It is almost two years since Enrique Peña Nieto was sworn in as president. Within this short time frame there have been significant developments in the country, most notably transformative changes to its legal framework. These have certainly helped the country take the crown as one of the MINT (Mexico, Indonesia, Nigeria and Turkey) emerging nations and resulted in excitement among international investors. The country’s growing economy (which an HSBC report predicts will be the eighth largest in the world by 2050), a rising middle class and the enactment of several key pieces of legislation have translated into an exceptional year for Mexico, and its legal market has correspondingly benefited.
The most notable regulatory development of 2014 is the much-discussed comprehensive energy reform, which the president signed into law on 11 August. Made up of 21 component parts, the reform’s new statutes have opened the country’s energy markets to domestic and foreign private investment. This “game-changing” amendment has ended decades of state monopoly of the sector and created new regulatory bodies to oversee the anticipated flood of foreign investment. Our sources report that there has been “incredibly strong interest” from around the globe, resulting in a substantial uptick in advisory and consultation work. There is also a reported determination by multinational energy companies, banks and financial institutions to “get off the starting block and get financing deals done”. This indicates that the reinvigoration of this sector, which is the key goal of the reform, is on course to happen. As one practitioner explained: “There is real concern among foreign companies that, if they do not move quickly, they will miss the boat, so we are experiencing a flood of work as everyone jostles into position.” There is also new legislation aimed at restructuring the electric power sector, which was previously beset by high prices and poor service. In tangent with these regulatory changes, a larger and more sophisticated energy bar has emerged in the country; established firms have built up their practices to meet demand, the younger generation are gaining experience, and seasoned practitioners have been incredibly active. This is borne out in our research, with four more individuals recognised than in our previous edition.
While it will take several years for the first oil to flow as a result of the reforms, exploration and infrastructure are key areas of immediate focus, and project finance lawyers have commented on a continued “boom of activity” over the past year. This is a result of both private and state investment, with the government significantly increasing the amount of budgetary resources available for infrastructure development in recent years. Following the enactment of the new federal public-private partnership (PPP) law in early 2012, Nieto announced a US$316 billion infrastructure budget (including US$48 billion for transport) in his 2013-2018 development plan. According to those we spoke to, this has resulted in “incredible interest” from foreign investors in the country, with banks, pension funds and private equity money pouring in. The US$665 million Mexico Pipeline project financing at the end of 2013 demonstrates this enthusiasm; it was oversubscribed and received commitments from 100 per cent of invited lenders.
In line with these developments we have seen a budding project finance legal market, with the number of practitioners we recognise increasing year on year since 2012, with seven new individuals singled out for 2015. Well-known players, such as Galicia and Ritch Mueller Heather y Nicolau, have been very active on major deals and lesser-known firms are also emerging. According to our sources, due to the amount of work going around these smaller outfits have been able to develop a solid base of clients over the past couple of years and build up good reputations, which has resulted in them becoming credible players in this field.
This drive of infrastructural development has benefited construction lawyers as well. Not only are the best keeping busy, but there has also been notable growth in the legal market as new players become increasingly active. This is borne out in our research, with Enrique Ramírez Ramírez of Ramírez Gutiérrez-Azpe Rodríguez-Rivero y Hurtado, as well as David Enríquez and Luis Pérez-Delgado of Goodrich Riquelme y Asociados, featuring in this section for the first time this year. Alongside the burgeoning construction industry is the continued boom in the real estate sector, which has seen a steady stream of domestic and foreign investment over the past year. Pension funds have entered the fray, most recently with Ivanhoe Cambridge, the real estate unit of the Canadian fund Caisse de dépôt et placement du Québec, investing US$100 million in a residential development in the borough of Cuajimalpa in Mexico City.
