‘Saudi Arabia is trying to put itself on the map and establish itself as a place where international businesses want to make significant inward investments,’ says Clyde & Co’s Susie Abdel-Nabi, of the busiest Middle Eastern legal market today.

Abdel-Nabi, who is based in Dubai, leads the international firm’s dispute resolution group across the Middle East, where she has been based since 2002.

Clydes was an early mover in Saudi – gaining a presence in the market in 2009 through an association with local firm Abdulaziz Al-Bosaily Law Office, the only option at that time for international firms operating in the Kingdom.

New rules, introduced in 2023, mean affiliations are no longer enough to win work in the Kingdom. Instead, international firms must obtain foreign law licences to practise, either by setting up their own stand-alone offices in Saudi or by forming a joint venture with a local firm, in which the local firm must make up at least 25% of the partnership.

On top of this, the Regional Headquarters (RHQ) Programme means that since the start of 2024, eligible multinational corporates, including a handful of law firms, have been able to shift their Middle Eastern HQ to Saudi in order to secure an RHQ licence that enables them to bid for the most lucrative work from key government agencies, as well as to secure various other perks.

‘Saudi Arabia is trying to put itself on the map and establish itself as a place where international businesses want to make significant inward investments.’
Susie Abdel-Nabi, Clyde & Co

Both new regulations have triggered a wave of expansion in the Kingdom by international firms as they seek to win lucrative mandates from the sweeping social and economic reforms and investment set out in Saudi’s Vision 2030 strategy, which sets out ambitious plans to diversify the economy away from hydrocarbons.

So far, at least 15 firms have already secured foreign law licences, with a similar number thought to have applied but not yet completed the process. Some have ended long-term partnerships with local firms to set up alone, while others are establishing a presence in Saudi Arabia for the first time.

Several have also taken advantage of the RHQ, which is intended to support organisations’ growth plans in the country, as long as they meet various criteria, including hiring at least 15 employees, three of which are at C-Suite level and all of whom reside in Saudi Arabia, and performing certain mandatory operations such as formulating and monitoring regional strategy and having operations in at least two other Middle East countries.

While the biggest advantage to the RHQ licence is that, as of January this year the Saudi government has refused to contract directly with any foreign company without a licence, other benefits include tax relief, unrestricted visas and a ten-year exemption from Saudisation requirements, which obligate companies operating in Saudi Arabia to meet a specified quota of Saudi national employees.

With Saudi home to some of the wealthiest public bodies, institutions and sovereign wealth funds in the world, this would prohibit non-complying multinationals from accessing premium work and business streams directly from government agencies – although they could still work for other parties involved.

Firms securing RHQ licences so far include Clyde & Co, Latham & Watkins, Kirkland & Ellis, White & Case, and most recently Greenberg Traurig, which obtained its licence in February 2024.

In Abdel-Nabi’s view, the decision to take advantage of the RHQ licence was essential to the firm’s growth strategy in the Kingdom: ‘In order to work with the PIF (Public Investment Fund) and government-backed entities, it is mandated that you have your regional headquarters in Saudi Arabia. Securing our Regional Headquarters licence further cemented our dedication to our clients, specifically public bodies and government agencies that we have worked with for a very long time in the Kingdom.’

While the new regulations bring with them definite benefits, there are strict rules of compliance for international firms that may be harder for some firms to meet.

For Clifford Chance (CC), which does not have an RHQ licence but says it can still bid for projects work via its local association, these restrictions have not been an issue: ‘For a firm like ours, our offering in Saudi has scale and maturity and it is simpler for us to comply with the latest regulations,’ says CC regional managing partner Mohammed Al-Shukairy. ‘The bulk of our Saudi work is done in Saudi with the support of our global network to bring the best of both worlds to our clients.’

This sentiment is shared by Abdel-Nabi, who argues that Clydes’ long-term presence in the Kingdom makes it well-positioned to meet the conditions: ‘One of our strong points is going into challenging, emerging markets and establishing ourselves before others, and that’s given us a headstart. We have a full-service offering, and I think a lot of firms will try and play catch up.’

However, both Al-Shukairy and Abdel-Nabi think the restrictions may pose issues for firms without a longstanding history and presence in the jurisdiction. ‘I think problems may arise for law firms with a far smaller presence in Riyadh if they need to export a lot of the work outside the Kingdom, as that is an area of focus for the regulators,’ says Al-Shukairy. He further adds that many clients value firms engaging with and handling work on the ground in the Kingdom. ‘Saudi clients also want to see skin in the game with a strong presence on the ground and be true partners to our clients. This enhances one’s ability to organically build and strengthen these client relationships. That’s really our mantra at Clifford Chance in Saudi.’

Abdel-Nabi adds: ‘It will be interesting to see how new entrants into the Saudi market – who have traditionally had a fly-in, fly-out approach – are able to balance their work and comply with the regulations.’

With numerous new market entrants to Saudi, some question how they will all navigate an increasingly competitive legal landscape. The Saudi Ministry of Justice announced in October 2023 that it had granted 15 licences to foreign law firms, and this number increased further when Gibson, Dunn & Crutcher and Norton Rose Fulbright both received licences at the end of last year, while Quinn Emanuel Urquhart & Sullivan and Simmons & Simmons secured their presence in 2024.

‘The reality is, there are not enough people to meet the in-country native lawyer requirements in Saudi, so there has been a push for training to catch up.’
Sara Khoja, Clyde & Co

Lateral recruitment

This competition is creating a battle for talent as firms endeavour to comply not only with the quota for Saudi nationals set out in the foreign law licence stipulations but also with client demand for local expertise.

As Abdel-Nabi stresses: ‘Based on our experience, having been in the Kingdom for over 15 years, Abdulaziz Al-Bosaily, our managing partner, has been instrumental in our growth. He’s a Saudi national plugged into what’s happening in the market and has the experience and credibility clients want to see. If a client has a Saudi dispute, they want a Saudi partner and want to know their counsel know what they’re doing. If you’ve got a credible, established name, it opens doors and delivers positive results.’

As a result lateral partner recruitment is booming, with frequent changes between firms.

For example in 2023, Addleshaw Goddard bolstered its Riyadh presence with a flurry of hires, including Ibrahim Siddiki (formerly at Bracewell) and Homam Khoshaim and Amar N Meher from Latham & Watkins. The firm also hired Christian Both, formerly of AS&H Clifford Chance, who subsequently left in June this year to join local independent leader Khoshaim & Associates.

