Slaughter and May Hong Kong partner John Moore ()
Last month, British Magic Circle firm Slaughter and May broke with over 120 years of tradition and recruited its first ever lateral partner, Hong Kong–based John Moore. But, according to Peter Brien, the firm’s senior partner in Hong Kong, there was less internal debate about Moore being a lateral than his being another first for the firm: a U.S.–qualified partner.
Though London’s top law firms have notably failed to flourish in New York, they are determined not to let U.S. law become their Achilles’ heel in Asia. Six of Freshfields Bruckhaus Deringer’s 20 Hong Kong partners are U.S.–qualified. Linklaters, Clifford Chance and Herbert Smith Freehills each have three U.S.–qualified partners in Hong Kong, while Allen & Overy has two and Ashurst, one.
U.S. law’s importance in Asia, especially the international financial hub of Hong Kong, stems primarily from the size and reach of U.S.–based institutional investors. Many Chinese companies, especially in the technology sector, prefer to primarily list on U.S. exchanges. Any sizable securities offering in Hong Kong will also be pitched in the United States, usually via Rule 144A of the U.S. Securities Act. The greater due diligence and disclosure occasioned by the participation of U.S. investors often results in U.S. lawyers having the most substantial roles in initial public offerings on the Hong Kong Stock Exchange. And the overall growth of capital markets in the region promises more to come.
“U.S. law is becoming increasingly important in international financing transactions originating in Asia,” says David Ludwick, a U.S.–qualified partner in Linklaters’ Hong Kong office. “From a capital markets perspective, there is a significant stream of U.S.–related work including Hong Kong and regional initial public offerings and high-yield debt.”
British firms do not intend to be left out of that stream.
“Hong Kong listings work, especially for Chinese companies, is too large a market for people to ignore,” says one Hong Kong partner with a U.S. firm who previously worked at a Magic Circle firm. “You can’t discount firms like Freshfields, Clifford Chance or Herbert Smith Freehills. They are pretty strong in the market.”
Those firms began expanding into U.S. law practice in Hong Kong over a decade ago, and it was their ability to serve as “one-stop shops” advising issuers on U.S. as well as local securities law that prompted New York capital markets–oriented “Wall Street” firms including Sullivan & Cromwell, Simpson Thacher & Bartlett, Davis Polk & Wardwell and Shearman & Sterling to virtually all launch their own Hong Kong law practices over the past three years, mainly with partners recruited from U.K. firms. Those moves, in turn, had a major impact on Slaughter and May.
Alone among the Magic Circle firms, Slaughter and May has largely eschewed international expansion, preferring to work abroad with a network of “best friends” in other jurisdictions. The firm’s Hong Kong office, founded in the days when the city was a British colony, previously worked frequently with American best friends like Davis Polk and Simpson Thacher on capital markets works, taking the Hong Kong law piece while they handled U.S. law. When those firms launched their own Hong Kong practices, the stream of referrals largely dried up.
Brien says Slaughter and May recognized there was a need in Hong Kong for the firm to offer both U.S. and Hong Kong law together to remain competitive. He stressed that there were no plans for the firm to practice U.S. law anywhere other than in Hong Kong capital markets.
“We have been here for 40 years,” says Brien. “That’s why we have a strong track record here.” Last year, Slaughter and May advised Chinalco Mining Corp. International, a subsidiary of Aluminum Corp. of China Ltd., on a $398 million Hong Kong IPO. In 2012 the firm represented the underwriters of People’s Insurance Co. (Group) of China Ltd.’s $3.6 billion IPO on Hong Kong law. It also acted as Hong Kong counsel for Italian fashion house Prada S.p.A.’s $2.14 billion 2011 IPO. Simpson Thacher, Sullivan & Cromwell and Davis Polk acted as U.S. counsel on these deals, respectively.
But why would Asian clients seeking U.S. law advice go to a U.S. lawyer at a British firm when they just go to a U.S. firm?
“English firms are competing,” says Paul Chow, a Hong Kong partner with Davis Polk who was previously a partner with both Linklaters and Slaughter and May, “but they don’t have the breadth and depth of expertise in U.S. securities law that New York firms do.”
