This time last year, the Hong Kong legal scene was abuzz with chatter about the big push into the market being made by Kirkland & Ellis. With its recruitment of an eight-partner "dream team" that included capital markets stars Dominic Tsun from Skadden, Arps, Slate, Meagher & Flom and David Zhang from Latham & Watkins, the Chicago firm cast a bold vote of confidence in Hong Kong, which was cruising toward a third year as the world's top destination for initial public offerings.
One year later, Hong Kong capital markets are in the midst of a downturn that still shows little sign of lifting. The world leader in IPOs for the past three years, Hong Kong currently ranks eighth in 2012 listings, with $1.4 billion raised through June. That compares to $12 billion during the same period last year.
More chagrin than champagne on the first anniversary of Kirkland's move? Not at all, says partner David Eich, who opened the firm's Hong Kong office in 2006 and played a major role in last year's recruitments.
"It has been a very positive year for us, and we are delighted with how it's gone," he says. "The global capital markets have been slow, but we are strongly busy in the [mergers and acquisitions] practice. Our team was assembled with that adaptability in mind."
Among its recent high-profile M&A assignments, Kirkland is advising China's Citic Securities Co. Ltd. on its proposed $1.25 billion acquisition of Hong Kongbased brokerage CLSA Asia Pacific Markets. The firm is also advising Chinese online video company Tudou Holdings Ltd. on a proposed merger with rival Youku Inc., which is being represented by Skadden.
Zhang shares Eich's confidence, though he allows that there is plenty of uncertainty. "If you ask what is the future direction the market will take, it is anyone's guess," he says.
"I have been in Hong Kong since the start of 2000, and this is probably the longest quiet patch [in the Hong Kong equity markets] I have experienced," says Christopher Betts, a Skadden corporate partner.
The IPO market, which has been fueled by listings by mainland Chinese companies as well as Western consumer goods companies, has encountered a perfect storm of difficulties since the end of last year. A deflating property bubble has led to slower growth in China, and the lingering Eurozone crisis threatens a further slowdown. At the same time, both investors and regulators have grown increasingly worried about the quality of Chinese company disclosures.
Kirkland was hardly alone in banking on Hong Kong. Several American firms that had previously only practiced U.S. law in Hong Kong launched local law practices in 2010 and 2011 to try to get a piece of the IPO market. Among them was Simpson Thacher & Bartlett, which in April 2011 hired Hong Kong securities experts Christopher Wong and Celia Lam from Freshfields Bruckhaus Deringer and Linklaters, respectively.
"It really turned out to be the worst possible time to launch a Hong Kong capital markets practice," says Simpson Hong Kong partner Leiming Chen. Like Eich, though, he says M&A work has kept the new hires busy. In March, Wong advised Hong Kong cooking oil producer Hop Hing Group Holdings Ltd. on its $450 million purchase of Summerfield Profits Ltd., a company that operates fast-food outlets in China.