If progress and organizational excellence could be measured in acronyms, Singapore would be the utopian legal market. In the acronym-loving republic, a slew of fresh abbreviations are added to its vernacular each year – a practice that its legal circles seem to embrace just as well.
Between the 2008 hot buzz words of QFLP, FLA, EJLV and JLV; and the frequent use of business practice group acronyms – FDI, B&F, M&A, E&R and PE (terms that took a hit during the lamentable year of the financial crisis) – herald the new arrivals, FPC and FPE, to mark the turnaround of 2010.
Perhaps the love affair with acronyms, abbreviations and ampersands are markers of success – and perhaps it indicates that time is money. Singapore’s position as a hub in the region has not only coagulated through its dignified weathering of the global financial storm but has, in fact, surged with optimism and confidence, driving its GDP in 2010 to newfound heights of 14.7%, hitting a record 18.1% in the first quarter.
A throwback to its historical roots when Singapore had become the Straits Settlements' centre of government and mercantile trade in 1866, and the jewel in the crown of colonies mapped out by British empirists two centuries back, the cosmopolitan nature of this garden island ‘hub’ of trade still applies today. Its emergence as the regional ‘go-to’ destination for international arbitration, the rising recognition of its private wealth management sector and bold moves by its stock exchange to join forces with Australia, caught the imagination of law firms in 2010.
The Year of the Tiger also saw a trend of reverse-brain drain, as prodigal Singapore-qualified lawyers returned to a booming economy feeding fat pipelines of work. Foreign, domestic and allied firms alike have also made Singapore a launch pad, or what many would like to call a ‘gateway” into the rest of Asia; with thriving deals in most any practice area you can think of, waiting to be cut.
Liberalisation is consolidation
Liberalisation was a necessary evil for the Singapore economy to maintain its ‘hub’ status in the region. Most local firms – for the longest time happy being kings in their own ponds – had to re-adjust to newer, increasingly innovative and far-reaching solutions. Changes were afoot as liberalization progressed from JLVs to the establishment of QFLP licensees to, as recently as last month, the easing of requirements for foreign lawyers to practice Singapore law. This occurred with the introduction of the Foreign Practitioner Certificate (FCP) on Jan. 11, 2011.
“At WongPartnership, we took a view a few years ago that we can’t be a law firm just in Singapore if we want to remain competitive,” the managing partner of the firm, Rachel Eng, said. “With enough critical mass of clients, we opened an office in Shanghai (2004), Doha (2007) and Abu Dhabi (2008), and we aim to continue expanding our presence outside Singapore and work toward becoming a regional law firm.” In Q3 2010 the firm received a license to open a representative office in Beijing.
Fellow ‘Big Four’ compatriots echoed similar views. Rajah & Tann managing partner Lee Eng Beng – who took the helm in September 2010 – powered the firm into a regional push, aiming to grow overseas-derived turnover to 50% within the next 5 years. “We want to be an Asian law firm with a footprint in the region,” Lee said. “We are a bit different from other international firms because we are trying to set up local law firms in emerging cities in this region.” The firm has operational offices in Shanghai, Vientiane, Kuala Lumpur and a new office opening in Ho Chi Minh City this month. There are also plans to establish a presence through relationships or alliances in Indonesia, Cambodia and the Middle East.
Smaller local firms such as Kelvin Chia Partnership have also cottoned onto this option, expanding into Thailand, Vietnam, orth Korea, Cambodia, China, Japan and Myanmar. This is because the threat of going under is real and present, despite a seemingly prosperous setup. As many managing partners of both international and domestic firms concur, the Singapore legal market is an intensely competitive space. “We’re facing an intensely competitive market in terms of competing for clients as well as for talent. But the good news is we are also facing an expanding market for legal services. There are sixty foreign law firms in this city-state of 5 million people – which is pretty extraordinary – and there are more on their way,” said Baker & McKenzie. Wong&Leow managing partner Clive Cook. “So one queries where it will end. I personally think that although it is an expanding market, some firms are going to struggle. There’s just too much competition.” Cook believes this applies especially to newcomers.
“Unless you are entrenched in the market and have a certain scale, it is difficult to attract the talent and keep them because the war for talent is fierce. Even if you’ve got the partners and the brand and the expertise to attract work, if you can’t keep the people and you can’t grow the practice, or have the infrastructure to provide career progression, you’re simply not going to succeed,” he said.
This intense competition will mean that increasing fee pressure creates a double squeeze on margins and talent in coming years, if law firms set up in Singapore lack scale and depth. To combat this, some relatively new entrants have endeavored to aggressively recruit while others have consolidated their business models through local partnerships, as a short cut to depth and scale.