Kirkland’s newly established Saudi offering features seasoned Saudi lawyers Noor Al-Fawzan, previously of Latham & Watkins, and Manal Al-Musharaf, a former White & Case local partner, who offer M&A and capital markets expertise respectively.

Gibson Dunn, meanwhile, hired a team of seven local partners from White & Case and its former associated firm in 2023, including Megren Al-Shaalan, the managing partner of White & Case’s former associated Saudi law firm. This came as part of a wider regional play by the US powerhouse which has added 14 new partners and 19 new associates to its Gulf offices over the past 18 months.

Highlighting the extent of the war for local talent in the market, when Herbert Smith Freehills (HSF) became one of the first international firms to receive a foreign law licence, having previously practised in the Kingdom under an association with The Law Office of Mohammed Altammami (LOMAT), Norton Rose Fulbright formed its own association with LOMAT, acquiring all but one of its lawyers for the new partnership. This left HSF’s Riyadh office with just Saudi partner Joza Al-Rasheed, who continues to lead the office today.

In December 2023, Norton Rose Fulbright received its foreign law licence and dissolved its association with LOMAT but retained the lawyers, who are now part of Norton Rose Fulbright, with Altammami currently serving as head of Saudi Arabia.

Sara Khoja, head of the MEA employment group at Clydes, comments: ‘The reality is, there are not enough people to meet the in-country native lawyer requirements, so there has been a push for training to catch up. We’re seeing a lot of entrants into the market starting from day one with this policy and agenda. Some firms even have scholarship programmes, where they send candidates to the US or Europe to get qualified and gain experience before bringing them back to the Kingdom. There’s a lot of investment.’

Local firms are also having to navigate an ever-changing legal landscape. Addressing the increased presence of international firms in the Kingdom, Rima Mrad, a corporate and M&A partner at BSA Ahmad Bin Hezeem & Associates (BSA), a firm with offices in Saudi Arabia, the UAE, Iraq, Lebanon and Oman, says: ‘There’s a lot of competition in the legal field. The presence of Magic Circle and international law firms is pushing the expertise in the Saudi legal market to another level and is elevating the quality of legal services provided.’

BSA’s head of banking and finance Arsalan Tariq also notes that while new regulations attract new players, they also generate substantial work. ‘When laws are issued, there is a need to interpret them for companies and multinationals practising or intending to practise in the Kingdom. This means as of now there is a huge demand for lawyers in the jurisdiction. So, while more firms make it more competitive, the piece of the pie is also increasing because of the activity taking place.’

Some local firms have capitalised on the increased movement and investment in Saudi Arabia and the opportunities this brings. Khoshaim & Associates, which has offices in Riyadh and Jeddah, was associated with legacy Allen & Overy (A&O) from 2012 until they mutually parted ways in 2020. Khoshaim managing partner Zeyad Khoshaim emphasised that Vision 2030 and the need for independence to effectively and comprehensively advise multinationals investing in the Kingdom were key reasons for the decision to split from A&O in 2020 in press articles at the time.

‘When laws are issued, there is a need to interpret them for companies and multinationals practising or intending to practise in the Kingdom.’
Arsalan Tariq, BSA Ahmad Bin Hezeem & Associates

Boom times for tech and construction

As regulations increase and more multinationals enter the Kingdom, firms are taking on more diverse mandates. Mrad notes that BSA’s work has significantly broadened over the past four years, moving beyond litigation and corporate work for Saudi and international clients. Now, the firm caters to a wider range of clients, including many new investors and multinationals active in emergent sectors. ‘We are working a lot with companies who were historically active in the region but did not have a direct presence because of the previous restrictions. The newcomers include businesses active in various sectors, but mainly e-commerce and technology,’ says Mrad.

The Saudi state is targeting markets such as China and Silicon Valley for potential investment, with a particular focus on big technology companies and start-ups, with press reports suggesting they are being encouraged to set up in Saudi in return for investment. Alongside Silicon Valley, Shenzhen is considered crucial for the Kingdom to develop its emerging AI industry.

Mrad describes how technology start-ups have become a feature of the Saudi market and BSA’s work: ‘There are various new technology start-ups considering the region as a base. They are coming from the US and Europe and mainly looking to start developing their products in countries like KSA or UAE, benefiting from the various sandboxes and initiatives from the government. Such initiatives include facilities and different types of support for legal, practical and operational needs.’

The technology piece is especially important to Saudi due to the scale and complexity of the giga-projects currently under development. The need for skill and technology is essential for Saudi Arabia to achieve its Vision 2030. Clyde & Co’s Khoja comments: ‘A lot of these projects are government-led, and there is a need to have more private sector involvement for there to be a transition away from a state economy. This is why there’s such a focus on start-ups and trying to get people to set up companies.’

The infrastructure focus of Vision 2030 and desert city Neom means construction work is also keeping firms busy in the Kingdom. As Abdel-Nabi comments: ‘We have been active on mega projects from their inception, and clients continually return to us throughout the project lifecycle.’

‘Although equity capital markets have slightly softened compared to debt capital markets, there are still some very interesting opportunities, and we continue to act on a number of IPOs in the UAE.’
Mohammed Al-Shukairy, Clifford Chance

Where next?

With so many firms already active in Riyadh, many are already moving to expand elsewhere in the Kingdom. Clydes, for example, joined the likes of Dentons and Ashurst when it established a Jeddah office in May 2024.

BSA also considers Jeddah as an area with real opportunity. ‘We actively work outside of Riyadh for two major work streams: M&A involving companies present across Saudi, particularly in the energy sector, TMT, and litigation,’ says Mrad. ‘We have our internal arrangements to manage this from our Riyadh office, but in our long-term plans we have an interest to set up an office in Jeddah because of the active commercial scene and the fact we have various clients, particularly those involved in the pharmaceutical and education space, based in Jeddah.’

UAE

Saudi Arabia’s ambitious Vision 2030 strategy, combined with the ramifications of the RHQ programme, effectively pits the Kingdom against Dubai and the UAE. Partners stress though that while the Kingdom is winning many of the headlines right now, the UAE remains active.

‘Dubai has something of a halo effect on a global scale and has boomed over recent years,’ says Addleshaw Goddard’s Middle East head Robin Hickman. ‘Riyadh has its RHQ programme to ensure businesses are moving their operations to the Kingdom and this has helped the Kingdom achieve its ambitious plans, but Dubai still thrives. It’s in the best position it’s ever been in and is a real hub for the region.’

