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Along Dubai’s Sheikh Zayed Road, construction cranes seem almost as plentiful as sand. Hotels and office buildings are going up by the dozen, and already some of the world’s most recognizable corporate names-CNN, Cisco Systems, and Microsoft-dot the landscape. There’s a billboard advertising “the most prestigious kilometer on the planet,” an extravagant new downtown project that will include the tallest tower on earth. Another announces the world’s largest shopping mall, which won’t be far from the soon-to-be largest theme park, the future home of Dubai’s second indoor snow skiing slope. Welcome to Dubai, a city-state on development-enhancing drugs. With minimal taxes, a strategic location (Moscow and Delhi are only three to five hours away), and a genius for marketing itself, this city, one of seven semiautonomous sheikdoms that comprise the United Arab Emirates, has become a magnet for corporations and, increasingly, their lawyers. In the last three years, ten Global 100 law firms, including DLA Piper, Vinson & Elkins, and Akin Gump Strauss Hauer & Feld, have opened offices here. Magic Circle firms, which already dominate the region, are expanding their presence. And among lawyers, Dubai has generated a mountain of get-rich-quick buzz. “If you can’t make money in Dubai,” says Linklaters partner Ewan Cameron, “you should give up.” It’s easy to understand Cameron’s enthusiasm. Dubai hopes to become a Hong Kong on the Persian Gulf-a Middle Eastern hub for high finance, big deals, and corporate offices. Two years ago, the government launched the Dubai International Financial Centre, a district where banks can offer a full range of services and take all of their profits back home tax-free. More than a dozen of the world’s largest banks, including Morgan Stanley, Deutsche Bank AG, and The Goldman Sachs Group, Inc., have received licenses to operate there. The DIFC’s centerpiece is a brand-new stock exchange, the Dubai International Financial Exchange. Its goal is grandiose: to create a market on a par with London and New York. “Dubai is a business, okay,” explains Declan Hegarty, an investment banker at HSBC Holdings plc. “It’s Dubai Inc. It’s just a question of what division of Dubai you’re dealing with.” But there’s room for skepticism about Dubai. The stock market has been slow to take off, and the Middle East, while awash in oil money (an International Monetary Fund economist estimates that the ten major oil-exporting countries in the region may bring in more than $500 billion in oil receipts this year), is one of the world’s least active transactional markets. Many firms have been attracted to Dubai as a hub to serve a red-hot market for energy and infrastructure projects, but the pace of such work is unlikely to continue for long. And Am Law 200 firms looking to make their mark will face stiff competition from the British. On top of that, Dubai real estate is some of the most expensive in the world, with the cost per square foot for office space in prime areas topping the going rate in New York; and experienced legal talent is hard to find. New entrants have a lot stacked against them. “You have to be willing to bleed,” says Stephen Matthews, a partner at Baker Botts, who has worked in the Middle East for ten years. “You can’t do it to pursue an opportunity that has a three-to-five-year horizon. You have to invest for three to five years so you can be in the game ten to 20 years hence.” So far, Dubai’s potential-as a Western-friendly financial center in the heart of the Middle East-has been its biggest selling point. And it’s probably a mistake to underestimate a place that can import skiing to the desert. For lawyers, however, the question is whether this is a legal market poised for takeoff, or a money-losing mirage. Twelve years ago, Cameron came to Dubai from London, looking to build Clifford Chance’s corporate practice in the Middle East. It was slow going for the first couple years, Cameron recalls. Deals were sporadic, and he had to fashion himself as a generalist, taking on everything from joint ventures to franchise agreements. Occasionally, from his Dubai home base, he’d handle a few high-profile regional deals. In 1994 he represented the government of Oman as it privatized its electricity sector. A few years later he advised the Internationnal Petroleum Investment Company of Abu Dhabi on its purchase of a stake in OMV Aktiengesellschaft, the largest Austrian oil producer. But record profits for oil producers as well as consolidation, particularly among telecom companies, may be changing