For example, the start of 2011 heralded a brand-new alliance by US-based law firm Duane Morris with local corporate boutique Arfat Selvam, in the form of an Enhanced Joint Venture (EJV). It is the first USSingapore joint venture to be approved. And in July 2010, Cambridge law firm Taylor Vinters entered into a second alliance with local high-technology specialist, Keystone Law Corporation (its first alliance was with Engelin Teh Practice) – which handled the UK firm’s litigation and arbitration matters in Singapore. Taylor Vinters also indicated its interest in attaining an FLP license in Singapore by July 2011.
June 2010 saw Pinsent Masons actualise a 3 year courtship with WongPartnership arbitration veteran partner Mohan Pillay, to eventuate into a JLV in August that year. And Pan Asia Law Corporation, a Singapore law practice established in October 2007, entered into a formal law alliance with the local office of Wikborg Rein, to give it Singapore law capabilities. Surviving JLVs that had stood the test of time are far fewer than ones that have fallen by the wayside. Those that made it past the end of 2010 include Hogan Lovells Lee & Lee and Baker & McKenzie.Wong & Leow. ATMD Bird & Bird, although not a JLV, is a surviving alliance of local firm Alban Tay Mahtani & de Silva LLP (ATMD) with international firm Bird & Bird – one that formally began at the start of 2009.
Over the years, other ill-fated alliances include White & Case/Colin & Ng, Shearman & Sterling/Stamford Law, Allen & Overy/Shook Lin & Bok, Clifford Chance/WongPartnership and Drew & Napier/Freshfields.
In many respects, the countless failed Joint Law Ventures (JLV) stemmed from what some local lawyers refer to as the ‘goofy’ system set up by authorities to ease Singapore into a liberalised legal economy. Criticisms of the JLV include its structural set-up that results in an obvious non-alignment of economic objectives, where a fallout is usually inevitable.
Managing partner of an offshore firm who declined to be named said “The JLVs and the FLAs have, to be perfectly honest, fallen into question as a model for liberalisation. In a JLV scenario, there was a lot of confusion in the market because you had three firms involved that sometimes competed with one another for the same work. In an FLA, there was no difference having an informal law alliance as to a formal alliance – there were no real benefits. The JLV scheme, to be perfectly honest, was a washout.”
A little over a year ago, Allen & Overy acquired ex-White & Case alliance partner Venture Law – an alliance that dissolved after White & Case also attained QFLP status. In the same manner, Singapore’s secondlargest firm, WongPartnership, jumped on the acquisition train and acquired a three-partner boutique funds practice in early 2011.
Mid-tiers bulking up
The race to remain viable has plunged firms of all shapes and sizes into fevered action. “The impact of the QFLPs on our business has yet to be seen but what has been acutely felt is the war on talent,” KhattarWong managing partner Tan Chong Huat said. According to Tan, the glut of international firm arrivals has put enormous pressure on fees for local lawyers – and this is only projected to get worse. “As hiring costs rise, so too, we have to increase our fees and we have, like many other local firms,
switched to front-loading our bonuses in order to compete,” he said.
This has found resonance with other local firms, who agree that the wage gaps are closing. Law firms are now placing more emphasis on salary, rather than on bonuses. In December 2010, Rodyk & Davidson, Singapore’s oldest law firm, went on an aggressive expansionist drive, laterally hiring four lawyers – three from Shook Lin & Bok and one from Hammonds – and promoting a salary partner to equity partnership. This was with the specific aim of gearing up its corporate finance and dispute resolution capabilities for 2011. Head of construction, Philip Jeyaretnam, has replaced Helen Yeo as managing partner fromJan. 1.
Boutiques finding their niche
Where do little boutique specialists fit into all this testosterone-driven development? Specialist corporate boutique firm Loo & Partners, unlike the larger law firms, takes a different approach that works on the dictum of ‘bigger is not necessarily better’. “Business costs have moved up in tandem with the strong performance of the economy. The two main components of business costs in running a law office, namely salary and rent, have increased substantially,” said Loo & Partners managing partner Loo Choon Chiaw.
“Law firms, whether aiming to prosper or just to survive, must ensure that they are in a position to attract and retain legal talent. They should also consciously and conscientiously improve their overall capabilities, service quality and standard of client care.” But like his compatriots, Loo believes that both big and small local firms have to seriously consider the need to establish a direct presence – or at the very least, linkages in strategic locations abroad.
For European corporate boutique Cotty Vivant Marchisio Laurenzo, finding its niche and capturing that market – Europe to Asia M&A deals – has resulted in a very good year, with growth to the tune of 80% seen in 2010. Managing partner Phillip Taverne said since June 2010 that increased interest, a pick up in deal flows in multiple areas – namely M&A, PE, capital markets and the assisting of family-run operations – has allowed the business to grow. Taverne plans to apply for the next round of QFLP licenses and is looking to expand his corporate finance practice team.