The region moved earlier than Saudi to introduce sweeping regulatory reform to facilitate the growth and appetite of multinationals operating in the jurisdiction, and in the past year the government has made significant amendments to a number of federal laws.

As Mrad comments: ‘The government is constantly hearing the challenges facing investors and addressing these. The legal amendments are issued to enhance and create more appetite for international investors and to provide more clarity on the stability for foreign investments in the jurisdiction.’

Law firms report growth across all practice areas in the UAE, with M&A and private equity particularly thriving. Al-Shukairy comments: ‘Our M&A and private equity focus not only reflects the presence of some very active financial investors in the UAE, particularly in Abu Dhabi, but also strategic players in the UAE who are looking to expand their business operations and get exposure to markets outside the Middle East.’

With asset managers and hedge funds setting up headquarters in the jurisdiction, the fund space remains a core area of activity for firms. In 2023, Addleshaws and White & Case were among the many firms making a play to further enhance their fund formation and management offering in the UAE, with the former hiring Philip Dowsett from Dechert and the latter Phillip Sacks, also from Dechert. Both individuals now head their respective practices.

Banking and finance has also been a strong performer, across both acquisition finance and capital markets. ‘We’re seeing a lot of strong issuers taking advantage of capital markets,’ says Al-Shukairy. ‘Although equity capital markets have slightly softened compared to debt capital markets, there are still some very interesting opportunities, and we continue to act on a number of IPOs in the UAE.’

Meanwhile, real estate and hospitality disputes remain prominent in firms’ work in the UAE. Abdel-Nabi explains that hospitality disputes are cyclical, typically emerging when hotel owners seek new operators every few years, often leading to conflicts. ‘At the moment we have some really interesting cases brewing for some significant hotel sites,’ explains Abdel-Nabi.

Mrad adds that BSA is seeing a similar trend, with a growing focus on real estate and bankruptcy issues. Its bankruptcy practice is expanding due to the UAE’s updated laws, which are expected to drive more restructuring work. Insurance disputes have also increased, partly due to severe weather events causing supply chain, landlord-tenant, and various industrial issues.

Employment practices are also busy, reflecting the jurisdiction’s increasing sophistication and regulatory changes. Khoja notes that for many employers, there is a careful balance between the global integration of best practice and complying with the ever-changing local landscape: ‘You have multinationals who want best practices and consistency across all their global offices, whether that be contracts, policies or benefits. Very often, the advice they seek is how to achieve this whilst still complying with the rules and protecting the company from a legal perspective.’

There is also rising demand for lawyers with tech and digital expertise, with Abdel-Nabi pointing out ‘we’re seeing a lot of exciting and interesting activity around crypto and fintech’.

Addleshaws’ Hickman adds: ‘Dubai is a very smart and entrepreneurial city, and the opportunity to move into the digital space is not being missed either here or in the wider region. We’ve made big investments in fintech, finreg and data and are building out our partnership in this space.’

Qatar

If things are positive in the UAE and Saudi, Qatar has proven to be a difficult market for some law firms. In 2023, Simmons & Simmons became the latest international to withdraw from Doha, following in the footsteps of firms such as Squire Patton Boggs, HSF, CC, Latham, Hogan Lovells and Baker Botts in previous years.

Those remaining include White & Case, Dentons, Clydes, Eversheds, DLA Piper, Pinsent Masons and Addleshaw Goddard. Addleshaws’ Hickman expands: ‘There aren’t many international firms still on the ground in Qatar, as a lot of firms that opened in the jurisdiction subsequently left. It’s a small country with only a few million people, and whilst it’s an extremely wealthy state on a per capita basis, it’s not a big legal market by any means. It’s challenging for many firms to have strong offerings there.’

‘There’s a real opportunity for us to be the go-to firm in Qatar for complex work particularly given the lack of competition.’
Robin Hickman, Addleshaw Goddard

Squire Patton Boggs said that its Doha office closure was part of a strategy to ‘invest in growth elsewhere on the Arabian Peninsula’, while HSF stated it could ‘continue to provide the quality and breadth of service to clients in Qatar’ from other offices.

Khoja observes that while exits have been a trend in Qatar over the past decade and work streams fluctuate, the jurisdiction remains active. ‘We have seen a few international law firms exit the market, but at the same time, there’s a fair bit going on. Admittedly, after the World Cup in 2022, many were wondering what was coming next, but there’s still a big stimulus in the gas industry, and many energy companies are upping production and bringing new people in.’

Hickman adds that Addleshaws has a specific strategy for Qatar and is looking to capitalise on favourable opportunities in the country. ‘We’re not looking to be completely full service, and instead are looking to double down on corporate, finance and construction work. Those are the core areas we intend to build out, and we see that there’s a real opportunity for us to be the go-to firm in Qatar for complex work particularly given the lack of competition.’

Oman

In Oman, there is a big government push to increase tourism, as Tariq comments: ‘Oman is growing towards achieving its Vision 2040 and looking at pivoting away from the oil business, much like Saudi Arabia. The sectors they are looking for investment [in] are logistics, marine and tourism.’

Tariq describes substantial real estate activity, with the government aiming to develop a new Muscat Downtown that will feature a number of luxury properties and hotels, as well as high-rise buildings. ‘The laws in Oman have changed as they look to allow foreign investors to come and deliver in the jurisdiction. As a result, many Dubai developers are expected to turn their attention to Oman. Omani companies in the construction space may not have the experience delivering high-rise buildings; the largest structure in Oman today is only 13 floors and was constructed a long time ago.’

Elsewhere, BSA also has offices in Lebanon and Iraq which, according to Mrad, are specifically tailored to service the firm’s longstanding clients still active in the respective jurisdictions. ‘In Lebanon, most of our clients are international energy clients who started operations in the country, and some are quite active, especially after the new government assignments in this field. Other than that, it’s litigation, M&A involving entities with presence in Lebanon, and retainer services to some international airlines that act in the jurisdiction.’

Mrad continues: ‘In Erbil, our operations before the political turmoil were much more active than today. At that point in time, we handled a lot of real estate, energy, and infrastructure projects for various US and European oil companies. However, since then, our practice in Erbil has changed drastically. Private sector operations dropped tremendously, and at the same time our oil and gas clients limited their presence to a streamlined team essential to their work and largely moved to other places in the region. We service these teams, as well as regional clients if they happen to have work in the jurisdiction.’