The U.K. firms are definitely in the mix though. Last year, while Davis Polk advised Cinda Asset Management, a Chinese state-owned bank set up to acquire nonperforming loans, on both U.S. and Hong Kong law in its highly subscribed $2.8 billion IPO, Freshfields advised the underwriters, also on both U.S. and Hong Kong law. The two firms reversed roles representing the issuer and underwriters in the $3.1 billion listing for China Everbright Bank in December. Clifford Chance advised China Huishan Dairy Holdings Co. Ltd. on both U.S. and Hong Kong law for its $1.3 billion IPO last September.
Crawford Brickley, a U.S. law partner and Asia capital markets head for Clifford Chance, says the choice of counsel is often influenced by the preferences of the investment bankers working on a deal. He says it’s common for those who have worked closely with firms like Skadden, Arps, Slate, Meagher & Flom or Simpson Thacher in New York before relocating to Asia to have bias in favor of the Wall Street firms. But he says it’s tough to generalize.
“For the same reason, European clients in London, Paris or Frankfurt might have a preference for Clifford Chance,” he says.
For those deals that actually involve listings on the New York Stock Exchange or Nasdaq, most lawyers with U.K. firms concede the Wall Street firms have a major edge. Instead, the main battleground is for Hong Kong capital markets work with a U.S. law component.
Moore, who began his career at Sullivan & Cromwell and was a partner at Herbert Smith and then Morrison & Foerster before joining Slaughter and May, says U.S. firms might be able to claim stronger U.S. law capability but that’s balanced by British firms’ greater experience practicing Hong Kong law.
“While U.S. law advice is an important part of a Hong Kong listing, it’s still extremely important to have a strong Hong Kong law team,” he says. “I think that’s an area in which U.K. firms certainly have advantages.”
Other U.K. firms are also seeing opportunity in areas of U.S. law practice in Asia beyond capital markets. Calvin Lai, a U.S.–qualified Hong Kong partner at Freshfields, says his firm has recently brought aboard U.S.–qualified disputes and antitrust lawyers. Clifford Chance Asia anticorruption head Wendy Wysong is a U.S. lawyer who works out of both Hong Kong and Washington, D.C. Kyle Wombolt, the global head of Herbert Smith Freehills’ corporate crime and investigations practice, is also a U.S. lawyer based in Hong Kong.
Wombolt says that, historically, many leading U.S. firms have shied away from making significant investments in Asia disputes practices, creating openings for U.K. firms. “[U.S.] firms have maintained large disputes presences in New York or Washington, D.C., and chosen to fly lawyers into Asian jurisdictions,” he says. “But this approach has significant limitations, especially in counsel’s limited understanding of the local environment.”
Right now, the Asian operations of many global banks and multinationals are in the crosshairs of U.S. regulators for possible violations of the Foreign Corrupt Practices Act and other U.S. laws.
“The center of gravity in many of the largest cross-border investigations over the past decade has been Asia, yet the most active regulators and prosecutors on those matters have been in Washington,” he says. “Being able to counsel clients on the similarities and differences in the approaches of various enforcement agencies is highly valued.”
Many U.S. law firms without litigators in the region could therefore be at a disadvantage in such matters, Wombolt thinks.
In the capital markets area, some think there are signs that U.S. law influence may be on the wane. Last year, several Hong Kong listings under $100 million in size did not include an international component, only Hong Kong and mainland China law. These included the $61 million IPO of nutritional supplement maker Nanjing Sinolife United Co. Ltd. and the $55.7 million IPO of menswear maker Fujian Nuoqi Co. Ltd.
Outside of the technology space, fewer Chinese companies are choosing to list in the U.S. itself, where regulatory burdens are high and there is an ever-present threat of shareholder litigation. Over time, some wonder if the Chinese investor market may be rich and deep enough itself that U.S. investors will become less critical even to large Asian offerings. But most lawyers don’t see that happening anytime soon.
“The U.S. capital market is still the biggest in the world,” says Chow, noting thateven for listings outside the U.S., access to this capital is often essential. “This probably won’t change in the near future,” he says.