the landscape for deals. In the first half of this year, the total value of announced deals in the Middle East grew to $15.78 billion-barely behind Hong Kong’s $17.09 billion. Last year the total value of announced mergers was $9.66 billion, according to Thomson Financial. (By way of comparison, the United States saw merger volume of $1.13 trillion last year. Hong Kong did $20.17 billion in deals last year.) For a veteran like Cameron, the uptick in transactions has been a chance to write his own ticket. Earlier this year, Linklaters lured him away from Clifford Chance to become managing partner of a new office in Dubai. The firm also brought aboard two Dubai-based Clifford Chance associates, Scott Campbell and Mark Craig, transferred a London partner to the office, and hired Luma Saqqaf from Allen & Overy to head up its Islamic finance practice. Though the firm has had significant business in the region for years, the new investment in Dubai was a recognition of the market’s growth and Dubai’s growing role a financial center. When asked about the demand for law firms, Cameron evokes former British prime minister Harold Macmillan’s 1959 campaign slogan: “You’ve never had it so good.” Others seem to agree. DLA Piper opened its office in January and already has around 20 lawyers, and it’s clearly just getting started. With 11,500 square feet, the office can comfortably accommodate more than 50 lawyers. The firm’s management wanted to make sure Dubai took notice of its arrival. In May, DLA hosted a press conference and reception at the One & Only Royal Mirage Hotel, a five-star gem where the top suites go for about $3,800 a night. On hand were the firm’s leaders, including its chairman, former senator George Mitchell, and its three joint chief executives. The new office is headed by 36-year-old Jayshree Gupta, who lateraled to DLA from the Dubai office of Denton Wilde Sapte. Gupta, who has worked in Dubai for a decade, says DLA’s decision to open in the city was “a no-brainer” for a global firm. The firm will offer advice in a wide range of areas, she says, including corporate finance, banking, real estate, and employment. (Gupta says the firm is already working several acquisitions for local and foreign companies, but declined to name specific clients.) Not surprisingly, Am Law 200 firms with long ties to the oil industry are also making a play in Dubai. Vinson & Elkins moved to the city three years ago after representing for decades clients like Occidental Petroleum Corporation and Royal Dutch Shell plc in the region. Jeffrey Eldredge, Vinson’s coadministrative partner in Dubai, says the firm wanted to be in a place where clients were increasingly placing financial and legal staff. With the time difference (three hours ahead of London and eight ahead of New York), and a different workweek in Dubai (Sunday through Thursday), being on the ground made sense. Vinson was also impressed by the potential to bring in new clients. “We saw an increasing appetite for investment in the region coming in and going out,” says Eldredge. (So far, so good, according to Eldredge, who estimates that new regional clients now account for more than half the office’s revenues.) Coming and going is part of what makes Dubai so attractive. It’s a quick trip to India, where foreign firms are barred from setting up, and next door to Saudi Arabia, where foreign firms must team with a local shop. The city has a world-class airport with an open-skies policy that encourages foreign airlines to fly there. And it has a successful airline of its own, Emirates Airlines, which offers direct flights to London and New York. Transportation and location were two of the key reasons Akin Gump set up in Dubai last year, says partner Gavin Watson. The firm was particularly attracted to the idea of using Dubai as a base for work in Kazakhstan and India. But the most appealing aspect about Dubai may be the quality of life. The restaurants are good, the malls are big, and a fully stocked bar inside an extravagant five-star hotel is never too far away. But it’s not exactly Sin City. Dubai’s laws are based on Islamic principles. It is illegal for couples who are not married to live together. Homosexuality is also deemed illegal. But people living in Dubai stress that the enforcement of such laws is not aggressive. Dubai may also offer one of the best environments in the Middle East for Western women. Unlike in Saudi Arabia, for example, women don’t need permission from a male guardian to travel. And there are no laws restricting what women can wear or under what circumstances they may be employed. Baker