Emerging markets: India, China, Vietnam and Indonesia
The meteoric growth of Singapore’s neighbours has contributed to the expansion of many practices and a large increase in work, both in traditional energy and resource sectors such as oil & gas in Indonesia, and rising sectors such as the renewable energy market. There have been interesting projects in the energy and infrastructure sectors, such as the SportsHub project in Singapore, geothermal projects in Indonesia, wind farms in India and thermal power projects cross the region.
Norton Rose, located in Singapore and one of the nation’s largest foreign law firms with 65 lawyers, has adopted the global ‘Headlights’ strategy targeting energy, infrastructure & commodities, transport, financial institutions and technology work in boh South and Southeast Asia. “The growth has been driven by demand and it is the Headlight sectors where we are seeing that growth” said Norton Rose managing partner Jeff Smith.
Fierce competition is also offered by fellow QFLP firms Clifford Chance and Herbert Smith – both strong presences in the emerging economies of Indonesia and India. Clifford Chance, with a clear vision working towards setting up an office in India, lured the much-lauded arbitration specialist Nish Shetty (who is well-versed in the Indian disputes market) away from WongPartnership in 2010. The firm has also hired ex- Amarchand & Mangaldas & Suresh A Shroff & Co partner Rahul Guptan, to lead its Indian capital markets unit based in Singapore.
For Herbert Smith managing partner Austin Sweeney, the focus continues to be completely regional. According to him, there has been a two-fold increase in Indian interest for coal, with Indian investment into Indonesian coal surging. This is in addition to geothermal work in Indonesia, waste energy work in Sri Lanka and hydroelectricity work across South-East Asia. Like Norton Rose, Herbert Smith also targets nuclear energy work.
Smaller and mid-sized firms have also launched regionally. Jones Day, with its recent appointment of U.S.-qualified Indian lawyer Sushma Jobanputra as its new managing partner, has injected a fresh salubrious approach to targeting Indian corporate and capital market deals in coming years.
“We don’t practice in the Singapore market,” Freehills Singapore partner-incharge John Dick said. “Indonesia is very big on our focus and here’s a good place to be based – the banks and the financing when we look at the M&A side of things, are all out here,” Dick said.
According to Cook, as Singaporebased international firm continue to build practices in Indonesia, so too is the market reaching its saturation point.
Corporate
A different shape of M&A is taking place in South-East Asia. “It’s been extremely busy – work has picked up in recent months. Historically, it was all foreign direct investment into key Asian markets; now the focus is more on Asia-Pacific corporate targeting assets within Asia and beyond,” Norton Rose partner Adam Summerly says. Summerly’s comments echo many others who are of the view that Asia- Pacific corporates have continued their appetite for making strategic, outbound acquisitions. “Corporates in the region continue to seek natural resource supplies, acquire know-how, advance their overseas strategy and gain access to foreign markets.”
According to KhattarWong managing partner Tan Chong Huat, there has been a discernable increase in corporate activities by Singapore-listed companies in the past year. Their firm has seen a spike in cross-border transactions. The general consensus is that the equity capital markets in Singapore, unlike general corporate matters and M&A, had largely seen a reduction in activity in 2010 – save for a few big-ticket issues in the form of REITS that came off the back of a property market recovery.
“Going forward, it seems that the SGX has succeeded in drumming up interest on several fronts – having recognised that it can’t just rely on the body of local companies alone to list. To be realistic, purely from a market perspective, the big-sized companies that can be listed are already listed and the SMEs good for listing are being listed in the Catalist market and are looking to upgrade,” says Drew & Napier deputy managing director of the firm’s corporate and finance department, Sin Boon Ann.
Although Singapore is increasingly recognised as the gateway for Greater Asia, it is less so for China for a number of reasons. For one, new listings coming from China face multiple hurdles due to changes in regulatory frameworks making Chinese outbound listings anywhere outside of China or Hong Kong tough. “It is quite difficult now for unrestructured Chinese companies to get approvals from the regulatory authorities to come here to list. That has effectively dried up the pipeline of Chinese listings here in Singapore,” Sin says.
According to Sin, the SGX is concentrating on opening up new markets outside Singapore, with one example being Japan. “SGX is making very active marketing inroads into Japan since this year, to tap into Japanese interest in raising capital,” says Sin who had joined the local bourse on such marketing trips said.
Rajah & Tann corporate & capital markets partner Chia Kim Huat says that from Q3 2010 things started to pick up, with liquidity coming back into the market. This, in conjunction with a closer buy-sell spread, has piqued interest in M&A deals – witnessed through a spate of due diligence work that has come to the firm. Some of these deals have a strong chance of reaching fruition.
Arbitration
The emphasis that Singaporean authorities have put on promoting the Lion City as an arbitral venue has not been in vain. The active lobbying that has many Indian and other Asian construction contracts equipped with SIAC clauses has built expectations of a gold rush for arbitration in coming years.