Türkiye

Türkiye retains close connections and synergies with the Gulf and deal and capital flow has steadily increased over recent years. Turkish industrial players are active in the region, especially in the context of infrastructure and projects in Saudi Arabia and the UAE, and Turkish banks are very interested in funding and financing operations, both inland and in the marine space.

2023 was of course a disrupted year for Turkish businesses as the country grappled with the impact of the country’s devastating earthquakes last February, as well as uncertainty around the presidential and parliamentary elections in May. However, the new government has implemented a robust economic strategy to address past macroeconomic imbalances, particularly high inflation.

Despite the unstable market conditions, Türkiye’s pro-foreign investment regime has enabled M&A and PE activity to remain fairly steady. Chinese and Russian companies continue to have an appetite to invest in the country, and start-ups have done particularly well. Emerging sectors such as software development and gaming have witnessed a steady increase in M&A activity, requiring corporate and IP teams to work closely together, with digital banking and fintech also areas of promise. LB

The post MENA focus: Middle Eastern dreams appeared first on Legal Business.

With the Covid pandemic now firmly in the past, the Middle East has been enjoying a return to form, with activity levels up across the region and many law firms – both local and international – in expansion mode.

On top of all of the investment driven by last year’s World Cup in Qatar, the wider Middle East region has benefited in the wake of Russia’s invasion of Ukraine, with global oil prices soaring, boosting revenues in oil-rich nations such as the UAE, where oil exports account for around 30% of GDP.

The ongoing war has also had an additional knock-on impact on the UAE, with its position of neutrality generating an influx of Russian money, alongside increased migration from Russia and Ukraine. This investment, combined with a general increase in foreign direct investment across the Middle East, has resulted in an increase in corporate structuring and set-up work.

Following the meteoric rise of the neighbouring Kingdom of Saudi Arabia, which overtook India as the world’s fastest growing major economy with a growth rate of 8.7% in 2022, the UAE is aiming to encourage further overseas investment and non-oil expansion of its own.

Meanwhile, improved relations with Qatar and Iran and the opening of economic opportunities with Israel are expected to result in an increased flow of work into the UAE.

UAE market reform

As Middle East nations try to diversify their oil dependent economies through large-scale renewable energy, construction and real estate projects, they are courting international financial investment.

As part of this drive, the UAE has been modernising and liberalising its laws. Afridi & Angell corporate and commercial partner Danielle Lobo explains: ‘It is clear that these legal reforms are not just to encourage inward investment into the UAE, but also to ensure that it has a suitably developed and robust legal and regulatory environment going forward.’

From a corporate and commercial perspective, the most comprehensive regulatory evolution has been the new Federal Commercial Companies Law, which came into force in February 2022. One of its more remarkable elements was the abolition of the Emirati majority shareholder requirement, a move which raises opportunities for overseas investors and which is expected to help further drive a bounce-back in M&A activity in the region, particularly in key sectors such as tech and cyber.

For Sadiq Jafar, managing partner of Hadef & Partners, ‘the key legislative change of 2023 is corporate tax’. A new decree has introduced a 9% corporate tax rate from June 2023, with exemptions in many of the free zones. Following the introduction of VAT in 2018, this is another step for the UAE in attempting to increase non-oil revenue. Jafar predicts a ‘substantial demand from clients who need to assess the effect on their business’, with ‘extensive corporate and commercial structuring required’, as well as ‘UAE related transactions now needing to be designed and documented to optimise for tax’.

‘These legal reforms are not just to encourage inward investment into the UAE, but also to ensure that it has a suitably developed and robust legal and regulatory environment going forward.’
Danielle Lobo, Afridi & Angell

Lobo adds: ‘This will not only generate work in its own right throughout 2023, but also impacts the practice of other areas such as M&A, where there will be a move towards more robust tax covenants and warranties.’

At the same time, firms are also benefiting from an overhaul of labour and residence laws, which have boosted employment and immigration work over the last year.

When the new Labour Code came into force in February 2022, it replaced a system that had been in place for more than four decades. With changes to laws surrounding fixed-term contracts, terminations and an abundance of other employment matters, firms’ employment practices have been advising clients on how to ensure their businesses comply; from redrawing contracts and handbooks, to shifting policies.

Luke Tapp, head of Pinsent Masons’ Middle Eastern employment offering comments: ‘The implementation of the new Labour law has been extremely positive for international and regional clients operating within the UAE. This is a major milestone development and will only increase and improve working arrangements, as well as help businesses within the region to attract and retain world class talent.’

Another consideration for large employers is the government’s push for Emiratisation. This initiative aims to increase the contribution of UAE nationals to the economy by upping their proportion in the workforce.

From January this year, private sector employers registered with the Ministry of Human Resources and Emiratization (MoHRE) with more than 50 employees have been required to ensure that at least 2% of their workforce are nationals. Residence laws have also been overhauled, with a new range of visas, introduced in September 2022, loosening the link between rights to reside and employment. These amendments were intended to attract skilled workers and their families to the UAE.

‘The UAE’s new Labour Law is a major milestone development and will only increase and improve working arrangements, as well as help businesses within the region to attract and retain world class talent.’
Luke Tapp, Pinsent Masons

Separately, efforts have also been made to update laws around data protection, cyber crime and digital assets, signalling to large international businesses that the region is at the forefront of such innovations, as Gulf states look to diversify their economies by embracing technology and cyber-related sectors.

‘The digital future is playing a pivotal role in the landscape of the Middle East,’ says Tapp, observing the growing influence of technology in the UAE and adding that ‘Dubai is emerging as a critical hub for designing the future of the globalised digital economy.’

Afridi & Angell’s Lobo predicts that ‘the digital asset space is likely to be an important sector moving forward, as the UAE positions itself as a hub for blockchain and virtual assets’, with IP work also likely to surge in response to updated trade mark laws. Tapp, meanwhile, adds that: ‘cyber security is at the forefront of people’s minds and there is an increase in demand for such services’, with new laws seeking to crack down on false advertising and criminalise the unlicensed trade of cryptocurrencies.

Law firm expansion in the Middle East

But it is not just the UAE that is busy. Recent months have seen significant expansion by international firms into Saudi Arabia. The kingdom dramatically altered rules governing how law firms operate in the country last year by amending the Saudi Code of Law Practice. The changes, which are due to come into effect in the coming months, mean firms have to end any existing affiliations with Saudi law offices if they want to continue to work there. Instead, they will be able to set up their own firms offering non-Saudi law advice, or practice local law via joint ventures with Saudi firms, as long as they abide by the strict new licensing rules.

