Wall Street Lawyers Take Hong Kong Bar for China Fees
William Barron, partner in Davis Polk & Wardwell LLP's Hong Kong office. Source: Davis Polk & Wardwell LLP via Bloomberg
Nicholas Norris, a partner at Skadden, Arps, Slate, Meagher & Flom LLP. Source: Skadden, Arps, Slate, Meagher & Flom LLP via Bloomberg
Peter Charlton, Asia Managing Partner at Clifford Chance LLP. Source: Clifford Chance via Bloomberg
William Barron, who advised Industrial & Commercial Bank of China Ltd. on the world’s largest privatization and Cnooc Ltd. on its 2005 attempt to buy Unocal Corp., qualified to be a Hong Kong lawyer this year.
The 53-year-old partner in Davis Polk & Wardwell LLP’s Hong Kong office and 16 of its other 24 lawyers in the city took the exam as law firms bet that the special administrative region of China is the key to future fees from the world’s fastest-growing major economy.
Beijing-based firms including King & Wood have opened in Hong Kong, where the number of international law firm offices has almost doubled to 69 since 2004 as Chinese companies’ share of Hong Kong’s market capitalization has risen to half from less than 5 percent in 1993. That’s a challenge to London-based firms in the former British colony, the only part of China where foreign lawyers can advise on local law.
“Hong Kong has become the battleground for the world’s law firms,” said Barron. “This is where the action is.”
If Davis Polk and Cleary Gottlieb Steen & Hamilton LLP, whose partners were among the record 224 lawyers taking the Hong Kong exam in 2009, decide to set up Hong Kong practices, they would join Wall Street peers Weil Gotshal & Manges LLP and Shearman & Sterling LLP, which have done so in the last ten months.
Skadden’s 2005 Move
While U.S. firms have had Hong Kong offices since 1972, most New York firms focused on offering advice on U.S. law until 2005, when Skadden, Arps, Slate, Meagher & Flom LLP hired Nick Norris and Dominic Tsun from London firms to offer Hong Kong law advice.
Initially focused on capital markets work, the capability has helped Skadden, the second highest-grossing U.S. firm in 2009, serve private equity investors like Bain Capital LLC on its purchase of convertible bonds of Gome Electrical Appliance Holdings Ltd. last year.
“We’ve won work on several deals where the client’s regular counsel doesn’t have a Hong Kong law capability,” said Norris.
Skadden also set up a new disputes practice in Hong Kong last year, another area where international firms see steady growth in China-related work.
“Hong Kong has the advantages of a strong legal culture and respect for the rule of law,” said Jason Fry, the Paris- based secretary general of the International Chamber of Commerce International Court of Arbitration.
‘Fair Judgments’
With its separate courts and judiciary, Hong Kong law is recognized internationally, said Robert Thomson, the head of the Hong Kong office of Cleveland-based Jones Day, which established its local practice in 1996.
“Hong Kong is seen as a place where you can get a fair judgment,” he said. Chinese judges by comparison, openly say that Communist Party politics influence their decisions.
Hong Kong, whose economy was eclipsed by Shanghai’s in March, isn’t taking its lead for granted. China’s modern legal system has developed rapidly since 1979 and law firms like 18- year-old Dacheng Law Offices, which opened a Hong Kong office this year, is now Asia’s largest by lawyers with 835.
Hong Kong Justice Secretary Wong Yan Lung, promoting the city at a forum in Shanghai today, told more than 500 Chinese legal officials and businesspeople that Hong Kong’s capital markets and dispute resolution services can help them access the global marketplace.
One-Stop Shop
Beijing-based Jun He Law Offices opened in Hong Kong in 2006 and received its local license last year. Businesses from China find Hong Kong shelf companies more convenient and less costly for their overseas ventures than other jurisdictions like the British Virgin Islands, according to mergers and antitrust partner Janet Hui.
“Our clients are looking for one-stop shop service and cost effectiveness,” she said. Jun He is one of at least six Chinese firms in Hong Kong with local law capabilities now.
Equity capital markets work has become highly competitive, like advice on direct investment in China where many foreign investors are now comfortable working directly with Chinese law firms, according to Paul Li, China head at London-based Simmons & Simmons.
“You need to be operating at the very top of the market for it to make sense in terms of fees,” Li said, adding that Simmons & Simmons now focuses on sectors including financial institutions and life sciences.
Fees Pushed Down
Thomas So, head of litigation at Mayer Brown JSM in Hong Kong, said the market will only get more competitive, even in areas like disputes and transactions that some firms see as offering better fees now.
“All work -- capital markets, syndicated finance -- used to be more profitable,” he said. Not only are more firms entering Hong Kong, clients are also building bigger teams of their own staff lawyers, he said.
“Hong Kong now has 1,500 in-house counsel,” he said. “What are they doing? Work that used to be done by practicing lawyers so fees are pushed down.”
Still, Hong Kong has attracted initial share sales from beyond China with United Co. Rusal Ltd. of Russia and L’Occitane International SA of France among the 24 deals raising $5.6 billion this year, according to Bloomberg data.
Asia looks like it’s booming compared with London and New York following the 2008 financial crisis, according to Peter Charlton, Asia Managing Partner at London-based Clifford Chance LLP, which advised China Minsheng Banking Corp. on both the Hong Kong and U.S. law aspects of its $3.9 billion November IPO.
Companies raised $29.7 billion through IPOs in Hong Kong last year, the most of any exchange, and Agricultural Bank of China Ltd. this month may surpass ICBC’s 2006 record.
“We’ve had three decades of growth in China but we’re really still at the beginning of the process,” said Charlton.
To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net
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