45,000 new public and private flats will become available and

that a new round of applications for economical houses might open next year, with social housing applications taking up to a maximum of four years to get processed. Nineteen thousand units are scheduled to be finished by the end of this year, and the Housing Bureau has said that it has secured land for 6,300 new units of which 3,850 flats are already in the planning stages of development. The construction of these 3,850 units will be tendered at the end of this year, and are expected to begin early next year. At the moment, part of the Ilha Verde zone public housing project is under construction. This is “Area Three”, which comprises 770 apartments and is scheduled to be completed by the end of this year. Areas One and Two will contain 2,356 apartments, and are close to being planned. The tenders for the constructions of these areas are likely to be launched in the third quarter of this year, according to MDT reports.

Macau report

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REUTERS/Bobby Yip

A 32-storey public housing building with 346 units called the Mong Ha Social House, which will be located along the Rua de Francisco Xavier Pereira, is expected to be completed by the fall of this year. Unlike in China, where affordable housing construction is shunned by private construction companies and developers due to low profit margins, the tenders for the construction of public housing in Macau are highly competitive. The projects are fully financed by the government – which always has a budget surplus – and are often lucrative for players involved in their construction. “It can be very profitable because the government pays for all the variations, all the changes, and all the extra costs that are required to complete these projects in a timely fashion,” says Carlos Duques Simoes, a partner at DSL Lawyers. “I suspect the contractors handling these projects are making very good money as the government does not have a very tight budget. What is important to the government is completing the housing on time.” Nunes agrees that not only can construction companies benefit money-wise, but also that the public housing tenders create opportunities for local and smaller players. “The big companies are all involved in either one of the big public tenders, so they are very busy. This opens up possibilities for small- and medium-sized construction companies to work on these projects, and it is profitable for them.” Mendes da Maia, however, is slightly more skeptical about profitability and feels that doing this type of work cannot compare to private proj-

Main Practice Areas

DSL Lawyers is a law firm established in Macau that provides highly qualified legal services in an extensive range of areas to local and international corporations. Its core practice areas are Corporate Law, Property, Construction and Infrastructure Projects, IP & TMT, Banking & Finance, Litigation and Dispute Resolution, covering also Employment, Tax and Employment. DSL has a team of experienced partners, associate lawyers and multi-lingual staff with a wide range of experience in the region, international qualifications and industry knowledge. Its Client base is diverse across many industries and worldwide geographic areas.

Property One of DSL’s core areas, its practice and experience extending to different types of Clients, covering individuals, corporations, institutional banks and private equity funds. To all sorts of concerns DSL provides sound legal advice and leads timely completion of transactions. DSL assists on residential, commercial and office acquisitions including property due diligences, construction issues, drafting and review of sale and purchase agreements, leases, addressing and liaising with related Government departments and assisting on the financing. Construction DSL provides advice on construction contracts and all other legal aspects of construction projects. DSL advises developers, owners, contractors and subcontractors in major construction projects, from conception to completion.

The firm provides expert guidance on risk management and dispute avoidance. But its comprehensive experience in judicial and arbitration disputes enables it to deliver the best support for Client if a dispute does arise. Infrastructure Projects DSL has extensive experience in assisting various clients in major infrastructure projects, such as the light rail project, wastewater treatment plants, and incineration plants, among others. The infrastructure practice includes services from the bidding stage to completions, such as tender preparation and strategy, advice on consortium and joint ventures arrangements, post adjudication contracting and subcontractting arrangements, drafting of project documentation and arbitration, mediation, dispute and claims resolution. -----------------------------OFFICE: Av. da Praia Grande 409, China Law Building 16/F, Macau Tel: +853 2822 3355 / Fax: +853 2872 5588 Email: mail@dsl-lawyers.com Web: http://www.dsl-lawyers.com

Macau report

ASIAN LEGAL BUSINESS july 2012

“There are so many direct opportunities in the market open to any investor with the capabilities and qualifications to bid for a particular project.” Gonçalo Mendes da Maia, MdME Lawyers

ect construction or casino building. Despite this, he agrees to the fact that he works with clients who have won public housing tenders and confirms that it is extremely competitive. “On construction works, we are talking about 18 to 20 companies bidding per tender and very close pricing,” he says. Real estate In particular, all the lawyers ALB spoke to mentioned that the real estate sector was currently very hot, and that it was so in a good way. For instance, there are land parcels up for auction at the moment, and all around the region, commercial and residential building sales are moving with various projects being built. Mendes da Maia points out that there are opportunities for mid market retailers and for shopping mall developers that cater to mid class or high mid class brands. “Here, we see only luxury malls or low-end street shops; there is not much retail in between,” says Mendes da Maia. He additionally notes there is a gap in the hospitality market, as everything is luxury five stars or on the low end of three, four stars. “There are opportunities for mid-level retail, hospitality and there is a huge need for grade A office buildings,” he says. EMPLOYMENT A crucial concern for Macau that is directly impacting all industries, including its $34 billion gaming industry, is that of labour shortage because it keeps getting worse. The

