Research Trends & Conclusions: Project Finance 2012

With the benefit of over 15 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the project finance legal marketplace worldwide.

Ask a project finance lawyer to comment on general levels of activity in the current market and invariably their answer will focus on the nature of the work and location. There are jurisdictions that are performing well with relatively buoyant markets, Brazil and India stand out in our research, as much as there are certain sectors which continue to be active. Conversely, some project finance lawyers we spoke with noted a slowdown in activity. Having cast a lingering shadow of uncertainty, it is here that the much-documented impact of the financial crisis on Western economies cannot be ignored. In particular, the dent in the ability of European banks to offer long-term lending has altered the landscape of the financing market. Last year our research revealed a trend that demonstrated that the East was very much driving the West and that emerging markets were a key focus for many lawyers. One year on, with further instability in the Eurozone, our research findings reveal a similar state of affairs with the addition of some interesting new trends.


Over the last decade or so, European banks have traditionally been the backbone of financing deals, playing a crucial in role in markets such as the US energy project finance business. The hike in capital requirements introduced by the Basel III regulations, banking downgrades and Eurozone instability have increased the underlying cost to banks of lending, most notably squeezing their long-term lending capabilities. With this in mind, it is no surprise that lawyers we spoke with in Europe commented on a reduction in the number of new deals that have landed on their desks in the last 12 months. In fact with fewer new projects, many noted the restructuring of existing projects was becoming an increasing part of their work. Lawyers also commented that although there are fewer deals, those that come to fruition tend to be larger in scale and in general terms there are fewer larger deals as opposed to many small projects. Complex in nature and often involving multiple tranches of debt, deals also tend to be in more “challenging” locations, most noticeable when it comes to projects in the mining and oil and gas sectors. Those with practices that focus on such work remain relatively busy. In addition, lawyers in Europe commented that energy projects, especially renewables, continue to have a significant place in the market. Practitioners in the US have also felt the implications of reduced European lending. In terms of general levels of activity, US lawyers noted that their economy is not as robust as they hoped, making it difficult for investors to determine what future demand will look like. Where there are good projects, financing is not an issue; on the whole, however, it is a more difficult market. Having said that, demand for renewable energy remains high and lawyers, particularly in California, remain busy. Also, the rise in shale gas development has led to a number of LNG terminals being converted from import to export terminals in US, an interesting trend to keep an eye on.

As Europe’s banks prepare to shed up to €3 trillion of loans over the next couple of years, they will have to be more choosy about lending as well as having to place greater emphasis on their home markets. Towards the later half of 2011 Commerzbank, Germany’s second biggest bank by assets, announced that it would temporarily suspend new lending that was not related to its home market or Poland. Also at the end of last year, the omission of French banks in a $5.4 billion deal, involving more than 30 banks, for Qatar Petroleum’s Barzan gas project was a telling sign. Historically French banks have been known for their involvement in project financing in the Middle East; however in this transaction the syndication included Asian banks such as Sumitomo Mitsui, Mizuho Corporate Bank and Bank of Tokyo-Mitsubishi. The gap left by European banks has opened the door for strong global banks as well as local lenders looking to cash in on the opportunities that were previously not available to them. It is also interesting to cross-reference these findings to the trends we highlighted in our recent banking research. Here we commented on the ascendancy of the southern hemisphere in the banking legal marketplace, described by one lawyer as a “rebalancing of world economies”. A noticeable shift in the dynamics of the banking sector is to some extent also being played out in the project finance world whereby the retreat of European banks has opened the doors for new players. It will be interesting to see whether this will have a long-term impact on the key players in the financing of global projects and consequently how this will impact the legal market.

