Research: Trends & Conclusions

Project finance is the preserve of the elite. The practice requires skilled banking and finance lawyers who can assist parties in reaching a workable consensus in complex negotiations, and who also have a sufficiently strong understanding of project development to identify any risks. As their work increasingly stems from emerging markets in the East, access to the resources of a large international firm is a definite advantage.



Looking at these requirements, it is hardly surprising that the practice has remained the stronghold of lawyers in the UK Magic Circle and major US firms. Yet despite the relatively limited number of firms active in the market – there are only 20 firms with five or more lawyers in-guide in this edition – competition remains strong. According to Dealogic, the first half of 2013 saw just 200 closed deals, down from 291 for the same period in 2010. However, the volume of global project finance deals increased 3 per cent in 2013, to $418 billion. All in all it was a year of mixed fortunes: prosperous for anyone lucky enough to secure a role on a transaction, but rather quieter for those missing out on the limited number of places.

The absence of repeat business in the project finance legal market further distinguishes it from many other areas of practice. Each deal has unique demands and a different combination of parties and structured finance techniques; each deal therefore requires legal counsel who meet specific criteria. Reputation and experience are paramount when being invited to tender, but from thereon the decision will be based on how well the firm is suited to the projects’ needs: whether that be experience in a particular jurisdiction, project type or particular form of financing. For those who meet the requirements, the reward is “a big deal which will keep the team busy for several years”. 

Once a firm has secured its position, it must grapple with the increased complexity of transactions involving multiple funding sources and different techniques such as Islamic funding, project bonds, securitisations, leveraged finance and asset acquisitions – a product of the absence of traditional debt finance in the years following the financial crisis.

With the dearth of commercial banks in the project finance market in recent years, project sponsors have had to look to alternative financing sources and while the past year saw more banks return to the market, liquidity is still constrained. That being said, lawyers we interviewed were quick to point out that the situation in 2013 was markedly improved from the previous year and debt finance is certainly out there for the right projects.

Banks are also dealing with the ramifications of new regulatory frameworks, such as Basel III which requires them to increase the size of the capital buffer they must hold against losses and better match the duration of their own funding to their loans. As a result, large and longer-term project finance loans are receiving less interest. Since 2012 Société Générale and BNP Paribas have both dropped considerably in terms of their market share of project finance deals, which can be attributed to ongoing pressure to shrink their balance sheets. Société Générale ranked eighth in 2012, falling to 16th in 2013; BNP Paribas, meanwhile, went from ninth in 2012 down to 17th in 2013. By contrast, Asian banks topped project finance deals in 2013: Mitsubishi UFJ ranked first after arranging deals worth $11.5 billion for a 5.7 per cent market share, according to Thomson Reuters, followed by State Bank of India and China Development Bank.

While there has been much talk of project bonds as a means for companies to seek alternative financing, in reality lawyers have not seen as much bond activity as first anticipated. Investors are often unwilling to take on construction risk thus project bonds are better suited to refinancing. Despite this, momentum does appear to be gathering and global project bond volume reached $57.4 billion in 2013, more than double the figure in 2012. In the UK, HSBC arranged the first UK project bond in January 2014 and there were a few high profile bonds in the Gulf region in 2013 including a groundbreaking power project bond in Abu Dhabi for the S2 toll road, which was the first tradeable power project bond in the GCC. More bonds are expected in the Gulf region in 2014.




Governments have also been keen to encourage investing by institutional investors such as pension funds and insurers. While in some parts of the world such as Australia, institutional investors are actively involved in the market, in Europe they are reluctant to directly invest in projects before completion due to the possibility of delayed yields and the potential effects that loan prepayments have on long-term returns. Further sources include private equity funds and sovereign wealth funds.

An additional level of complexity is added by the continued rise of Islamic finance, particularly for projects in the Gulf region. It has become essential for law firms to possess this expertise within their practice, although this can be done without a presence in the region itself.

Against this backdrop, multi-source financings involving multilaterals and export credit agencies have become the norm. For lawyers, this means changing dynamics at the deal table and more creative legal structuring. According to those we interviewed, the depth of experience and expertise needed to coordinate and lead these deals is thin on the ground, further limiting the number of firms who can truly compete.

The Sadara Project in Saudi Arabia is one of the most complex project finance deals to have been completed in 2013. The second phase of the financing for the construction of Sadara Chemical Company’s integrated petrochemicals production complex in Jubail Industrial City II was signed on 16 June 2013 raising an aggregate of $12.5 billion. This was the largest ever multi-sourced project financing in the petrochemicals sector and involved the participation of seven export credit agencies and also involved the issuance of a US$2 billion sukuk. The lenders included Saudi Arabia’s public investment fund, Saudi and international commercial banks, and Islamic institutions. Milbank acted as international counsel to all the lenders, while Shearman & Sterling advised Dow Chemical and White & Case advised Saudi Aramco.




