NewsMiddle East and India: The new road to riches
Author: Sophie Evans
Published: 03/04/2008 02:30
Abu Dhabi has taken huge strides towards eclipsing Dubai in the headlines, with news of big-ticket projects planned for the UAE’s capital. Law firms have responded with a string of recent office launches. Sophie Evans explores the Abu Dhabi-Dubai divide
It is easy to become blase about the significance of law firms entering a new market in their droves, and for the pace of change in that market to become a platitudinous talking point among lawyers.
But it was not that long ago that some lawyers in the Middle East outposts of City firms routinely took advantage of the Gulf weekend being on Thursdays and Fridays, by rolling the local weekend into the Western weekend for a bumper four-day rest, leaving three days to get their weekly work done. Now it is more common for Gulf lawyers to work both weekends, such is the volume of business being done in the region.
A tale of two cities
It is also becoming increasingly common for law firms in the United Arab Emirates (UAE) to have invested in offices in both Dubai and the capital city, Abu Dhabi. Despite being neighbouring emirates, and the cities sitting just over 120km apart, top-flight law firms are going against the current fewer-pins-in-the-map wisdom of cutting back on costly overseas offices that are too close together (Duesseldorf losing out to Frankfurt, or Amsterdam trumping Rotterdam, for example) and setting up shop in pricey Abu Dhabi, where rental costs for offices and apartments are notoriously steep.
So what’s taking law firms to the capital city, which has a population of just 930,000? Or should the question be: who is arm-twisting US and UK law firms into setting up locally? Recent office launches or notices of an intention-to-launch include Akin Gump, Allen & Overy, Ashurst, Clifford Chance (CC), DLA Piper, Herbert Smith, Latham & Watkins, Vinson & Elkins and White & Case, with two other top 10 UK firms mulling a move.
The truth behind the Klondike-style rush into the UAE’s largest emirate is that the Government and its largest quasi-governmental investment bodies (chiefly Mubadala Development Company) have been flexing their muscles, informally issuing invitations to their legal advisers to come to Abu Dhabi or to risk not being instructed on the meaty local deals being done to kit out Abu Dhabi with a 21st century infrastructure.
And then there is the size of the projects being announced: the $22bn (£10.9bn) Masdar City project is set to rise out of the sands of Abu Dhabi by 2016 (it is being touted as the world’s first zero-carbon, zero-waste, car-free city) which will be one-third Government-funded and two-thirds external investment. Incredibly, Masdar is dwarfed by the $164bn (£81.6bn) Plan Abu Dhabi 2030, a blueprint for the city that involves huge investment in transport systems, economic and industrial quarters and residential zones.
Local is as local does
Most Abu Dhabi newcomers have submitted their draft licence application to the executive affairs authority as a result of the Governmental invitation to set up shop in Abu Dhabi; once the draft is approved, the executive council rubber-stamps the application. The Government wants to instruct local counsel mainly for political reasons, and has put out a strong message that it wants to be serviced by law firms based in the emirate. Abu Dhabi, the largest, richest emirate in the UAE could no longer be seen to instruct Dubai counsel, and the small band of law firms with a longstanding presence in Abu Dhabi was not going to provide the scale of resources needed to lawyer the deals ahead; the Government is clearly expecting to need a lot of lawyers to help execute its long list of plans and knows the value to the city as a financial centre of having top-tier advisers operating locally.
Those firms applying for licences are required by local law to put a minimum of five lawyers’ names on the form (to avoid brass plate offices mushrooming in the city), but once the offices are up and running it is likely that many of the new arrivals will bus in Dubai lawyers for the day rather than fully staffing an Abu Dhabi operation.
And this is what will tell the many Abu Dhabi law firms apart in a year —those that have staff on the ground and those that have Dubai commuters running the show: the brass plate operations may struggle to hoodwink the locals into thinking they are committed to the city. For the business culture of Abu Dhabi is more traditional than Dubai’s, as Ashurst’s David Wadham explains: “There is still a cultural emphasis on doing business face-to-face,” he says. The stock explanation of the cultural differences between the two emirates is that Dubai’s centuries-old trading history has created a more international business culture in contrast to the more closed community of Abu Dhabi, where the ruling Al Nahyan clan has a stronger influence on the way business is done.