Statistics show Indian parties were already the largest users of the SIAC in 2009. “Indonesia makes a lot of sense and it’s an easy sell – Singapore gets the bulk of Indonesian international arbitration. It is a significant market: Indonesia is at the top of our market for South- East Asian arbitration work,” says Clyde & Co arbitration partner Steven Lim. Although Lim lists Vietnam as another huge potential market for arbitration, he has not seen many cases coming through. “It still has to catch up with Indonesia, but it is a growing market with dispute lawyers,” he says.
Just as Lim admits that the arbitration sphere in Singapore is “getting competitive”, KhattarWong partner Deborah Barker agrees that both domestic litigation and arbitration fronts are facing their own challenges. “Getting the big cases is where the difficulty lies and getting the cases that pay – it is extremely competitive. Competition is amongst all the local law firms, the foreign competition comes with the growing numbers of international entrants setting up a presence here,” Barker says.
ATMD Bird & Bird partner Boey Swee Siang said in terms of court litigation, an increase in complexity is coupled with a similar increase in the value of files seen by the firm for 2010. “The bulk of Singapore-based work for our department is dispute resolution with an increased international element. As for the arbitration work we do, we have seen a significant jump in more regional-based commercial arbitrations,” Boey says.
Drew & Napier, a firm known for its dispute resolution work, says although litigation work remained neutral, a spike in international arbitration work was apparent in 2010. “It’s been a confluence of factors: Singapore’s efforts in making it the top regional arbitration centre; and in part making Singapore mercantile/commercial law commonly applied for contracts in Asia have contributed to the growth in numbers,” Drew & Napier litigation and disputes resolution managing director Jimmy Yim said.
The Singapore Government has used tax incentives and ease of entry – without the need for special work visas – for parties and their legal counsels who choose to use Singapore as an arbitral venue. “The Singapore Government has been so successful in its efforts that it is funneling arbitrations away from other arbitral destinations to designate Singapore as the seat of arbitration, in contracts all across Asia,” Yim said.
This claim is supported by the numbers – the latest figures show that Singapore has topped the list of arbitration centres in Asia for ICC arbitrations.
Shipping
A wave of new maritime companies locating their head offices on Singapore’s shores – in response to the republic’s growing reputation as an arbitration destination – has raised expectations of significant growth in the shipping sector for 2011. “There was a slowdown 24 months ago, but a revival of momentum of ship owners, brokerages and underwriters freshly establishing in Singapore is currently underway,” says Watson Farley Williams partner-in-charge Chris Lowe. “In terms of shipping activity,
we have witnessed an increase of 20% with an uptake of upstream oil & gas work.” Norton Rose, who name Watson Farley & Williams as a key competitor in this space, says shipping financing work grew steadily throughout 2010.
Shipping specialist firm Stephenson Harwood says the shipping financing work with Chinese banks and the Korean market remains active. “Both contentious and non-contentious shipping work has been strong. We have seen certain trends developed and that is the Korean market has continued to be very active in financing in the last year. We also see the Chinese banks getting very active,” Stephenson Harwood Singapore managing partner Martin Green says. “[Chinese financing] is an extremely active area because the Chinese banks have liquidity and a policy to grow the ship-owning industry by supporting buyers,” he adds.
Norwegian shipping specialists Wikborg Rein have big plans for growth all the way through to 2014. A year ago, Pan Asia Law Alliance, a spinoff of the original Wikborg team, was formed in an EJLV structure. PALC is headed by seasoned corporate partner June Ho, who was hired to establish the local component of the firm, and add the corporate aspects to support its fullservice ambitions. In the course of 2010 the firm started a tax team, a corporate team and a disputes team.
At the time of ALB’s interview, Wikborg Rein had just signed on four new offshore rig deals in a week, with more deals in the pipeline. “We probably do more rig building than any other law firm in Singapore. Simply because a lot of the players in the offshore market are Norwegian where the key oil industries are,” Wikborg Rein partner Chris Grieveson says. Wikborg’s contractor-focused practice has seen a blitz of investments enter the regional market. “Lots of people have their headquarters in Singapore for the oil & gas industry. Indonesia, Vietnam, Australia, Thailand, Malaysia, China and PNG are the markets that we launch into from here” Grieveson said.
In a climate of renewed optimism where both domestic and regional economies are flourishing rapidly, the gold rush that everyone anticipates for Singapore has yet to arrive. Though the country moves along promisingly, there is growing pressure on Singapore-based law firms in the form of hiring costs, fees, margins and everintensifying competition for clients. These are issues that firms will have to grapple with in the not-so-distant future. Some predict a shake-out in 3-5 years, while others are bracing one another for the good times ahead.
Despite the divergence in opinions one thing is certain – 2010’s productivity trend will herald in a full year of activity that promises many opportunities.
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