Mexican real estate investment trusts, known as FIBRAs, have continued to grow in popularity with investors since their introduction to the market in 2010. According to lawyers, the attraction of FIBRAs, particularly for foreign investors, is that they can invest in property without having to buy a building and returns are very solid. There are now eight FIBRAs trading on the Mexican stock exchange with a combined worth of US$18 billion, according to Evercore Group; however, given that the overall value of commercial real estate in the country is estimated at US$370 billion, practitioners are predicting the number to increase. Furthermore, with the country’s young workforce, a growing middle class and an expanding economy, the demand for commercial and residential real estate is expected to keep rising and will remain a “hot area” of investment for the foreseeable future.
It is also an exciting time for TMT lawyers, with the liberalisation of the country’s telecoms and broadcasting sectors resulting in a wealth of advisory and transactional work as existing players adjust their stakes and new companies enter the market. The rules were signed into effect in July and are aimed at creating greater competition in the market and improving quality and service. In the telecoms arena, Carlos Slim is being forced to end his monopoly of the fixed line and mobile sectors, of which he controls roughly 80 and 70 per cent respectively, and is divesting his assets to meet the new limitation of 50 per cent. Meanwhile, Virigin Mobile Latin America entered the market this year, reportedly shifting its expansion plans from Brazil to Mexico in light of these regulatory developments. Latest reports suggest that Spain’s Telefónica, which currently boasts a 20 per cent market share, is seeking to boost its position regarding telecoms and is also considering a range of tie-up options in Mexico with broadcaster Grupo Televisa.
This past year has seen the proposed reforms enacted, and in 2015 we expect the implications of this to play out. The reforms encompass economic competition, finance and tax: as the president states, “Our goal is to make Mexico more open, productive and competitive, with sound public finances and skilled human resources; so we can play a more active role in the global economy and provide our people with a better quality of life.”
However, the picture is not entirely rosy. So far, economic growth has not been at anticipated levels, resulting in some concern – notably for foreign investors – and there is also debate as to how successful certain aspects of the reforms might be. For example, regarding the antitrust bill there is apprehension that in reality it might punish those who achieve success, and in the long term could result in less competition in the market and even put investors off. The next year will be crucial in determining whether all that glitters really is gold; regardless of this, however, leading firms and private practice lawyers will be highly sought after.
So far, under Nieto’s government the legal market has gone from strength to strength. This is evidenced in our research, with the majority of the leading firms in our research achieving more listings this year than in the two previous editions. Furthermore, we have also seen more firms gain prominence in the market: we single out 16 more than in our 2014 edition. Interestingly, in a legal market that has traditionally been dominated by domestic players, several of the new outfits making waves are US or international, demonstrating Mexico’s status as a key jurisdiction of focus for clients, and thus a place where many now believe they need a presence in order to better serve their clients’ needs.
DLA Piper entered the fray in 2012 with the launch of a Mexico City office. In February 2014, it swiped a notable number of partners from Thompson & Knight. In August, Hogan Lovells combined with prominent local player Barrera, Siqueiros y Torres Landa, with CEO Steve Immelt attributing this decision to “the sweeping structural reforms for Mexico, which could unlock major potential for investors and companies in a broad range of industries that are looking to capitalise on the current environment”. With this merger, Hogan Lovells has become the first international firm we recognise as a leader in the market, due to the high number of inclusions it achieves. Practitioners we spoke to believe there will be more significant tie-ups in the near future, with many suggesting there are several local firms merely “waiting for the right suitor”.
However, local players are also accounting for the rise in the number of firms we single out. Several have come to the fore in fields touched by the reforms, such as Acedo Santamarina, which is recognised for the first time due to a listing it achieves in our TMT chapter. We also have a new private equity section as a result of the demand for practitioners with expertise in this area due to funds seeking investment opportunities in the market. Eight individuals are selected, seven of whom hail from home-grown firms. Overall 87.5 per cent of the new individuals to this edition hail from domestic firms, demonstrating they are holding their own in the changing legal landscape.
As reforms invigorate the country, the legal market is also being transformed. Crucially, it is expected that there will be a much greater number of international and US players in the mix, either through combinations or setting up their own shops, which lawyers say will result in healthy competition. As one local practitioner explained, “There is so much work that everyone can keep busy, but the competition will mean that standards of client service and sophistication of work should reach even greater heights, which will benefit us all.”