New entrants are quick to dismiss accusations of knee-jerk Abu Dhabi strategies. CC Gulf managing partner Graham Lovett says his firm’s launch was 18 months in the making; finance partner Richard Ernest is lined up to lead the Abu Dhabi team. “It is a recognition that Abu Dhabi has a lot of potential and of the reality that if you want to do work here, you have to be here,” says Lovett.
Herbert Smith’s Nadim Khan says of the firm’s recent announcement of its Abu Dhabi office: “The market is fast maturing in Abu Dhabi, and you have to give it respect.” The firm recently acted for BP and Rio Tinto on a $2bn (£1bn) green energy project for the emirate which also involves Mubadala (advised by A&O on this occasion).
The stated plans of the Abu Dhabi Government do indeed make for juicy reading. Many of the large, quasi-
governmental corporations have significant financing needs. The consultancy big guns have been brought in to look at their capital structures and to get the emirate’s infrastructure investment and economic diversification strategy under way. Despite the oil-soaked Government having an estimated surplus of $50bn (£24.8bn) a year in the coffers after
welfare and wage spending, it is not dipping into its vast cash reserves to finance its plans — and this is where the bankers and lawyers are getting excited. Public-private partnerships (PPP) has become a buzz phrase for airport and schools-building, with off balance-sheet finance taking hold. In tandem with
this, corporations are manning their in-house legal departments with experienced Western lawyers who are well-versed in the complex financial structures available, and who are used to instructing teams of external counsel on deals where previously the need for lawyers was not always acknowledged.
The clients being chased, apart from Mubadala, are largely the local banks — Abu Dhabi Commercial Bank, National Bank of Abu Dhabi (NBAD) and Union National Bank (UNB). Denton Wilde Sapte partner Owain Jones, who has cemented the firm’s asset finance credentials locally — specifically in aviation — since his 2006 arrival in Abu Dhabi is seeing an increase in instructions coming from these banks, together with a move towards competitive bids for the substantial jobs; the institutions are keen to put the deals together themselves — notably NBAD and UNB — flanked by the best advisers. And the Abu Dhabi authorities are being characteristically cash-savvy by inviting their chosen advisers to their home turf, rather than pay for them to be flown in from London or New York.
Secret of success
The handful of Abu Dhabi veterans operating in the city have all paid heed to the need for lawyers to be on the ground, for short-notice client meetings. Dentons celebrated the 25th anniversary of its Abu Dhabi office late last year, while Reed Smith Richards Butler this year marks its 30th year in the emirate — not bad considering the country was only formed in 1971. “We are proud of the fact that we are more than just a name plate,” says Dentons managing partner Andrew Ward. Apart from longevity, such firms typically boast a higher number of Arabic speakers as well as the ability to offer local law opinions. Dentons’ Alastair Hirst, for example, has drafted local legislation and is one of the few truly bilingual lawyers operating in the UAE. With new firms flooding into the market, the established players are attempting to shore up their share of the business. Reed Smith Richards Butler managing partner Vince Gordon says the firm is responding to the changes in the market by offering greater sector specialism. “Clients are coming to expect greater specialisms, and a result of the [Reed Smith/Richards Butler] merger was a strategic focus that saw a need to increase the headcount and develop specialisms within the office, in line with the rest of the firm.”
Down the road in Dubai, most law firms are operating a regional practice from the city, taking in the rest of the Gulf, the Middle East and India. As Clyde & Co managing partner Niall O’Toole points out, Dubai-based clients are more likely to be operating regionally, leaving the Abu Dhabi office to focus on the UAE. And for those firms that have been advising UAE companies since the beginning, their appetite for overseas investment is taking the lawyers overseas as well. As Simmons & Simmons’ George Booth says: “Once you have built up the trust with a client, they are happy to trust you with their legal needs wherever in the region.”
Another advantage of being the long-term, trusted adviser to family and government-run businesses that are now cash-rich, influential investors is the breadth of work offered. This new breed of Gulf conglomerates is in aggressive acquisition mode both at home and overseas, and they are looking to get involved in sophisticated projects and transactions — all of which means work for law firms.