unemployment rate is hovering around 2.6 percent, which indicates nearly full employment for those wanting to be employed, and there is no indication from the government that it will relax its tough labour importation rules. Although the gaming industry has only mildly been affected, other sectors have not been so lucky. Small- and mediumsized businesses are struggling the most, owing to competition with the casinos for labour resources. Casinos are cash-rich, and offer their employees wages other businesses cannot compete with. Fung Kwan, the head of the economics department at the University of Macau, told the MDT in May that: “Labour shortage has been an ongoing problem for Macau. The recent casino developments have exacerbated the problem, and we’ve seen the casinos nabbing labour from other sectors. Labour costs for the whole of Macau are rising.” Macau-based managing director of the Union Gaming Group, Grant Govertsen, supports Kwan’s assertions in the MDT: “The shortage of labour will be exacerbated when the new resorts come online, particularly with respect to positions that can only be filled by Macau residents. This will put further upward pressure on wages.” According to Nunes, current labour laws dictate that the ratio of local to non-local workers should be one to one. Previously, it used to be two locals for every overseas worker. All the lawyers ALB spoke to expressed frustration with the importation and application guidelines for overseas employees. “It’s impossible to find enough people. You submit an application for 1000 non-locals because you have 1000

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Macau report

REUTERS/Bobby Yip

locals, but then the government simply approves 300 or 500 and you do not understand why,” says Nunes. “It does not seem to be uniform criteria or it does not make sense.” Simoes says: “The government is managing the approvals process on a case by case basis, project by project and often, by profession, which is why there are so many problems and complaints.” For anyone imported to Macau, advance approval must be given based on his or her function – and the function cannot change. For example, if someone has been authorised to serve a gaming table, he or she cannot be moved to assume kitchen duties at some point. “Investors don’t want to go through this timeconsuming process, they just want to have the ability to bring over several thousand workers and decide for themselves where to employ them and when,” says Simoes. “The government is not flexible to the point it will allow this to happen.” He notes that even if a few thousand workers are approved for a certain project, the approvals will take six to nine months in all likelihood, and one by one, each worker will be scrutinised to ensure they are not breaking local laws or encroaching on local professions that need to be protected. “This is the struggle. The government has these procedures which are outdated, but it doesn’t want to relinquish full oversight because this is the way it maintains control over the employment market and satisfies locals.” Frustration with application approvals stems from the opaque decision-making process of government officials. The guidelines for applying are straightforward enough, but the results are subjectively based on the whims of the approving official. “The labour approvals are somewhat discretionary,” says Mendes da Maia. “If you apply, it

will go to a department head who basically makes the decision and there are some who are more flexible and others who are less so. It’s difficult for companies to plan their investments when there seems to be no established human resources policy among the authorities.” Nunes agrees: “You cannot understand the criteria; it keeps changing. You can have two identical clients with the same application applying, and one will get approved but the other gets rejected. You can’t work with that type of subjectivity.” Partner Julia Brockman of DSL Lawyers says that “in practice, the government has internally set ratios for certain sectors, and decides approvals on a case-by-case basis.” Three months before the Venetian opened up in 2007, it lacked more than 5,000 workers. The government realised it needed to issue a lot of last minute work permits, and jumped into action. In 2006, when “everyone was allowed to build” – Wynn and SJM were developing projects in Macau, and the Venetian and the Galaxy were under construction in Cotai – everything collapsed, says Nunes. However,

Macau report

now the government has changed its policy of granting approvals to projects to accommodate the labour issue. “Now they are approving one by one, “he says.“ For example, since the Galaxy finished construction last year, now they have granted approval to Wynn to build in Cotai. Wynn will begin construction in June, and the government will take its time to analyse everything before approving the next project, which is likely the MGM project in Cotai, then SJM’s project in Cotai. It will not allow for several concessionaires to build full scale and open at the same time in Macau. That is the new method. It has learnt how to cope with it.” Nunes is optimistic that the government will have no choice in the future but to grant more importation approvals. However, he says that employers will likely “have to submit