Botts has had an office in Riyadh since 2001. Though partner and former secretary of State James Baker III is regularly greeted by members of the royal family, and partner Robert Jordan was once U.S. ambassador, getting well-trained lawyers to serve a long-term stint in Riyadh has been difficult, says Stephen Matthews, who heads the firm’s Middle East operations. So last year the firm opened in Dubai. It now has seven lawyers there–more than double the number in Riyadh. “We had to be in an easier city to recruit, where expats could come and be comfortable,” says Matthews. But firms should beware: Dubai comes with a hefty price tag and some management headaches. Right now, for example, Dubai real estate is hard to find and expensive. Matthews, who heads Baker Botts’s office, says he spent a year looking for office space. His landlord told him the space would be ready by the beginning of 2006, but because of construction delays, Baker moved in at the end of August with work still needing to be done. Utilities included, the new digs will run about $50 per square foot, more than double the firm’s rate in Houston. That’s on the cheaper end. The typical rate for 10,000 square feet in a top-quality building in a prime location is $76 per square foot, according to a 2006 report by CB Richard Ellis Group, Inc. By comparison, in midtown Manhattan the average rate is $55 per square foot. Firms shouldn’t expect a break on associate salaries, either. According to Mark Walters in the Dubai office of the London-based recruiting firm First Counsel, the trend among leading British firms had been to “tax- equalize” associates-that is, pay them what they would make in London after taxes since their income is not taxed in Dubai. But now the leading British firms are beginning to pay associates on par with gross London rates. An associate with a couple years’ experience can expect to make roughly $118,000. As with local office space, the lawyers are not only expensive but hard to find. Managers on the ground report that Australia, New Zealand, Canada, and the United Kingdom provide the bulk of associate candidates. It gets harder and more expensive to find laterals at more senior levels. Akin Gump’s Watson says the process of landing an associate in London from Allen & Overy, and bringing the lawyer to Dubai, took three months longer than expected. “There’s not that bench of experience here,” he says. Dubai’s status as a regional business hub is a fairly recent development. In the early 1990s, Sheikh Zayed Road resembled a setting from Mad Max Beyond Thunderdome–a few buildings and a sea of sand. The population hovered around 400,000, and the price of oil was in the $20-a-barrel range. But the government was already taking steps to make Dubai a commercial powerhouse. The strategy is based partly on physical inheritance. Dubai doesn’t have as much oil as its neighboring emirate, Abu Dhabi. In 2005 the UAE produced about 2.5 million barrels of oil per day-of which 94 percent came from Abu Dhabi. “Dubai’s ruling family realized long ago they had to be a service provider,” says John Lonsberg, a Fulbright & Jaworski partner who has been working in the region since 1979. “In each case, whenever they’ve announced a plan, they’ve implemented it.” The key to Dubai’s growth has been an embrace of outsiders. The British ended a protectorate over the emirates in 1971, but have never really disappeared. Their leading law firms were on the ground almost immediately. Clifford Chance and Allen & Overy opened their offices in the 1970s. Clifford came to do shipping work. Allen & Overy’s early years were devoted to work for the Saudi Arabian Monetary Agency and Dubai’s ruling Maktoum family. Around the same time, Dubai set out to become a major trading port. In 1980 it inaugurated its first “free zone,” at Jebel Ali Port, just outside the city. The government, advised by Clifford Chance, set aside 25 acres where companies could avoid taxes and retain 100 percent ownership of their companies. In exchange, the government received rental income. Today more than 3,000 companies, such as Colgate-Palmolive Company, Johnson & Johnson, and H.J. Heinz Company, operate at the Jebel Ali complex. After successfully launching Jebel Ali, the government has replicated the free-zone model, organizing the zones around various industries, including media, technology, and biotech. Media City, for instance, is home to offices of The Associated Press, Reuters, and CNN. Internet City houses Microsoft Corporation, Cisco Systems Inc., and 3M Company. With the emphasis on attracting foreigners, it’s no wonder