The move has already led to a wave of expansion news from international firms. In March this year Squire Patton Boggs announced that it would be ending its affiliation with its existing partner and opening its own office through an alternative cooperation with The Law Office of Looaye M. Al-Akkas. Greenberg announced that it would be entering the region, while Latham & Watkins, Linklaters, Herbert Smith Freehills (HSF) and Clifford Chance are among the international firms to have been granted licences to practise, although several of HSF’s Saudi lawyers have since been recruited by rival Norton Rose Fulbright.

Addleshaw Goddard, meanwhile, has confirmed it is applying for approval to open in Riyadh – a launch that will mark its fourth office in the MENA region.

The new code means that foreign firms wishing to practice Saudi law have to be structured as joint ventures, with registered Saudi partners holding at least 25%. At least two partners representing the foreign firm must live in Saudi, at least half of the lawyers must be Saudi and at least 70% of fee income must remain in Saudi. Licences will have to be renewed every five years.

The expansion is not confined to Saudi. Gibson Dunn has added a second UAE office in Abu Dhabi, while Baker McKenzie opened UAE offices in Dubai and Abu Dhabi last year after splitting from its former Gulf partner firm Habib Al Mulla in the wake of a social media scandal involving the local firm.

Overall, the legal landscape for both domestic and international firms is incredibly promising. As Jafar comments, the UAE ‘has witnessed significant growth and development in recent years’, with the thriving business environment leading to ‘international firms establishing or expanding their presence, particularly in Dubai or Abu Dhabi’.

Clyde & Co is another firm that has been expanding significantly in the UAE as well as the Middle East more broadly. The firm secured a 13-strong team from PwC in Dubai in June, expanded its Riyadh offering and has also launched in Cairo. The new offering in Egypt, Barakat, Maher & Partners Advocates & Legal Consultants, will operate in association with Clyde & Co.

This expansion into Egypt comes against a backdrop of instability in the country, where the flotation of the Egyptian pound in October 2022 initially took the currency down to a record low against the US dollar. However, the country continues to be viewed as a gateway to North Africa and M&A and private equity activity has picked up in response to investor demand in the region.

Elsewhere in the Middle East DLA Piper strengthened its long-established Oman presence by entering into a collaboration with Mehdi Al Lawati Law Office (Al Lawati Law), an Omani law firm led by managing partner Mehdi Al Lawati.

‘The UAE has witnessed significant growth and development in recent years, with the thriving business environment leading to international firms establishing or expanding their presence.’
Sadiq Jafar, Hadef & Partners

Oman, which like many Middle East nations is attempting to diversify its economy away from oil and gas, is on track to become the sixth largest exporter of hydrogen in the world and the largest in the Middle East. Other firms in the country include Kennedys, which opened in 2021, Dentons and Addleshaws.

While firms are expanding across the Middle East generally, Tapp argues that the UAE remains the strongest legal market, followed by Saudi Arabia and Qatar.

Whether looking at the legal or economic markets of the UAE and wider Middle East, the impetus is very much geared to the future. Whether it is the modernisation of laws on the UAE’s 50th anniversary, Saudi’s ambitious Vision 2030 projects, or Qatar’s continued growth following the 2022 FIFA World Cup, new policies are aimed at placing these states at the forefront of the global economy in the coming decades. As these plans continue to materialise, the need for legal services is only going to increase, with both domestic and international firms set to play an instrumental part in their success. LB

MENA 2023: Top-tier firms by country and sector

MENA 2023: top 20 firms by Total rankings and by top-tier rankings

North Africa 2023: top 20 firms by Total rankings and by top-tier rankings

The post MENA focus: From the World Cup to the world stage appeared first on Legal Business.

As the world moves on from the pandemic and growth is firmly back on the agenda at law firms, the impact of the global geopolitical uncertainty triggered by Russia’s invasion of Ukraine and soaring energy prices is shifting firms’ focus when it comes to international expansion.

The Middle East, where rapid vaccine rollouts mean economies bounced back earlier than Europe and where construction is booming under ambitious state-backed investment plans, is inevitably a focus for many.

But where in the past attention focused largely on the UAE, Saudi Arabia’s Vision 2030 means that it too is receiving increased attention from international firms, raising the prospect of increasing competition between the two markets.

Saudi Arabia

In October 2021 listed UK law firm DWF became one of 44 multinational companies, including the likes of PwC and Siemens, confirmed by the Ministry of Investment of Saudi Arabia to have received licences to open in Riyadh as part of the Future Investment Initiative.

The firm joined a growing roster of international players entering the Saudi market in response to the Kingdom’s efforts to make itself a more attractive destination for global corporates, their employees and their families, who in the past may have been reticent about relocating to the country, despite the fact its vast petroleum resources make it one of the largest economies in the Middle East.

Vision 2030 also sets out ambitious plans to diversify the Saudi economy, weaning it off its reliance on the oil sector through a vision built around three pillars: an ambitious nation, a thriving economy and a vibrant society. This plan, which is expected to generate significant investment in the Kingdom and construction work, is also intended to improve perceptions of the country, making it more competitive in the Middle East.

DWF joined a growing roster of international players entering the Saudi market in response to the Kingdom’s efforts to make itself a more attractive destination for global corporates.

Firms with regional headquarters in Saudi are hoping to pick up some of this work. DWF’s licence, announced at the same time as it confirmed an association with local law firm Al-Ohaly & Partners, will also allow it to offer services provided by its alternative legal services provider Mindcrest and Connected Services under DWF Arabia to clients in Saudi and across the Gulf.

Sir Nigel Knowles, group chief executive at DWF Group, said at the time: ‘The ambitions set out by Vision 2030, will transform both the Kingdom and the wider region and are consistent with our goal of creating job opportunities and contributing to the diversification of the Saudi Arabian economy. DWF Arabia and Al-Ohaly & Partners will work closely with our existing teams in Doha, Dubai and globally.’

Other firms also hoping to benefit from Vision 2030 via launches and expansion include US firm Curtis, Mallet-Prevost, Colt & Mosle, which launched in Saudi through an association with newly-formed local outfit Trafua Legal Consultants last summer, and HFW, which launched a transactional practice in Riyadh through the hire of ex-Baker Botts partner Euan Pinkerton in October last year.