ASIAN LEGAL BUSINESS july 2012

to even stricter conditions” from the government. “One scenario it (government) could package the approvals is to allow the employment of foreign workers for a specific role, but then stipulate that they must train locals,” says Nunes. What about enforcement though? That, says Nunes, is a key point. The government has fallen victim to labour shortages as well, so the likelihood of it having enough resources to enforce conditions is very low. Another issue affecting employment in Macau is its “loose and relaxed” labour regime that allows a local worker to leave any company, without liability, within two weeks. “With the current labour laws, employees are basically free to jump from company to company without any adverse consequences. This creates an enormous instability in the market,” says Mendes da Maia. At the end of last year, it was reported in the local media that numerous amendments would be made to the current imported labour law due for an update sometime this year. The timeline for the new legislation and its implementation were not made clear. Employers’ and workers’ representatives met on Dec. 30, 2012 in a closed door meeting of the standing committee for the coordination of social affairs. One of the major changes expected is

Macau report

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REUTERS/Stringer .

that non-local workers would be free to find a new job in another sector immediately after their contracts expire without needing to leave Macau for six months – as the current law dictates. Both parties also decided that if the employer terminates the contract with just case, then the worker would have to leave Macau for six months, and only after that could he or she be granted a new work permit. The same would occur if the worker ends the contract without just cause. The current law, which was enacted in 2009, states that if a worker is fired by an employer, he or she could look for a new job without needing to leave Macau and with no legal constraints. The issue was raised by a number of employers in various sectors that some employees were purposely trying to be terminated, without just cause, in order to gain compensation, and be free to look for a new job without facing the six-month ban. STEADY GROWTH Media reports and analysts have been relentlessly pessimistic about Macau’s growth figures. Despite a dip in numbers however, the lawyers ALB interviewed are much more confident about the growth they see

on their doorsteps. “Even if it’s not 20 or 30 percent, growth is still very good in Macau,” affirms Nunes. “Every year, analysts say the market will crash, and each year the growth statistics keep breaking all the records.” Reuters reported on June 1 that with China’s economic expansion slowing down and high rollers from the mainland becoming more cautious, Macau saw a 7.3 percent growth in its May gambling revenue - the slowest expansion rate recorded since July 2009. A total revenue of 26.08 billion patacas recorded for May is the second-highest for a single month, but a far cry from the 70 to 90 percent monthly growth rates seen in 2010, or even the 22 percent growth in April. “To assume that Macau gaming revenues will continue to grow at a double-digit pace, is to assume that the epic pace of property appreciation in China continues,” said Mike Turner, an analyst at Washington-based brokerage Compass Point to Reuters. Other analysts, however, remain upbeat on Macau’s future, citing a deeply unpenetrated market that will see further infrastructure development. Analysts have been expecting growth to ease since last year, and said May’s figure was within expectations. Most remain confident that a financial collapse for the tiny territory is not on the cards. Revenue is likely to remain steady due to rising demand from China’s expanding middle class and critical infrastructure developments. Gabriel Chan, an analyst at Credit Suisse in Hong Kong, said May marked the start of a tough yearon-year comparison due to the opening of Galaxy Entertainment’s new casino on the Cotai strip in 2011. “It is not the time to get in yet; we need to wait for better entry points. I think that will happen likely in August,” said Chan. He is not yet revising down a forecast of the 24.6 percent annual gambling revenue growth due to stronger than expected growth in the mass market segment. “I was always a bit reluctant to accept this unrestricted optimism in Macau that everything will grow indefinitely. But the truth is that everywhere you look, there are new opportunities,” says Mendes da Maia. “Real estate developments everywhere in the city, the Cotai developments, the reclaimed land projects, the light rail…I just don’t see one single sign that it’s going to slow down. Prices are going up, everything is getting more expensive, and still new foreign investors are flooding the market. Money is pouring in every day from everywhere; nothing is slowing down.”

Macau report

ASIAN LEGAL BUSINESS july 2012

REUTERS/Bobby Yip

The La Scala dilemma

n May 25, Reuters reported that Joseph Lau, the chairman of Hong Kong-based developer Chinese Estates, would face prosecution over bribery and money laundering charges in Macau. The prosecutor in Macau has alleged in court that Lau and another high-profile tycoon, Steven Lo, chairman of the South China Football Club and movie-and-music entertainment group BMA Investment, offered a HK$20 million ($2.6 million) bribe to a former Macau government official. The prosecutor alleged they did so to assure the purchase of five plots of land next to the Macau International Airport and near the Cotai Strip. Lau, who owns 75 percent of Chinese Estates, is currently awaiting trial in Macau along with Lo. The former official alleged to have been bribed, Ao Man-long, was Macau’s secre-