Dubai looks like a town for lease. Emiratis make up only 20 percent of the population. The majority of the residents come from South Asia and a handful of other Middle Eastern countries. There are an increasing number of Westerners as well. More than 100,000 Britons live in the UAE. For law firms, two of the biggest local client targets are DP World, which operates container terminals around the world, and Dubai Holding Group LLC, a sprawling company that includes 19 subsidiaries in 11 different industries. Collectively, they’ve made more than $14 billion in investments abroad since last year. The British firms have benefited the most from those transactions. This year Allen & Overy advised Dubai Financial LLC, a subsidiary of Dubai Holding, in its acquisition of 31 percent of a fast-growing financial group in Greece called Marfin Financial Group Holdings S.A.; Freshfields Bruckhaus Deringer, which opened a Dubai office in 2005, represented Dubai International Properties, an investment arm of Dubai Holding, in a series of real estate development agreements with the Moroccan government (worth $12 billion, according to the parties); and Freshfields represented Dubai International Capital LLC, the private equity arm of Dubai Holding, in its $1.3 billion purchase of Travelodge Hotels Ltd. of the U.K. (Last year Linklaters represented DIC in its $1.5 billion purchase of The Tussauds Group, and Vinson & Elkins represented it in its purchase of $1 billion stake in DaimlerChrysler AG.) The high-water mark of Dubai’s forays abroad came last year, when DP World, represented by Linklaters, acquired The Peninsular and Oriental Steam Navigation Company, based in the U.K., for $6.85 billion. A small part of the deal, which would have put the Dubai company in control of some U.S. ports, was scuttled this spring by American political opposition. The deal, however, helped to raise Dubai’s profile as a place with big money and a penchant for doing big deals. Cameron of Linklaters says the transaction put worldwide competitors in sectors like shipping and aerospace “on notice” that they will have to pay a premium when assets come up for sale. The P&O transaction was also significant because it involved Islamic finance, which incorporates principles of Islamic law known as sharia. To complete its purchase, DP issued the first (and, so far, largest) publicly issued sharia-compliant convertible sukuk (the equivalent of a bond), valued at $3.5 billion. Denton Wilde Sapte represented the investment banks while Clifford Chance represented DP World on the issuance of the sukuk. Fueling the demand are investors from the Islamic world that are increasingly choosing Islamic finance options. Providing such service is increasingly becoming a necessity to serve clients in the region, which wasn’t the case ten years ago. That’s partly because there wasn’t the expertise or the products. Ayman Khaleq remembers working on his first Islamic finance deal in 1998. Even though Khaleq went to law school in Jordan, where principles of Islamic law are taught, he was starting from scratch. “There was a steep learning curve,” says Khaleq, now a senior associate at Vinson & Elkins. Khaleq has since become a regular speaker and writer on the subject. Earlier this year Khaleq and his colleagues in Houston represented the financial managers in a cutting-edge deal, which securitized the revenues of the Texas-based gas company East Cameron Partners L.P., using Islamic finance principles. It’s believed to be the first time a U.S. company tapped the Islamic debt market. Lawyers in Dubai also say there is a need for consolidation in several sectors, and that in the last year telecom has been particularly hot. In August, Linklaters represented two subsidiaries of Dubai Holding on the acquisition of a 35 percent stake in Tunisie Télécom for $2.25 billion (Allen & Overy represented Dubai’s lenders and Clifford Chance adivsed Dubai Holding on the financing); Freshfields, from its Dubai office, advised MTN Group Limited, Africa’s largest mobile phone operator based in South Africa, in its $5.53 billion acquisition of Beirut-based and DIFX-listed Investcom LLC, which was represented by Dewey Ballantine in London; and Norton Rose represented Dubai-based Emirates Telecommunications Corporation (Etisalat) on its successful $2.89 billion for a license to operate Egypt’s third wireless network. And project finance continues to fuel a steady stream of Middle East deals. In 2005 the total value of projects in the Middle East and Africa rose 96 percent, to more than $44 billion, its highest level ever, according