Competing with rivals Singapore and London, Hong Kong’s vibrant legal market is alive to India’s possibilities
With its enviable efficiency, breathtaking views and bright lights, Hong Kong has long provided a springboard into China and other east Asian countries for international law firms. These firms also use their well appointed offices within a maze of towers in the city’s high rent central business district to do India-related work.
Sidharth Bhasin, a counsel at Shearman & Sterling who has been in Hong Kong since 2009, says Hong Kong is becoming as popular as Singapore. It “may not be there yet, but has definitely come up a lot in the last few years”.
“There is a substantial amount of finance, banking and capital market-related India work being done out of Hong Kong as many concerned lawyers are based here,” says Bhasin, who represented the underwriters of MakeMyTrip’s Nasdaq listing and IPO.
Tapping into the market
Many international law firms in Hong Kong are involved in behind-the-scenes work for Indian IPOs. The work is usually assigned by the execution departments of international investment banks, which are appointed by the companies. The banks ask their preferred international and domestic law firms to bid for the jobs.
Stuart Rubin, a Hong Kong-based partner at Ashurst, says that much of the compliance work in such transactions is done out of Hong Kong and Singapore. “The banks have full-service investment banking capability in Mumbai and some in Delhi, but their in-house legal functions are either taken care of from Hong Kong or Singapore.” According to him this is because the lawyers within an investment bank tend to provide broader regional coverage, while the transactional teams tend to have a more specific jurisdictional or sector focus.
Rubin specializes in natural resources and recently led his firm’s team in advising the lead managers to the IPO for Coal India. The Ashurst team did this along with lawyers from Amarchand Mangaldas.
Hong Kong is also an important destination for Indian commercial banks, 12 of which have branches in the city, including ICICI, State Bank of India, UCO Bank and Bank of India. Their main business is trade finance for import and export between India and China. This generates its own kind of legal work, which is often undertaken by more Hong Kong-centric law firms such as Wilkinson & Grist.
“We advise these banks on the structuring of banking documents and contracts, and also chase the defaulting customers,” says Keith Ho, a Hong Kong-based partner at Wilkinson & Grist. Ho says that Indian banks that open representative office in China often begin by setting up offices in Hong Kong.
International law firms with established practices in Hong Kong have also been exploring new opportunities in India and some have adopted a direct approach. Gide Loyrette Nouel offered its experience of handling disinvestment deals in France to the Indian government.
“They liked our expertise on disinvestment,” says Balbir Bindra, a Hong Kong-based partner who heads the firm’s Asia banking and finance group. “They were interested to hear that the French disinvestment deals also had a socialist element to them including worker participation.”
Gide Loyrette Nouel was international legal counsel to the government of India in its US$2.2 billion listing and follow-on offer of National Mineral Development Corporation and subsequently in a deal for MOIL, formerly Manganese Ore India. Bindra says that while these deals originated from the firm’s Hong Kong office, the core team that worked on them included lawyers based in London and Paris.
Another Indian deal that was serviced from Hong Kong was the US$7.2 billion sale of Indian oil and gas assets by Reliance Industries to BP, announced in February. Gary Kotara, a Hong-Kong based partner at Vinson & Elkins, led the negotiations on behalf of Reliance for the gas marketing joint venture arrangements that were a part of that deal.
Goodwin Procter, which opened its first office outside the US in Hong Kong in 2008, mainly to service its clients in India and China, has also benefited from being in the city. “Hong Kong has to offer a lot of similar things to Singapore, but it has a bit of a head start for being a larger financial centre with a number of regional and global headquarters of banks located here,” says Yash Rana, the firm’s resident partner in Hong Kong.
Goodwin Procter advised the Indian IT outsourcing company Mphasis on its recent acquisition of Wyde Corporation, a software developer for the insurance industry in the United States.
Working without a presence in India is a challenge, even if Hong Kong is just four to five hours away. To overcome this, some international firms choose to forge best friend relationships with Indian firms, but this may not be easy.