New sources of work
A reflection of the growing maturity of the UAE market is the growth in clients needing corporate governance advice. With a public companies corporate governance code coming into force in 2010, Clydes’ O’Toole says the firm is currently helping companies to introduce a minimum level of governance. “The initial rush will be over in six months, but that will service a platform for other things such as human resources policies and staff benefits that will result in more accountability and transparency from employers. It is a reflection of the growing maturity of business in the UAE,” he says.
Tied in with the corporate governance reforms, is the proposed reform of the UAE’s companies law, which was last updated in 1984. Linklaters managing partner and Dubai veteran Ewan Cameron says the process of re-drafting the companies law began three years ago, but the volume of stakeholders who want their needs addressed in the new law means the final draft may be a couple of years off; the controversial ownership rules — which currently prevent non-UAE nationals from owning more than a 49% stake — will no doubt prove a sticking point for the reformers. Cameron predicts the drafting of regulations and subsequent advice to clients — particularly in the area of financial services regulation — will be a “fruitful work stream” for finance lawyers as the regulatory framework is brought up to date.
Another solid stream of work is the flow of deals between the Middle and Far East. Simmons has recently set up an initiative between its Hong Kong, Shanghai and Tokyo offices and the UAE (China is now the UAE’s biggest trading partner) to take advantage of the business being done between the two regions and to second lawyers between the respective offices.
Lovells’ newly-launched Dubai office is part of the firm’s Far East network in terms of managing the firm and its Dubai-based finance partners report strong interest from Japan and China in the region. Norton Rose, having made its UAE debut just over a year ago, has recruited five lawyers from the firm’s Asia network. Projects partner David Laurence has 10 years of experience in Tokyo, while Neil Brimson spent a decade in Paris giving him valuable experience of working in North Africa, where a big slice of the UAE’s money is being invested.
Few areas of the law can be as competitive as Islamic finance, with the hype from law firms making it difficult to identify the genuinely talented Islamic finance practices from those following in their wake. Most firms are keen to play up their relationships with the Islamic scholars and Shariah boards, and their track record of advising on cutting-edge deals as opposed to bulk work. As always in the Gulf, the sums of money involved in Islamic finance are eye-watering. Abu Dhabi is setting up an Islamic bank, Al Hilal, with an authorised capital of $1.1bn (£547m), and is set to start trading in June this year. Many of the mega-bucks deals being done in the region are a mix of conventional and Islamic financing. DLA Piper’s global head of Islamic finance, Oliver Agha, cites the $9.5bn (£4.7bn) Rabigh project financing of a Saudi Arabian petrochemical refinery as a good example — $5bn (£2.4bn) of the deal in which Agha advised the lead lender JBIC was done through Islamic finance. “As time goes by, the Islamic banks will have an increased amount of liquidity and their ability to fully finance projects will grow,” says Agha, who joined DLA from the firm’s Saudi ally, Al Jadaan, last year.
Despite UAE-watchers tiring of the superlatives associated with doing business in the country, the speed of change and growth in opportunities for law firms investing in the region continue apace. “Things have changed dramatically in Abu Dhabi in the last year — and the opportunities in Dubai have changed dramatically as well. The economics, the undertakings, the ambitions and the appetite have all taken a huge upturn,” says Hadef Al Dhahiri’s Alan Rogers, who recently relocated from Abu Dhabi to Dubai to head up the leading local firm’s banking and finance practice.
Norton Rose’s international managing partner in the Middle East, Campbell Steedman, thinks the jury is still out on whether Abu Dhabi is a projects market or a corporate market, but is in no doubt of Dubai’s identity as a legal market. “Five years ago, our Dubai office was driven by ‘Dubai Inc’ business — mostly domestic projects,” he says. “Now it is structured as a regional practice, across the board.”
For law firms with offices in both Dubai and Abu Dhabi, it is that distinction that will for the time being, be used to justify having a presence in two of the UAE’s seven emirates; Dubai is the regional hub, and Abu Dhabi the national hub. It will be interesting to see whether, in two years’ time, the national hubs are thriving in their own right, or relying on Dubai for the critical mass needed to service the mighty ambitions of the UAE’s rulers.