Meanwhile, Latham & Watkins added Vinson & Elkins’ former Dubai managing partner Ahmed el-Gaili to work within its associated Riyadh operation – the Law Office of Salman M. Al-Sudairi – last summer. El-Gaili added significant expertise in big-ticket M&A, as well as large-scale energy projects in Saudi Arabia and across the region.

More recently, Herbert Smith Freehills (HSF) announced the hire of Joza Al-Rasheed as a corporate partner in the Riyadh base of its associated firm, the Law Office of Mohammed Altammami (LOMAT).

Other key firms operating in Saudi include Baker McKenzie, Dentons and Clifford Chance (CC), as well as significant local players Khoshaim & Associates, Derayah LLPC – Saudilegal and regional powerhouse Al Tamimi & Company.

Firms operating in the country have already benefited from an uptick in transactional mandates across the board, including banking and PPPs linked with the Public Investment Fund and real estate giga projects such as the NEOM smart city.

UAE

But while Saudi Arabia may be on a mission to raise its profile with the global business community and is already attracting more investment from international firms, the UAE’s position within the Middle East does not look to be under threat just yet.

Its economy bounced back in 2021 largely due to a successful vaccination programme and a reduction in OPEC+ oil production cuts.

Many legal reforms were introduced in the ‘Year of the 50th’, showcasing further signs of a shift from a Shari’ah-based legal system to a more secular system. Over 40 laws were introduced, including the decriminalisation of suicide, cohabitation of unmarried couples and reforms to intellectual property rights and laws. These legal reforms will further bolster the economy as the authorities continue efforts to create a more favourable business environment and improvements to social equality.

Both Dubai and Abu Dhabi remain key legal hubs in the Middle East and both international and domestic law firms have been very active. Practice areas that remain the busiest for law firms include construction arbitration, front-end construction, debt capital markets, TMT and project finance. With the World Expo and the region’s diversification goals to reduce its reliance on hydrocarbons, there continues to be a strong demand for legal services in the UAE.

Examples of firms expanding in the region in recent months include Reed Smith and Norton Rose Fulbright, which late last year added well-known corporate partner Zubair Mir from HSF in Dubai, where he headed the Middle East practice. Taylor Wessing confirmed earlier this year that it would be adding Al Tamimi head of corporate commercial Abdullah Mutawi to head its MENA corporate team, when his notice period finishes.

Qatar

Elsewhere in the Middle East, Qatar remains one of the most prosperous nations, mostly off the back of its colossal export of oil and gas (particularly liquid natural gas), and it has the third-largest reserves in the world. Its natural resources accounted for 60% of its GDP last year.

The country has invested a sizeable amount into developing key construction projects, developments and entertainment facilities in the run-up to the 2022 FIFA World Cup, which is due to take place at the end of this year. Key areas of growth include social infrastructure, healthcare and manufacturing. On the contentious side, lawyers have been kept busy with an increase in construction-related disputes, particularly in relation to supply chain and contractual disputes.

The ending of the Qatar blockade has seen a promising start to regional reconciliations among the GCC countries. Market leaders in the Qatar space include Doha-based international firms Simmons & Simmons, White & Case and Dentons. Regional firm Al Tamimi & Company In Association with Adv. Mohammed Al Marri is also of note, alongside other well-established local outfits, including Al-Ansari & Associates.

North Africa

Firms’ growth hasn’t just been limited to the Middle East though. Activity has also increased in Northern Africa, where many economies have remained resilient.

In Egypt, firms report their businesses are operating at full capacity again after a slowdown in activity at the start of the pandemic, with many working on the building boom prompted by the country’s new cities, which are intended to push eco-friendliness into everyday living.

Energy remains a driving sector in the market, with renewable energy projects, particularly in the field of solar energy constituting a major field of investment. Green hydrogen is also an emerging area of interest in this sector.

Egypt’s legal market remains stable, having stayed away from major partner moves and mergers amid the pandemic. Founded in early 2020, Khodeir & Partners continues to make a name for itself, while ADSERO-Ragy Soliman & Partners demonstrates rapid growth in several practice areas including commercial, corporate and M&A as well as banking and finance. Constituting another promising young firm in the market, Mazghouny & Co has particular strengths in projects and infrastructure and energy, being led by former Shahid Law Firm partner Donia El-Mazghouny. Al Tamimi & Company has expanded its expertise into the maritime sector by opening a new office in Port Said in early 2021. Meanwhile, longstanding firms such as Zulficar & Partners Law Firm, Zaki Hashem & Partners, Attorneys at Law, Shalakany Law Office, Matouk Bassiouny & Hennawy, and Shahid Law Firm remain strong players in the market.

Egypt’s legal market remains stable, having stayed away from major partner moves and mergers amid the pandemic.

Further west, Morocco’s long period of unprecedented economic and political stability means it remains a key gateway for investment into Francophone Africa. The automotive and aviation sectors have been a focus for investment from the US, Europe, China, Korea and Japan, though other fast-growing industries such as healthcare and renewable energy have also attracted substantial capital inflows.

Going forward, the prospects for a post-pandemic recovery are good. The new government installed in October 2021 has a pro-capitalist stance and features more women than ever before. The focus of its agenda is investment and energy projects, roads and ports are key targets for investment.

Furthermore, Morocco has signed a new deal to create power connections that will bring renewable energy to the UK. The country has also signed a partnership agreement with Israel, which is bringing more Israeli investors into the market and boosting sectors such as agriculture and technology.

International firms in Morocco include Gide Cuatrecasas Casablanca – a local collaboration between Spanish and French firms Cuatrecasas and Gide Loyrette Nouel – DLA Piper; CC; Baker McKenzie Maroc; and Norton Rose Fulbright.

In March this year Middle East heavyweight Al Tamimi announced that it would be following their lead and opening in Casablanca, with the move following its 2021 launch in Port Said, Egypt. The launch takes its Africa presence to three offices, adding to its existing base in Cairo.

Elsewhere in North Africa, Dentons announced a combination with Tunisian law firm Zaanouni Law Firm & Associates as part of its ongoing bid to become a pan-African firm.

Despite divergent approaches and contrasting geopolitical and economic climates, there is good reason to be hopeful for countries across the Middle East and North Africa. As oil prices continue to rise Saudi Arabia, again, appears to have the competitive edge in the year to come. LB

The post Middle East and North Africa focus: The competitive edge appeared first on Legal Business.