tary for transport and public works and the most senior government figure ever arrested by Macau’s anti-graft agency. He is already serving 28 and a half years in jail for accepting bribes to speed the approval of projects. The claims that Lau paid a bribe surfaced in a new trial, with Ao facing six fresh charges of bribery and three of money laundering. Lau has denied any wrongdoing. He was called as a witness in Ao’s new trial but did not appear, while Lo testified that he did not pay a bribe. Prosecutors say they found a cheque for HK$20 million that Lau signed with his brother, Thomas Lau. Chinese Estates is building a multitower luxury development on the site, naming it La Scala after the Milan opera house. Lo sold the company Full Moon, which owns the 78,000 square metres of land, to Chinese Estates. Property brokerage Jones

Lang LaSalle, which put in the winning bid for Full Moon, told Reuters it was assisting with the investigation. On June 12, the Macau government said it had initiated procedures to review the sale of the land plot that was sold to China Estates to build La Scala. The government had warned on June 4 that it could declare the sale of five plots of land to Chinese Estates invalid, after a court ruled that the transfer of the land next to the Macau International Airport involved illegal activity. Chinese Estates said in a filing to the Hong Kong Stock Exchange late on June 4 that it would have 30 days to appeal against any such decision. The company said it has presold 304 apartments at La Scala, generating sales of HK$3.8 billion ($490 million), and deposits of HK$384 million.

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Macau report

Point of view What should the Macau What are the possible government’s next damages to investors steps be? who have bought La Scala flats through presale already? Julia Brockman, DSL Lawyers: I think it would be a very good decision of the government to halt the whole thing. It’s fair the government doesn’t want to reverse the whole situation and take the land plots back before the courts decide that there was corruption in the land grants. It’s reasonable because if it did so, it would get into more trouble.

Carlos duque Simoes, DSL Lawyers: The government should be more assertive because La Scala is still in the early stages of construction. There could be implications to what is being constructed as a consequence of these corruption charges. So, the government should take action at once instead of letting the matter sit still, and then by the time it decides to do something, it will be much more complicated and affect the interests of many other private parties. The government has to do what it has done in other circumstances, namely it has to react quickly and take clear and assertive measures now. It should stop the construction and unit sales of La Scala. In reality, if the government already knows or if it’s already public that there is clear evidence of corruption, at least it should suspend sales. I don’t think it should move now in terms of reversing the leasehold or cancelling the leasehold. But because there is a possibility that it may take more than a few months for the matter to be resolved, the government should not let more individual buyers get involved in the problem. It should notify China Estates to stop the sales of plans, and leave it on hold until the matter is decided in court. This will be a much more reasonable measure.

Carlos duque Simoes, DSL Lawyers: I don’t think there’s going to be much harm to buyers because if anything happens to the leasehold, they have a statutory provision that protects them in cases like this. They are most likely entitled to what is called “double compensation” that is to be refunded on the down payment. This is the equivalent amount as a penalty from the developer. China Estates is a very large listed company, so in all likelihood, it will face its liabilities in Macau.

Carlos Duque Simoes, DSL Lawyers

Julia Brockman, DSL Lawyers

Managing partner interview

ASIAN LEGAL BUSINESS july 2012

ONEOF A KIND

Stuart Fuller

When Australian market leader Mallesons Stephen Jaques and Chinese powerhouse King & Wood officially merged on March 1, the new combined firm became a game changer. With 21 offices and 390 partners worldwide, King & Wood Mallesons is the first and only firm with its international network headquartered in Asia, a true “combination of equals” offering Australian, UK, Hong Kong and PRC law advice. Global managing partner Stuart Fuller and China managing partner Wang Ling sat down with Candice Mak to discuss the integration of the firms’ cultures, why the King & Wood Mallesons model cannot be replicated, which elements are crucial for success, and the challenges they tackle as leaders.

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Managing partner interview

Wang Ling

ALB: What is unique about the King & Wood Mallesons offering in the market? SF: King & Wood Mallesons is the first of its type, combining a Chinese and Western law firm. The true difference with us is that we are the only law firm that can practise Hong Kong law, English law, Australian law and PRC law. In essence, that is the key differentiation. It is also about our footprint in those markets. One of the key challenges for any business with the rise of China and with the shift in economic power is that you really need to know the markets you are operating in to do well. We know the market better than anyone else. We get China. We can best advise on China, help people navigate the complex environment, and that is a very unique thing in one coordinated brand. WL: If we look at the whole legal market and the combination based on the Asia-Pacific area, we are unique. I think what we have accomplished reflects the developments in