Researchers received reports that the gap left by European banks is significant and that financing from other avenues is being explored to raise funds, including the use of the bond markets. Mid-American Energy Holdings recently raised $850 million to fund construction of Topaz Solar Farms, one of the biggest renewable project finance bond deals in US dollars without a government guarantee. To some extent private equity groups have also stepped up to finance projects. Blackstone recently agreed to provide $2 billion of financing to Cheniere Energy Partners to fund the construction of a natural gas liquefaction plant. Our recent mining research also highlights this trend. With financing from traditional sources limited, we reported that “while mid-cap project financings by Western banks are possible, anything above that will need serious Chinese participation”. Bearing this in mind, there has been a noted increase in reliance on private equity, sovereign wealth funds and export credit agencies. With this shift, the importance of law firms having a global reach and the ability to tap into alternative markets is all the more important. In particular for large deals that require a range of financing from multiple sources it is the strength of the international multidisciplinary firms that stands out.


Emerging markets continue to demonstrate their importance. By no means a new phenomenon, the trend for work in such markets such as Brazil, India and China continues to grow. One lawyer labelled this as “the re-emergence of the emerging markets” noting that their significance – especially that of China – outside their own borders is influencing projects globally. Latin America and the Middle East, especially in relation to petrochemicals in Saudi Arabia and the huge infrastructure ambitions of Qatar in preparation for the 2022 World Cup, remain active. Interestingly, lawyers we spoke with noted an uptick in activity in Sub-Saharan Africa as their clients continue to look to new markets that offer opportunity.

According to our sources, project finance work is booming in Brazil, with Brazilian lawyers reporting that they have “never been busier”. Pent-up demand for infrastructure and a surge in energy-related matters has resulted in a growth in activity. According to Ernst & Young’s 2011 Infrastructure Report: Setting Strategic Priorities, only about one-seventh of Brazil’s roads are paved and much of the highway between Rio de Janeiro and São Paulo is only two lanes. Hosting both the 2014 World Cup and 2016 Olympics has made the need to address these issues an even more pressing matter. 2010 saw the government commit to a $900 billion infrastructure plan including the construction of a high-speed rail line from Rio de Janeiro to São Paulo. It is not infrastructure alone that is keeping Brazilian lawyers busy: energy projects, including those involving renewables, are also active. With China able to purchase most of what it needs domestically and India buying from China, Brazil remains as a lucrative market for European and US developers who are keen to tap into the wind-farm market in Brazil. Alongside developers, law firms too are eying the potential that Brazil has to offer with Hogan Lovells planning to open offices in Rio de Janeiro. Interestingly the firm has opted for its base here rather the São Paulo, the country’s financial centre and home to the offices of most other international law firms. The demand for project finance work in conjunction with Rio de Janeiro’s role in both of the major sporting events is believed to have played a role in the firm’s decision. The activity in the market is reflected in our research with a corresponding increase in the number of Brazilian lawyers we list.


Last year we commented on India’s unrelenting demand for infrastructure projects driving the country’s project finance work. Ernst & Young’s report includes figures from the World Economic Forum which rates India’s infrastructure 89th of 133 survey countries. The government is to double infrastructure spending to $1 trillion between 2010–17, with officials hoping that the private sector will raise half the budget. With the need for infrastructure and greater government commitment, in the first nine months of 2011 India was ranked number one in project finance by nationality, with an aggregate deal value of $7.2 billion and a deal count of 163, according to figures from Dealogic. The State Bank of India also topped the global mandated arranger ranking with a 13.1 per cent share followed by IDBI Bank with 3.8 per cent. Having said that, lawyers we spoke with in India noted a marked slowed down towards the end of 2011, citing the impact of the Eurozone crisis as well as domestic economic issues. However, they remain optimistic for 2012 with renewed interest from overseas investors, in particular from China. Our research identifies no change in the number of lawyers we list for 2011 and 2012. Interestingly the same is true for the number of China-based lawyers we list, with one key difference. With foreign firms prohibited from practising in India there are of course no foreign firms included in the India listing. In contrast, out of the eight firms we list in China only one is a Chinese firm.