Far from immune to the global crisis – but making concerted strides towards immunity in some instances – the Middle East and North Africa region (MENA) has fared similarly to the rest of the world over the last year. That is to say that the universal impact of the pandemic has been felt across MENA, although the paths that the various countries have taken have been disparate.

Middle East

Early lockdowns in several countries helped to contain the number of coronavirus cases, and a number of success stories emerged from the region with Israel and the United Arab Emirates (UAE) – numbers one and two, respectively – frontrunners in rolling out their vaccine programmes. While distinct, both countries have adopted an agile approach to sourcing and distributing the vaccine.

Reportedly paying more than twice the amount for the Pfizer/BioNTech vaccine than certain EU countries, Israel has been ahead of the chasing pack in inoculating its population (though the government, which has a national digital public health record, ceded the data of its citizens to Pfizer in exchange for ten million vaccines). In another first, Israel will be offering booster shots to adults with pre-existing health conditions in an effort to combat the Delta variant, which is responsible for the recent surge in the number of cases. Israel, which had dispensed with all non-pharmaceutical interventions in early summer, has now reinstated the mandatory wearing of masks on public transport and for indoor gatherings.

Early lockdowns in several countries helped to contain the number of coronavirus cases, and Israel and the UAE – numbers one and two, respectively – were frontrunners in rolling out their vaccine programmes.

The UAE was the first country to approve the Sinopharm vaccine back in early December, also forming an agreement with China to manufacture the vaccines in the Emirates; Gulf Pharmaceutical Industries started producing the vaccines in April. Despite this, the UAE remains on the UK government’s list of red countries where it was placed back in January 2021 and, in early July, Saudi Arabia also suspended flights to and from the country in response to a surge in the Delta variant.

Dubai remains the legal centre in the Middle East, home to many international firms as well as key regional players. While there have been few new international entrants to the Dubai market, several firms have bolstered their on-the-ground offerings in recent months. However, there has been a general trend towards exiting the market, with the departures of Winston & Strawn and offshore law firm Conyers from the UAE in recent years examples of this. The legal market in the UAE continues to be well known for its hard-hat approach, with construction and infrastructure expertise in demand across the Middle East region.

Away from the coronavirus, Saudi Arabia’s Vision 2030 continues apace. The programme, which was launched in 2016, has the intended objective of diversifying the petrostate’s economy away from an overreliance on oil and stimulating growth in other sectors. So far, it has been the high-profile entertainment and sporting events – ranging from boxing matches to F1 races – that the country has hosted that have generated international headlines. However, it is the Kingdom’s ambitious infrastructure projects that will arguably prove the most fertile ground for lawyers in the region. Vision 2030, pioneered by Crown Prince Mohammed bin Salman, has three giga-projects at its core: Neom, a model metropolis intended to rival Dubai, which will be powered on green energy; entertainment megacomplex Qiddiya; and the Red Sea Project, a luxury tourism destination that is expected to be a special economic zone. All are already under construction and have created a considerable work stream for law firms and construction companies alike.

In addition to its planned mega projects, Saudi Arabia is also bulking up its ports market share. In early 2021, the Red Sea Gateway Terminal, the largest terminal operator in Saudi Arabia, sold separate 20% interests to China’s Cosco Shipping Ports and Saudi Arabia’s Public Investment Fund. The company intends to use this investment to shore up its expansion plans on both an international and domestic scale, with a plan to invest in three international ports in the next five years.

The company has also stated that it will be focusing on ports of strategic importance, targeting those that are essential to imports including food.

Despite the excitement around its various mega projects, Saudi Arabia remains best known for the strength of its oil reserves and its flagship brand, Saudi Aramco, the state-owned petroleum and natural gas company. Saudi Aramco continues to occupy the number one spot in Forbes’ Top 100 list of companies in the Middle East, a list that includes over a third of Saudi Arabian companies. Its stock, like that of many oil companies, fell sharply in 2020 as the need for oil dropped internationally and global supply chains were disrupted. As a result of falling oil prices Saudi Arabia, along with other members of the Organization of the Petroleum Exporting Countries (OPEC), agreed to cut oil production, with global production reduced by between 9.7 million barrels per day and 5.8 million barrels per day at various points between May 2020 and April 2021.

In Saudi Arabia, Vision 2030 has three giga-projects at its core: Neom, Qiddiya, and the Red Sea Project. All are already under construction and have created a considerable work stream for law firms.

However, tensions between fellow OPEC members and traditionally close allies Saudi Arabia and the UAE emerged in late 2020 and continued to rumble on, coming to a head in summer 2021 with the UAE refusing to back Saudi Arabia and Russia’s plan to maintain cuts to oil production levels to the end of 2022. The UAE has fared particularly badly as a result of the cuts, with Saudi Arabia emerging as a winner and further cementing its position at the top of the tree in the oil stakes. The impasse turned out to be short-lived, though, with reports emerging in July that a compromise had been agreed, raising the UAE’s oil production to a level that it found palatable. Several observers have speculated that this will lead to a further fracturing in the relationship between states that are both allies and rivals in the Middle East – something that is already evident in the UAE’s burgeoning friendship with Israel, with the UAE recently becoming the first Gulf country to open an embassy in Tel Aviv following the Abraham Accords peace agreement in summer 2020. By contrast, Saudi Arabia and Israel do not have an established diplomatic relationship in place.

In a positive move for the region, Saudi Arabia and the UAE ended their embargo against Qatar in early 2021. Qatar, which will host the 2022 FIFA World Cup, has its own roadmap for growth, the Qatar National Vision 2030. Less ambitious in scope than Saudi Arabia’s seismic Vision 2030, the National Vision also aims to move the country away from a reliance on its oil reserves to instead focus on economic, social and environmental growth. International law firms operating in the country tend to have a strong projects bent and expertise acting for state-owned enterprises. In a one-in, one-out move, Crowell & Moring opened in Doha in the fourth quarter of 2020, taking on Squire Patton Boggs’ office, inheriting a team that has substantial infrastructure experience.

Restrictions remain in place in Saudi Arabia barring international law firms from fully operating in the country. Instead, they function in association models with local law firms. A key deal in the offing relating to Saudi Arabia is the intended sale of its gas pipeline, a much-hyped transaction that should attract a posse of high-end lawyers.

Unsurprisingly, the UAE and Saudi Arabia remain the key markets for M&A deals across the region. The headline deal in 2020, although more than a year ago now, was Abu Dhabi National Energy Company’s merger with Abu Dhabi Power Corporation, which saw the transfer of power and water generation, transmission and distribution assets to the former company. The combined utility has assets worth $54bn.