this market and our clients’ ambitions. ALB: How would you describe the King & Wood Mallesons culture? SF: It is all about being the best you can be, a culture of excellence and quality, and a culture of client-focus. We do better work for clients, help clients in their business, and we have a very strong focus on our people. How do we train and develop them, how do we bring our partners with us on this journey, and how can we constantly influence everybody in the firm. (And) we do have a lot of fun as the partners genuinely get along. ALB: What was the genesis of the firm? SF: We first met in November 2010. We did not know each other all that well; we did not have a long track record of referring work to each other or acting as co-counsel. But we had connections at the top. We had a meeting in Beijing – I remember that it was an extremely cold day! Within an hour, it was very clear that we had a common vision about where we wanted to take the respective firms. We were Australia’s leading firm and China’s leading firm, but we had greater aspirations for clients and our people to create a new firm that would be a genuine combination of equals, which is a strong driver for the King & Wood Mallesons combination. It is a combination of equals, and people got on board.

Managing partner interview

ASIAN LEGAL BUSINESS july 2012

“It is all about being the best you can be, a culture of excellence and quality, and a culture of client-focus. We do better work for clients, help clients in their business, and we have a very strong focus on our people.” stuart fuller, King & Wood Mallesons

WL: We had a very good feeling after meeting with Mallesons, and we wanted to continue the discussions in more detail. The result of those discussions came true, so that is very exciting. SF: These discussions took place over a year. In addition to doing the deal, we spent a significant amount of time talking to the partners about why this would work. We wanted to get very strong support from them. In the end, more than 95 percent of partners voted in favour of the deal. That was a very clear affirmation that it was the right choice, and that we were the right firms combining at the right time – some have even called it audacious! ALB: How do you define the firm’s strategies that you have set during your tenures? SF: In the short term, integration. We have started in Hong Kong where we have fully merged our respective firms to create King & Wood Mallesons. It is now the 4th largest firm in Hong Kong with close to 350 people. Common management is key. The management team speaks regularly on issues across the whole firm. We have a very clear plan about integration for the practice teams, clients, people and systems. That really focuses on strengthening the core of the network over the longer term. We will be focused on broadening our capabilities. We will also do this on the basis of what best suits the clients and our people over time. ALB: What were some of the post-integration merger issues you have had to address? WL: We put a lot of effort into looking closely at the business opportunities that existed as a result of the combination. On the practice side, it is quite exciting. The lawyers on both sides have been working together, managing transactions, or doing joint pitches. The combined team ultimately provides stronger and higher quality services to our clients. For operations, systems, IT, business development

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and marketing, at each level, we are moving forward swiftly with integration. SF: For the firmwide things that we needed to do for March 1, we hit the targets perfectly: The launch of the brand, the client launch campaign across the network and the brand campaign, particularly in Australia, and the international advertising campaign. We were very focused on launching the brand in a very fresh and different way, reflecting the fact that our combination was the first of its type, and we wanted to make sure we had market impact. We have a client business development stream which is very strong, and part of our challenge has been controlling and harnessing the energy of our partners and lawyers to work together, which is a perfect problem for managing partners to have. The desire of partners to look for business opportunities and to go and get more work, particularly work we would not have seen had we stayed separate firms, is a real test of the success of our combination. We had to deal with a lot of internal stuff, so conflicts and alignments, pricing, and retainer terms, all of which we put into place by March 1. We are constantly looking at those to make them more efficient and effective. In Hong Kong, we have a new IT system, new phone system, and we are meshing partners together into a new single profit pool. That was a huge effort. There are some inevitable teething issues around that, mostly around IT, and we have put a lot of effort into getting it right. These are very personal issues because everyone relies so heavily on IT these days. We have recently physically integrated the practice teams, so that the corporate, banking and litigation groups in Hong Kong are sitting together. It is a very tangible sign of integrating people, and in hindsight, I am very glad we did not try to do this for March 1. The initial plan was to launch the firm and physically integrate by March 1. But putting a couple of months between it to let all the pieces settle down was absolutely the right call. We will be doing more of this over the next 18 to 24 months, as we continue to integrate a lot of back office functions. ALB: The King & Wood Mallesons combination is the first of its kind. Do you foresee more tie-ups of a similar nature happening in the future between competitors? WL: What is notable about our case is that both firms were the top in their jurisdictions. If we look at other Chinese firms, some have