The EMEA region was the most active in 2013, with $90 billion of deals – up by a quarter from 2012. Deal proceeds in the Americas saw a 21 per cent increase to $51 billion, while Asia volume fell 29 per cent to $63 billion. As lawyers pointed out, “Asia was quiet in 2013 with elections in several countries impacting investor and bank appetite.” Looking forward, Myanmar is being heralded as the new frontier market in Asia. The government passed a new foreign investment law in 2012, which entered into force in 2013 and is intended to make the country increasingly accessible to multinational businesses keen to invest in the development of its energy sector.

Power projects remained the main source of activity in 2013, accounting for more than one-third of the total of deals at $70.1 billion. Within this sector, lawyers reported high levels of work in the renewables sphere both in the US and Japan. In the US, investors have been taking advantage of tax equity schemes, particularly in relation to solar projects, while in Japan, the government’s attempts to diversify the energy mix in the wake of Fukushima has seen a surge in activity in the renewables sector. The US oil boom is also keeping lawyers very busy with activity led by drilling in West Texas and North Dakota and spreading to the Rocky Mountains region.

Lawyers continued to see healthy levels of project finance work under the public–private partnership (PPP) model. In Australia, transport projects were numerous with the shortlist of bidders for the Sydney new light rail transit announced in February 2014, while in Ghana, the ministry of finance started preparing 10 PPP projects in early 2014. However, in Europe, projects have been struggling to get across the line and South Africa’s pipeline is also looking empty compared to previous years. By contrast, PPPs are gathering momentum in the US with over 30 states now having enacted legislation enabling their use. Investors are said to be showing increased appetite and recent closings include the Ohio State University Parking Concession, the new-build Presidio Parkway and I-95 HOT Lane concessions.

Our research demonstrates that the legal marketplace remains dominated by a small number of UK and US firms. However, the move away from traditional debt lending has created an opening in the market for firms that did not previously have a practice. By highlighting their experience and relationships with alternative investors, these firms have been able to win roles on certain project financing transactions. Figure 1 shows increases in the numbers of both lawyers and firms recognised as leaders in the field – although the number of lawyers is increasing at a faster rate, suggesting that they are continuing to hail from a similar number of law firms.

We can further analyse the leading firms in our research by comparing the number of listings they receive with the total number of votes acquired by lawyers at the firm. As Table 1 demonstrates, for the most part, the firms with the highest number of lawyers in-guide are also the firms who receive the highest number of recommendations – with Clifford Chance placing first for both. Interestingly, Sullivan & Cromwell is ranked 11th by total number of votes but 20th in terms of the number of lawyers in-guide, highlighting that while it may have fewer lawyers considered leading experts in the project finance field, those individuals are very highly regarded.

In response to the growing activity in Asia and Africa, several firms have restructured their project finance teams to better position themselves to access new clients and to provide an “on-the-ground” service to existing clients. Many firms have opened offices in Casablanca, including Clifford Chance in 2012 and Allen & Overy in 2011; and White & Case announced in 2013 that its Johannesburg office will be the firm’s hub for project finance activity in sub-Saharan Africa. The firm subsequently relocated two partners from London and additionally made three lateral hires to enhance its practice in the region. As for Asia, many international law firms have established practices in Hong Kong, Singapore and Tokyo. Indeed, 2013 saw Singapore grant an additional four Qualifying Foreign Law Practice licences to law firms; this move, following an earlier round in 2008, brings the total to 10.

Certain law firms have taken a different approach, establishing alliances or “best friends” networks, as well as regional desks in their New York, Paris or London offices to manage the firm’s international relationships and work. When asked, lawyers rationalised this trend by citing the expense of setting up an office and the cyclical nature of project finance deals, which might mean an office has no local deals for a number of years. Many firms operate out of particular offices for certain regions, as illustrated by Figure 2 – although interestingly, they tend to run Asia deals out of local offices. If we look at the top 10 international firms in our research by the number of listings, we can see that most firms have experts in three or four regions. Norton Rose Fulbright is the exception, fielding experts from five regions of the world.




In our last edition, we reported on the absence of traditional project lending, which had given lawyers a taste of “a world without banks”. By contrast, 2013 saw commercial banks return to the stage – albeit with European banks lagging behind – and lawyers are optimistic that the situation will continue to improve throughout 2014. Despite the return of commercial banks, multi-source financings with the involvement of export credit agencies and multilaterals look set to remain for the foreseeable future, ensuring lawyers’ creativity and ingenuity will continue to be put to the test.

The reduced number of project finance deals throughout the world has resulted in increased competition between law firms in the sector. As repeat business is rare, the reputation and experience of lawyers is paramount to being invited to pitch to prospective clients. Law firms are increasingly focused on their “angle” or “unique selling point”. Similarly, firms not previously active in this market are emphasising their experience with alternative investors to break into the field. Moving forward, we will see whether these new players remain as commercial lending picks up.




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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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