to Dealogic Llc. The region was on pace to break that record this year. In the first half of 2006, 20 projects worth $32.5 billion closed. Projects aimed at creating new oil-based products are driving the growth. Traditionally, the region simply extracted oil, put it in a barrel, and sold it on the market. “That’s changing,” says Allen & Overy projects partner Bimal Desai. Last year the two largest projects in the world involved liquefied gas production in nearby Qatar. In the first six months of this year, two deals involving petrochemical plants in Saudi Arabia were the biggest. Clifford Chance advised the lenders on the largest, the $9.9 billion Rabigh petrochemical expansion project. “You can’t see an end” to the projects, says Clifford Chance’s Dubai managing partner Graham Lovett. Dubai, however, wants to be more than a way station for bankers and lawyers chasing regional projects. With the creation of the Dubai International Financial Centre, the potential for sophisticated legal work in the city-state has deepened. The key word, however, is “potential.” The unveiling of the DIFC occurred in typical Dubai fashion. Last November more than 1,000 guests assembled outside The Gate Building, the anchor building of the DIFC, which resembles the Arc de Triomphe and was designed to symbolize a gateway for investment to the rest of the world. The VIPs watched fireworks and lasers light up The Gate while listening to Andrea Bocelli belt out Bizet arias. Dubai royalty beamed when it officially unveiled the DIFC last November. In a press release, Crown Prince Sheikh Mohammed bin Rashid al-Maktoum said, “Most people talk. We do things. They plan. We achieve. They hesitate. We move ahead.” In reality, the exchange was teething. For about the first five months, there was no trading on the DIFX. There wasn’t much to trade anyhow. On the opening day, only five securities were listed. Part of the holdup was that banks and the DIFX were negotiating over trading rules, which took several months to work out. “It was a real embarrassment to the government,” says Cameron, who represented the banks in their discussions with the DIFX. Modest beginnings aside, the exchange hopes to tap into the $1 trillion in investments emanating from the Middle East. Dozens of privatizations of state-owned enterprises are also in the works, which could benefit from an equity market. Islamic finance, a market that the DFIC values at $200 billion, needs a center where new financial products can be developed and sold. And it’s the first exchange in the region with listing standards on par with those in London, New York, and Tokyo. Dubai sees an opportunity to close a time gap between Europe and Asia that could allow for trading on major international exchanges around the clock. Dubai didn’t skimp on hiring and planning for the project. It brought in some of the best minds in the world to design and implement the center. The DIFC recruited a board of directors that included executives from the likes of Goldman Sachs, HSBC, and Deutsche Bank. In the beginning, the project appeared to be focused on the American financial system as the model. To create a legal blueprint for the DIFC, the government of Dubai tapped Skadden, Arps, Slate, Meagher & Flom after holding a beauty contest. Beginning in early 2001, a team of eight partners put together a plan that outlined legal principles for everything from general corporate law to intellectual property to privacy to an independent court system. In addition to its legal work, Skadden was also involved in managing meetings between officials from Dubai and some of the top executives at the world’s largest banks in New York. The project took a detour after September 11. According to Skadden partner Martin Klepper, the interest in Dubai among American financial executives disappeared. “There were no Americans traveling to the Middle East then,” says Klepper. “Traveling to the U.S. [from the Middle East] was also very difficult. I think to move their program forward, they had to look elsewhere.” Skadden bowed out. In 2002 the government appointed Ian Hay Davison, former chief executive for Society of Lloyd’s (a.k.a. Lloyd’s of London), to oversee the regulatory framework. Davison in turn hired Clifford Chance to come up with a new blueprint for the DIFC. Subsequently, other British firms were brought in to draft specific pieces of legislation. Allen & Overy tackled an wide array of commercial laws; Simmons & Simmons took on laws relating to Islamic financial institutions; and Clifford Chance designed the regulatory body and outlined its functions. The