Managing partner interview

also set up alliances or partnerships using different structures or opened up offices in other countries. It seems that a number of Chinese firms are exploring what the best way is for them to develop their business. The combination between King & Wood Mallesons received a lot of attention from the market and colleagues in the market. They are quite interested in knowing how the Verein structure, which we use, works. I think we are the first Chinese firm to use the Verein structure. I think the other Chinese firms are quite interested to see if maybe this could be a model they could use, or at least something to look at, or at least pay more attention to. SF: For many of our competitors, if you want to be a leading global law firm, you must have exposure to the largest economy on the globe. So the challenge for the industry, whether a law firm or a business, is how to get that exposure and how to service your clients in that market Chinese clients wanting to do work in the China market, Chinese clients wanting to invest outward, which looks to be a significant business activity over the next 10 to 20 years, and international companies going into China. If you want to be a significant global player, you need to have a significant presence in what will be the worldâ&#x20AC;&#x2122;s largest economy, and you have to do that at the top tier. We have done that. On one level, the King & Wood Mallesons combination cannot be copied because each is the leading firm in each jurisdiction. Our competitors may follow over time, but they will not be at that brand or quality point. ALB: How is the Verein structure crucial to your success? WL: I think the basis for the combination structure was when during discussions, we realised that the structures of both firms were quite similar. Both firms had quite similar strategic goals, cultures, values and visions. On the King & Wood side, we had a modified lockstep system, but our structures were quite similar. So there was quite a solid basis to set up this structure. Most Chinese firms do not have this structure. SF: Vereins should be better understood than they are, because there are a number of accounting firms and global law firms that use it, so it is not an unknown structure. One of the reasons we chose it was that we believe it is the structure of the future. It gives you the benefits of a common approach to brand, management, clients and people development. Then you overlay on that common approach a degree of flexibility, where you can run the firm and have sufficient regard for the different markets, the economics of markets, and the volatility of markets and exchange rates. Also how you can be flexible about bringing in new members into the Verein as you want to expand your footprint. The Verein gives you much more flexibility than a single profit pool, one lockstep model. Plus, and I think this is becoming apparent to some other firms, there is an inherent limitation on how big a firm can get when it is a single profit pool, single lockstep, because markets perform differently, exchange rates fluctuate, pricing is different, productivity is different, and trying to put that into one uniform model across x number of countries is a hard task. It is a fulltime management job in itself. We can create all the benefits from a client and people perspective with a structure that gives you more flexibility, which is what the Verein gives. ALB: What are the key challenges of running a firm like King & Wood Mallesons? SF: We have a very focused business development plan as a combined

Managing partner interview firm around the areas where we think we can add better value to our clients than our competitors. In the first six weeks, we let that evolve and there was what I ended up calling “creative chaos”. We had so much connection between the partners in that period about client opportunities, joint pitches, etc. We started to work on five to six matters in that period of time, and we have now closed five of those. We have done over 50 pitches together as a combined firm in either China or Australia or Hong Kong, all in just 80 days. So part of our challenge was actually controlling the energy of the partners to get on a plane, see each other, and pitch to clients. It is a good problem to have. The thing we are both adjusting to is running a firm that is now over 21 offices and with three languages, Mandarin, Cantonese and English, and making sure that however we do things, it works across the whole network. How we communicate, how we manage, and how we make decisions. WL: The challenges are the firm locations if we are looking at the market, the target clients, and also that the backgrounds of the firms are quite different. If we look at the Australian part, Mallesons is more than 180 years old, but King & Wood is still a young firm – though it has grown very stable and quickly. Also, if we look at the markets, Australia is a first world nation, while China is still an emerging market. If we look at our client bases, some Chinese clients have become very experienced and some lack experience. When we integrate together, we need to fill in those detailed issues. So one part of the integration is to consider the background of our specialties. We are not only concerned with the business of deals, but also in the operational management of the combined firm. SF: This is all just a question of scale, I suspect. Whether it is across three jurisdictions or 23, you have the same broad issues of aligning people with the systems. The true thing about us, or the different part about our combination, is that it is a combination of equals. It is not a takeover or merger. If you have a dominant firm taking over a less dominant firm, that is easier to run by just saying “do it my way”. However with us, the combination of equals is a strong part of the DNA. It is a matter of saying “let’s look at the way we want to do it together”. There is not one dominating the other or creating opposition, but rather we are both saying “we really want to do this”, which means that communication is key. Making decisions on a joint basis is

“Although we have so many different offices, you see the same structures of the same practice areas, and we are always sharing market observations and information. Even though partners are in different offices, they have been getting to know each other and are working together to provide support to one another.” Wang Ling, King & Wood Mallesons

