The stakes are huge. "The volume of funds needed across the region for infrastructure development [estimated by the Asian Development Bank at $130bn up to the year 2000] combined with the eagerness of local issuers to access international capital markets, means the demand for legal advice on capital-raising under both US and English law is guaranteed to remain strong for years to come.
The US capital markets are the deepest in the world, and Asian initial public offerings generally include a US element - which means that all advisers in the region , both British and American, must be able to advise on Rule 144A offerings (private placements in the US). Without this capability, they risk losing the whole deal to an American competitor, or even to another British firm with on-board US legal capability. The sheer size of regional infrastructure projects also means that funding must be drawn from various sources (export credit agencies, multilateral lending agencies, institutional lenders and, many predict, capital markets) to meet the insatiable need for finance.
Investment bankers, not surprisingly, are keenest to talk up the prospect of using the capital markets to fund projects, although, for the moment, only a few projects have followed this route with any real success. Longer term, however, this will undoubtedly become a popular financing tool, as Barry Metzger, general counsel of the Asian Development Bank, says: "The bond and private placement markets have to date been used only modestly in infrastructure financings in the region. As institutional investors increase their appetite for longer-term Asian risk and as the domestic and regional capital markets within the Asia-Pacific region mature, greater use of capital market instructments to finance private infrastructure can be expected to develop."
This change places considerable pressure on law firms looking to develop plausible regional strategies. Not only will they have to invest heavily in establishing local profile (at the very least, staffing an office in Hong Kong for north Asia and in Singapore for the ASEAN region) they must also build up convincing US qualified securities teams. Significantly, all the lead British firms have done so, most notable being Clifford Chance, Linklaters & Paines, Allen & Overy and Freshfields.
Despite this attempt by the British to take the battle to the American competition, the predominance of US capital markets law clearly puts American firms at an advantage. Many of them have entrenched securities teams servicing Asian deals, generally out of one hub office in Hong Kong.
But in their favour the English firms benefit from having generally better regarded China practices (especially pertinent now that the stalled stream of PRC projects begins to move forward) and a predisposition to English law documentation in many countries.
Another boost for the England-based firms is that, where projects are concerned, English law documentation is an important aspect of many deals, foreign investors often insist on contracts being governed by English law. Paul Oldman, partner in Lovell White Durrant's Hong Kong office, says: "A few years ago one could argue that New York and English law were vying for ascendancy in Asia, but more recently I feel that English law is used more in projects. I think that there is a real fear of the US courts and multiple damages [if aspects go into dispute]."
This has promoted US firms to boost their English law capabilities. White & Case, for instance, recently won an English law mandate in India (the Reliance Refinery) where the competition included Linklaters & Paines and Clifford Chance. As the ADB's Metzger jokes: "We ran a beauty parade for a power project in India which had no dominant foreign sponsor and was essentially an English law project - of the eight firms pitching, it was a US firm which won. In China we were beauty parading for a US law IPP [independent power project] - if it had gone to completion the `US' adviser appointed would have been Freshfields."
In headline Asian deals, the boundaries between US and English firms have blurred to such an extent that if transatlantic law firm mergers do eventually take place, the chances are that they will be precipitated in Asia.
Ironically, the erosion of jurisdictional boundaries has given new life to a traditional criterion: when clients in the region are looking to hire the best firm, the main consideration is once again the excellence of the individual adviser, not the provenance of the law firm where he or she happens to work. As Metzger puts it: "When we are hiring, it's the country experience of the firm and the team which matters" n
The authors are partners in White Page and editors of the Asia Pacific Legal 500.