“Indian firms are not keen to get into best friend relationships,” says Peter Chow, a Hong Kong-based partner at Bryan Cave.
Some firms have been successful and several have best friend relationships with more than one firm. Squire Sanders & Dempsey works with Priti Suri & Associates, Trilegal and Nishith Desai Associates; and in July, Ashurst announced a best friend referral arrangement with the young firm of Indian Law Partners.
Who you work with is important in other situations, too. Rubin at Ashurst remarks that firms like Amarchand Mangaldas, Luthra & Luthra, S&R Associates and Dua Associates are often appointed by the investment banks or companies involved in a particular transaction. “Before accepting the mandate I always enquire who is the domestic legal counsel because the quality of their work impacts our ability to do a good job.”
Ensuring a good fit is also essential when putting together a firm’s team to work on a deal. Rubin says his firm draws on people who are culturally suited to the transaction. He cites the example of the IPO for Coal India. As the company is based in Kolkata and it was vital to have someone who could communicate with its staff, the firm pulled in a Bengali-speaking associate from its London office.
How would these firms respond to a lifting of the ban on foreign law firms operating in India? Anthony Root, who heads the Asian corporate practice of Milbank Tweed Hadley & McCloy, and is the managing partner of its Beijing and Hong Kong offices, believes that contrary to expectations there is not going to be a rush to open offices in India as it is such a challenging market.
“There is a culture of being very careful with costs [in India] and a willingness to use a wide range of firms, including those which are less well known,” Root says.
Jeffrey Maddox, a Hong Kong-based partner at Jones Day who focuses on international equity and debt transactions in Asia, says an IPO of an Indian issuer that would take six months to close might cost the issuer US$400,000 in international counsel fees. For this fee the firm primarily drafts an international standard prospectus, works with Indian counsel, and deals with the banks’ underwriting requirements. However, he says that some law firms might do the same work for half, while others might charge double, as it depends upon the market share, reputation of the firm, current workload and complexity of the transaction.
Maddox says some law firms may ignore “the earning factor” from deals in India as “they do just one or two deals a year to keep the relationships with big business houses going”. But due to the sluggish capital market in India in 2011 most of the bigger deals are currently on hold.
Chow sees a cost advantage in the status quo. “As there are no foreign law firms present in India, none of them have to worry about the extra expense of opening an office there – it is free for all.”
As a centre of India-related legal work, Hong Kong has some shortcomings, and one of them is the absence of double taxation treaty. Arun Nigam of Arun Nigam Associates, a Hong Kong-based boutique law firm, says the proposed treaty between Indian and Hong Kong has been on table for more than two years. “When it is signed, it will make life much easier for the companies and the law firms.”
Another concern for India-focused lawyers in Hong Kong is that arbitral awards made in Hong Kong are not enforceable in India. This is despite Hong Kong being an internationally recognized centre for arbitration, and both India and Hong Kong being signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The problem arises because only 45 countries have been officially notified by the Indian government and Hong Kong is not yet one of them.
Singapore, on the other hand, has a double taxation treaty with India and has also been notified for enforcement of foreign arbitral awards.
Moving into China
Despite such problems, thanks to Hong Kong’s location and relationship with China, lawyers in the city seek out Indian companies looking to invest into China.
“China is a great area of activity and Hong Kong is the perfect gateway,” says Chow at Bryan Cave. Encouraging Indian companies to take advantage of Hong Kong’s tax regime and legal framework, he says setting up a Hong Kong-based joint venture between a Chinese and Indian company that owns 100% of a Chinese company could be a profitable business model for Indian companies.
However, the reality is that most of the Hong Kong-based business between India and China is still trade related. No Indian company is currently listed either in Hong Kong or on any of the Chinese stock exchanges.
Bhasin at Shearman & Sterling says that some of the firm’s clients in India are looking at opportunities in China and are using Hong Kong as an entry point. However, he adds, “I don’t think there is any real critical mass of transactions happening that way.”