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much more powerful, and you get a lot more engagement when people work out things together instead of just being told what to do. ALB: How do you ensure best practices are upheld across all offices? WL: Although we have so many different offices, you see the same structures of the same practice areas, and we are always sharing market observations and information. Even though partners are in different offices, they have been getting to know each other and are working together to provide support to one another. SF: We have an executive team of four and we speak and e-mail regularly. There is Wang Ling as China managing partner, Australia managing partner Tony O’Malley, myself as the global managing partner and Hong Kong chief, and Rupert Li, who is the China international managing partner. The four of us have a particular time every week where we get together and talk about broader points across the firm. The international management committee has eight core members, four from each legacy firm with several Hong Kong observers. It meets every two months and looks at the overall firm, how we are going along in our business plan, integration plan, strategy, and any policy issues. The committee’s function is to primarily set standards and policies in the firm. So that is one way of achieving consistency at that level. Also, markets are different and the aim is to be the best in the market. You want to have that in whatever you do, in whatever market, and be accommodating of that market. So having an absolutely vanilla product across every market does not recognise the local nuances. As long as you are the best in the market and the client experience is very similar, that is the thing to aim for. That is a challenge for global law firms. WL: On both sides, we had practice heads. So we now have co-heads of the practice on each side. They help to coordinate any matter(s) that involves the lawyers and partners. If an issue arises, they know how to quickly involve the right person at the right time. SF: We have started with the firms’ top 30 clients with co-relationship partners and common client teams. With these clients, we are saying “here’s our team, what’s driving your business? And how can we help you? Here’s a team that can do that across all the practice areas that would be relevant to the client”. Client feedback and client engagement is crucial. It does not matter what we

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say about how good we are; it is actually the voice of the client that is the key thing. The reaction from clients and the market was even more positive than I had personally hoped for. ALB: What ingredients are vital to the success of the firm over the next few years? SF: Clients and people. We are making sure that we are a very client-focused firm, which is what we are. To be honest, the King & Wood culture is incredibly client focused, so it is something out of the combination that we, Mallesons, will relearn. Mallesons is very client-focused as well. But being older and a dominant brand in the Australian market, we really want to edge up the client experience in the Australian market. But how we do execute our client strategy - the proof of concept? Are we getting more work from our existing clients and are we getting better deals from more clients? Deals we would not have won had we stayed as two separate firms? (And) then there is the people experience: how we are developing and training our people, giving them career opportunities, and improving their quality and their careers. ALB: What personally makes you believe in the success of King & Wood Mallesons?

Managing partner interview

SF: You have to be passionate and energetic about it as leaders of the firm, because you have to convey that you genuinely believe in what we have done, which I do. The combination of firms, the change in the global economic and political environment, the brand of the firm, the quality of the firm, and the clients and the market and the people connections - these are very strong across both firms. Being 81 days in, the signs are good because the people are gelling. We are dealing with each thing we need to deal with on a daily basis. We are talking regularly, and the client and market reaction is strong. Both firms are client driven firms, and if you get that reaction from the market, that incentivises the firm to continue on. It is our job to give partners and lawyers all the assistance they need, the platform they need to go into the market and get that work. WL: What I can add is that when you find the opportunity, you seize it for the firmâ&#x20AC;&#x2122;s development. When you have a very good basis, like from the management to the people to the structure of the firm, and you have no reason to cap the opportunities, then the opportunities can become true. Owning opportunities and taking them; that is really important to the next stage of the firm. When I look back on the development of King & Wood, many people have asked the same question: How did King & Wood build up so quickly? It developed quickly, not just in size or headcount, but I believe because people recognised the stable development and mature qualities of the firm, though it was still very young. I think one of the reasons for the growth in the past was that King & Wood tried to do something different from the other colleagues in the China market. We tried to catch the opportunities provided, or potentially provided, by the market or by the economic developments in the Chinese market. That is very important for the