result is a body of regulations modeled heavily on the Financial Services Authority in London, the equivalent of the U.S. Securities and Exchange Commission. Lawyers from British firms believe the heavy influence of FSA rules on Dubai’s new exchange give them an advantage. For one, it will make dual listings in London and Dubai easy. If a company files a quarterly report with the FSA, it will fulfill its reporting requirements in Dubai. And most of the underwriter banks for IPOs in the DIFX will likely be staffed via London. It may take some time for the Brits to reap the benefits. There have only been a few IPOs since the beginning of the year. The first IPO happened in February, when Kingdom Hotel Investments-controlled by Saudi Arabia’s Prince Al-Waleed bin Talal bin Abdul Aziz Al-Saud-raised $397 million. (Allen & Overy represented the underwriters, and Dewey Ballantine’s London office represented Kingdom, which simultaneously listed on the London Stock Exchange.) In March, Man Industries Limited, an oil and gas supplier, became the first Indian company to list on the Dubai exchange. (The British firm Clyde & Co. advised the underwriters; S&R Associates, an Indian firm, represented Man.) Lawyers in Dubai expect more offerings in the fall. Even so, Cameron of Linklaters hasn’t seen much in the way of financial product origination in Dubai, with the exception of Islamic financing. “Even though most banks are coming, they are very uncertain of what they want to do here,” says Cameron. “The test is whether they can cultivate critical mass of wealth management here. Can product origination happen here?” For law firms, there are more serious questions about the business case that Dubai makes. Dubai may be generating much of the buzz, but it’s not the only player in the Middle East with aspirations to become a world-class financial center. So do Bahrain and Doha, Qatar. Most recently, Saudi Arabia announced plans for the King Abdullah Financial District in Riyadh. In the long term, few believe the region will support more than one major financial center. And what if a majority of the best deals generated from the region don’t require a presence in Dubai? Schiff Hardin partner Stephen Dragich of Chicago has never set foot in Dubai. But he and his firm represented Dubai’s Emaar Properties, one of the largest developers in the world, in its $1.05 billion acquisition of WL Homes LLC this spring. Last fall, Morrison & Foerster, which also doesn’t have an office in Dubai, represented the Dubai Investment Group, an investing arm of Dubai’s government, in its acquisition of the Essex House Hotel in New York. It also recently represented DIG in the purchase and sale of real estate assets in the Southwest U.S., known as the Walden Portfolio. For American firms that are not defined heavily by an energy practice, Dubai has yet to make the case as an essential place to be. Bruce Buck, who heads Skadden’s European practice, is not yet convinced that an office in Dubai fits into the firm’s focus on large, cross-border transactions. Buck notes that Skadden already does “a significant amount of business in the Middle East, particularly in the project finance area.” Still, lawyers in Dubai remain enthusiastic. They can point to announcements like the one earlier made this year by Dubai Islamic Bank and Dubai World, two major local companies, to launch a $5 billion family of funds for worldwide investment, and another in August by Jefferies Group, Inc., to become the latest bank to become a securities trading member of the Dubai exchange. Akin Gump’s Watson is one of the new arrivals in Dubai. During lunch at a hotel with a view overlooking the Financial Gate, he sounded optimistic about the prospects of the firm’s operation, which launched last spring. Since December, Watson says, he and his four associates have averaged 150 billable hours a month, which he considers a strong showing for a new office. But the highlight of Watson’s time in Dubai may be the lunch he had with a member of the royal family (Watson won’t disclose his name). “I have to remind myself that I have to say ‘Your Highness’ ” when he calls, Watson says. He doubts that he would have met royalty if he hadn’t been based locally. “ By putting people on the ground, the region is sufficiently small that people will see you. People will get to know who you are,” says Watson. “So you will not only expand your client base, but you’ll also be able to tell people what you can do elsewhere.” Making rain in the desert? How very Dubai. E-mail: [email protected].

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