Indian companies have also discussed with Gide Loyrette Nouel a number of potential deals involving investments in China but progress has been slow. Bindra believes that these will eventually be realized over time.
A Wikileaks report of a conversation between NR Narayana Murthy, the founder-chairman of Infosys, and US diplomats in 2007 may point to one reason there is not much happening in this area. Murthy is reported to have said that clients in the US and Europe were reluctant to have their work done in China on account of concerns about protection of intellectual property rights in the country and this was hampering the company’s plans for investments there. Despite this, in May Infosys announced plans to invest US$135 million in a new campus in Shanghai.
Analysing factors that have affected the flow of Indian investments into China, Maddox at Jones Day, who has been based in Hong Kong since 1994, says that Indian companies are “not able to reach their full potential on the global playing field” as they often do not avail themselves of the benefit of professional advice on foreign investments from international lawyers. For example in attempting to invest in mining projects in China, Southeast Asia or Australia, he says, Indian companies often go with a small local law firm, supervised by their usual Indian corporate law advisers. “This can result in problems later on with attempts to raise funds for financing particular projects where documentation or approvals may not meet international standards.”
Some law firms in Hong Kong are willing to provide free advice in the hope of netting a client in the future. “Companies in India send me business proposals and ask me to find interested people in Hong Kong,” says Nick Chan, a Hong Kong-based partner at Squire Sanders.
“Investment banks charge broker fees [for the service] but we don’t and are happy if we just get more clients and future deals.”
The ease of travelling to a location is always a big factor in getting clients and managing operations. “When I was posted here I made sure that going to and from India is not a problem and really it hasn’t been,” says Kotara of Vinson & Elkins. “We do use videoconferencing but big deals still get done face to face and especially for complicated matters we have to be there for a continuous period of time.”
With four daily flights to New Delhi and three to Mumbai, Hong Kong is well connected. Furthermore, Indians do not require a visa to enter Hong Kong for a stay of up to 14 days, which is an advantage over Singapore.
However, as deals of late have not been restricted to Mumbai and Delhi, lawyers based in Hong Kong often find themselves travelling to Bangalore, Chennai and many second-tier cities. For this it is easier to fly out of Singapore, which has better flight connections to more Indian cities.
Root at Milbank believes Singapore is the primary offshore location for India, followed by a blend with Hong Kong and London. “We often ask ourselves ‘should we be covering India primarily out of Singapore’ vis-à-vis Hong Kong and London.”
The answer is not an easy one as many factors are involved. Rubin at Ashurst says that although none of his Indian clients have said that they would prefer someone in Singapore, many India-focused junior lawyers see Singapore as an India hub. “So it is a bit of a disadvantage in terms of recruiting, but there are also some lawyers who want to be in Hong Kong.”
Shrugging off any concerns about Hong Kong, Rubin says it is an advantage being two and a half hours ahead of India. “If the client has a thought in the middle of the night that he wants to speak to his lawyer first thing in the morning then we in Hong Kong are already working and are available.”
Rana at Goodwin Procter is equally unconcerned about location. He says expertise counts for a lot more in delivering results and that most of the legal work that comes to his team does not come because they are in Hong Kong, but because they are located in the Asia “transnational space” and this includes Singapore, Dubai and London.
Amirali Nasir, managing partner at Nasirs, a firm that has been based in Hong Kong since 1989, thinks that the next five to 10 years will see Indian companies realizing their true potential and raising capital in Hong Kong and Shanghai. When that happens they will not be short of legal help. “There are 700 law firms and 7,000 lawyers here in Hong Kong, which is a high number for small population of seven million,” says Nasir.
Hong Kong’s advantages may best be summed up by Kumar Ramanathan SC, the chairman of the Hong Kong Bar Association. “Hong Kong is an example of a classic capitalist society working within democratic norms and providing an opportunity to succeed to anyone and everyone who works hard.”