International firms will of course have an interest in the Chinese market. China’s spending on infrastructure and energy projects, both at home and aboard, continues to make it an important player in the projects arena. Further, its demand for energy has stimulated the need for natural resource projects internationally. According to Bernstein Research demand for LNG in the Asia-Pacific region is growing at 20 per cent year on year, and China is set to become the second-largest importer of LNG by 2020, after Japan. Data from Bloomberg and International Rivers, a California-based environmental group, states that China’s engineering and manufacturing giants have recently completed or are participating in at least $9.3 billion on hydropower projects in Zambia, Gabon and the Democratic Republic of Congo, as well as other parts of the continent. The Chinese are also among the top investors in Africa for solar power. During the course of our research, a key trend was the growing importance of Sub-Saharan Africa, with one expert commenting that “this is an exciting region with increasing opportunity”. Recent events, such as the discovery of natural-gas fields off Mozambique’s Indian Ocean coast that may hold more than Norway’s entire reserves, have brought it into the spotlight. Although the role of multilaterals is still important, practitioners commented that “deals are now also taking advantage of the economic situation”.

Last year Allen & Overy became the first magic circle firm to open offices in Casablanca, with Clifford Chance having followed suit this year. Africa’s growing importance for the legal work it creates – in particular when it comes to work in the energy, infrastructure and mining sectors – is evident from such firms recognising Morocco as a key legal hub for international investors and companies looking to build a presence in the region. South Africa has previously been a focal point: in 2010, Norton Rose merged with local firm Deneys Reitz. However, with China’s demand for natural resources in the continent, together with a slow-down in Western economies, the need to tap into potential markets has never been stronger. In a practice such as project finance, the importance of global reach remains paramount. Whilst the number of lawyers we list in Africa has seen a small reduction, it will be interesting to monitor this trend in the future.



How have these trends played out in the legal arena? Looking back over the last four years, there has been a steady increase in the number of lawyers listed in our project finance books. With an additional 60 lawyers in 2010, there was an increase in 2011 of 50 extra names. This year there has been a more muted rise, with a total of 476 lawyers in 74 jurisdictions, we list 45 more individuals than in our previous edition. Given the uncertainty in the markets globally, it not surprising to see a smaller increase in the number of lawyers that we feature. Having said that, traditional centres for project finance work continue to perform well in our research, with the US home to the highest number of practitioners, followed by England. This year Brazil, Japan and Turkey also make the list of those countries with 10 or more nominees. Here a parallel can be drawn with the abundance of project finance work in Brazil and the greater interest from Japanese banks in the financing of projects.



Looking back over the past four editions, our research reflects a fairly stable marketplace with the same firms performing consistently well in our research. Once again the strength of magic circle giants Allen & Overy and Clifford Chance is apparent. In our 2011 research, both firms were evenly matched in terms of the number of lawyers selected. This year Clifford Chance leads the research with more practitioners selected for inclusion than any other firm. Lawyers we spoke with commented that the type of deals being done were often large in value and complex in nature – and more often than not the domain of the larger international firms. This is reflected in our research where the firms that have performed consistently well are those belonging to the UK magic circle as well as prominent US names. It also demonstrates that despite lawyers in the emerging markets remaining particularly busy, global reach is no competition for their international counterparts. With a cooling off in the ability to raise finance being a key concern, particularly for lawyers in the West, having a strong international presence also demonstrates that this enables certain firms to maintain relatively stable levels of work during uncertain times.


Law firms are still keen on expanding their presence and putting down roots in markets that offer potential and geographical spread continues to be an important factor. The leading firms in our research are those that have global practices. Moreover, the three firms with the highest number of listings – Allen & Overy, Clifford Chance and White & Case – also have lawyers listed in more locations than any other firm. At Clifford Chance the talent is spread across 13 countries, with England, France, Spain, UAE and the US performing particularly well. Allen & Overy also performs well and, with experts identified in 13 countries, matches Clifford Chance.

Emerging markets remain important and new locations are being pinpointed for potential work. There is also an interesting movement in who and how projects are financed. How the market develops in the future will certainly be interesting to watch. As for now, the key players continue to make their presence felt globally.

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Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.

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