Managing partner interview firm, and I think that is the main reason why we needed to do the combination. ALB: What have you learnt from the management style and the culture of the other’s firm? WL: There are many things we learnt from Mallesons. As a young firm, we were quite impressed by the efficiency of Mallesons’ management and its systems, each with a function that supported the firm’s development and created efficiency. The next stage for us on the King & Wood side is how we can adapt to the system. If we look at the legal practice, particularly in some sectors, Mallesons has a very good reputation and is highly recognised in the market in areas such as mining and energy. Knowing we can bring these into qualities into the combined firm is, I believe, really fantastic. SF: Mallesons is a very strong client focused firm, but the King & Wood client focus is incredibly strong with its depth of connection in the market. One thing I have realised from King & Wood, which is dominant in its market, is that it is the client connection and market connection that you have through your partners, being constantly in the market, and constantly focused on the clients - that makes a big difference. The singular focus is on what clients want, how do we get the deal, and how our connection to the market - through clients and people - mean we can provide better and broader service to clients. That is making a big difference with any client that we deal with. The other thing I have noticed is the communication style of the King & Wood lawyers. It is far more conversational. Mallesons, again, is 180 years old. We have very slick administrative services, and we probably do more by e-mail and by short, sharp communications. But the way, we do it in the Chinese firm; how I have seen Wang Ling and her partners do it is they have very significant conversations about decisions. So it is a group decision. That is the way you make a better decision, you talk it through, understand where each is coming from, and then move on. Now, as a whole firm, we are making sure we have conversations together so it is less of an e-mail culture. ALB: In the next five years, what do you predict the Asian legal market landscape will look like? WL: It will definitely be more competitive, and perhaps there will be more consolidation. In these next two years, we will likely see more and more Chinese firms trying to learn more from the experience of foreign firms and getting more involved in international matters. Also, I think one of the approaches for them would be to set up some type of relationship with the foreign firms. So I think that may result in more consolidation. On the other hand, it will not just be between Chinese firms and foreign firms. If we look at the other Asian firms, they might also be looking to set up relationships with Western firms. SF: It is a challenge because with the many countries in Asia, the laws vary from jurisdiction to jurisdiction. Any strategy for a law firm has to be a client-led strategy, not a firm-led strategy. So you have to do things that will allow you to do more for your clients, and where they are taking their business. The big challenge for law firms, whether in five or ten years is that, in the current structure, law firms are not set up to do that. They do not cover enough jurisdictions; they cannot offer same brand or same experience to clients over enough of the jurisdictions where the clients are doing business. Compare accounting firms to law firms, and they are very different models. The accounting firms have the benefit of international accounting standards, so there is some similarity. But they drive brand and consistency of service across more jurisdictions in which their clients operate. (And) that is a

**The Chinese translation of this story was prepared by Synmax Translation**

ASIAN LEGAL BUSINESS july 2012

challenge for many law firms with a client-led strategy: How do you help your client across more jurisdictions through one brand and organisation? That is where I think there will be an evolution - in the way firms approach their structures, headcount, and their footprints. The markets are moving very quickly and the rate of change of what is happening

“In these next two years, we will likely see more and more Chinese firms trying to learn more from the experience of foreign firms and getting more involved in international matters. Also, I think one of the approaches for them would be to set up some type of relationship with the foreign firms.” Wang Ling, King & Wood Mallesons

in the U.S., European and Asian markets is quite significant at the moment. ALB: Have your work and personal lives changed since the launch of the new firm? SF: I have moved! So the biggest change for me was that I was made the chief executive of Mallesons and then became the global managing partner of King & Wood Mallesons in Hong Kong, and I moved here from Australia. My family does not move until the end of the year, so I go back to Sydney every weekend to see the family if I am not elsewhere. The firm changed, my job changed, and my place of residence changed, but it is terrific. I am meeting people all the time, dealing with clients and new market opportunities, and putting the firms together. It has been great fun. WL: Compared to Stuart, I am lucky. My travel is not so frequent. We appreciate Stuart traveling so much, particularly in the first year and around the time of integration. For me, travel did increase compared with before, but I think dealing with it has been fine. On the other hand, the working focus, my work has transferred into looking after the integration matters of the combined firm.

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On May 19, 2012, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) conditionally cleared the acquisition of Motorola’s mobile business by Google (the “Transaction”). In doing so, MOFCOM imposed four conditions on Google: 1. continue to license Android in a free and open source manner; 2. treat all original equipment manufacturers (“OEMs”) in a non- discriminatory manner; 3. abide by Motorola’s existing fair, reasonable and non-discriminatory obligations with respect to patents; and 4. appoint an independent trustee to supervise the implementation of these conditions. Conditions 1, 2 and 4 apply for five years, however Google may request MOFCOM to amend or repeal conditions 1 and 2 upon any change in market conditions. In MOFCOM’s decision, the relevant markets were identified as (a) smart mobile devices and (b) their operating systems. With respect to the smart mobile device market, MOFCOM concluded that it is a highly decentralized market with intense competition both within China and globally. Motorola therefore does not gain any notable advantage in this arena, as Google is not a player. However, in the smart mobile device operation system market, Google is a de facto manipulator through Android, which occupies 73.99% market share in China. Given the high threshold to enter this market, Google is expected to maintain its dominant position in the foreseeable future.

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ASIAN LEGAL BUSINESS july 2012

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