North Africa

In contrast to rapid vaccine rollout programmes in some countries in the Middle East, the situation is markedly different in North Africa. According to information provided by Reuters as of mid-July, Morocco is out in front with 28% of its population estimated to have had the vaccine, Tunisia at 9%, Algeria at 3% and Egypt at just 1%.

In a positive move for the region, Saudi Arabia and the UAE ended their embargo against Qatar in early 2021. Qatar, which will host the 2022 FIFA World Cup, has its own roadmap for growth, the Qatar National Vision 2030.

Morocco’s automotive industry is also showing encouraging signs, with Peugeot joining Renault and Dacia in starting production in the country in 2019, setting up a plant in Kenitra. The country has the continent’s largest passenger car industry, with automotive Morocco’s largest export sector; reports place the industry’s share of GDP between 16% and 20%. A number of major automotive suppliers are also present in Morocco, while China’s BYD also recently opened a factory in the country. The EU, however, remains Morocco’s largest trade partner, in large part due to its proximity to Spain and connections to France, and frequently serves as a gateway into the wider European economic region, with the automotive industry contributing significantly to goods imported by the EU. Morocco’s location has enabled it to function as a base for international law firms looking to do business in the country and the wider North African region, with the country serving as a bridge between Europe and North Africa.

Firms in Morocco are predominantly based in Casablanca and international firms include Gide Cuatrecasas Casablanca – a unique Moroccan collaboration between elite Spanish and French firms Cuatrecasas and Gide Loyrette Nouel; DLA Piper; Clifford Chance; Baker McKenzie Maroc; and Norton Rose Fulbright. Baker McKenzie Maroc’s team recently acted for Suez in its attempts to avoid a hostile takeover by Veolia, although a merger agreement between the two companies was agreed in spring 2021.

In a situation far from unique in 2020, tourism to Egypt dried up almost overnight. Despite this, according to data provided by the IMF, Egypt was one of the few emerging markets to record positive growth in 2020.

Restrictions imposed by governments globally in response to the pandemic significantly impacted Egypt’s tourism trade, a key economic driver in a county which is the second-most popular tourist destination in Africa. In a situation far from unique in 2020, tourism to the country dried up almost overnight. Despite this, according to data provided by the International Monetary Fund (IMF), Egypt was one of the few emerging markets to record positive growth in 2020. Government measures, including the suspension of tax payments, monetary support to those businesses most impacted by the pandemic and a reduction in policy interest rates, together with IMF support, helped to bolster the country’s economy. Further growth is forecast for 2021.

Despite divergent approaches and vastly different geopolitical and economic climates, there is some reason to be hopeful for countries across the Middle East and North Africa. Fuelled by rising oil prices, Saudi Arabia, in particular, has strong reason to look forward to the year ahead. While Qatar eagerly awaits the kick off of next year’s World Cup to showcase what is set to be the largest global sporting event the region has ever held. LB

The post Middle East Focus: Light on the horizon appeared first on Legal Business.

The global economy is slowing and so too is the Middle East. In April, the International Monetary Fund (IMF)almost halved this year’s growth forecast for the MENA region to 1.3%, from its previous estimate of 2.5% in October 2018. Dragging everything down is the oil sector – particularly in Saudi Arabia – US sanctions in Iran, and geopolitical tensions in other economies such as Iraq, Syria and Yemen.

But such downgrades are no surprise for lawyers in the region. ‘There is no doubt the region is going through a downturn,’ says Richard Gimblett, resident managing partner of the Dubai arm of Holman Fenwick Willan (HFW), which has more than 50 lawyers across its offices in Riyadh, Dubai, Kuwait City and Abu Dhabi. ‘The volatile price of oil obviously hasn’t helped. These are still largely petro-economies, although they are trying to diversify.’

Economic pressures may weigh on state coffers, but governments remain strongly committed to privatisation and economic reform programmes. There is a lot of demand on government resources – VAT was introduced in the UAE and Saudi Arabia in January 2018. Through its Vision 2030 initiative, Saudi Arabia hopes to attract more than $425bn in private sector investment over the next ten years to overhaul the economy and reduce reliance on oil.

After opening in Dubai in 2007, Hogan Lovells added a second Middle East office in Riyadh last June through an association with Saudi Arabia’s ZS&R Law Firm. ‘There are a number of initiatives and projects announced as a result of Vision 2030 and we are incredibly excited about those prospects,’ says Dubai managing partner Rahail Ali. Among a string of mega-projects announced by Crown Prince Mohammed bin Salman and backed by the Public Investment Fund – Saudi Arabia’s sovereign wealth fund – include the $500bn new futuristic city of Neom; the Qiddiya entertainment district outside Riyadh; and the Red Sea project to create an ultra-luxury resort. ‘That is a clear indication of how significant Saudi is and the deal opportunities there are for lawyers,’ Ali says.

‘The pace of regulatory change is the highest it has ever been.’
Jonathan Silver, Clyde & Co

Lawyers also stand to gain from a raft of renewable energy projects and Saudi Arabia in particular is focused on being much more environmentally friendly. Hogan Lovells advised the lenders on the project financing of the 300MW Sakaka solar plant, the first utility-scale renewable energy project under King Salman’s national renewable energy programme – in a transaction that closed in November. Ali observes that Islamic finance and project finance have remained robust in the downturn because a number of Gulf Cooperation Council (GCC) countries are very much focused on developing their infrastructure.

Although Saudi accounts for more than half of the GDP in the GCC, Dubai is still the regional hub for many international law firms, in part due to its more liberal regime. The oil slump since 2014 has, however, had a particularly negative impact on the UAE economy. Says Ali: ‘Unless firms have significant Saudi operations and work with credible Saudi lawyers, they are going to struggle. In the UAE there are too many lawyers chasing not enough work.’

Husam Hourani, managing partner of Al Tamimi & Co, which has 375 lawyers in 17 offices across the region, says there is so much work in Saudi that many of its lawyers from other offices are helping to cope with demand. That spans a wide variety of sectors and practice areas such as aviation, infrastructure, regulation and sports (the firm recently represented Al-Hilal FC in signing a number of coaches and players). Since the beginning of 2018, the Emirates law firm has added 12 lawyers across its offices in Riyadh, Jeddah and Al Khobar, making it the largest law firm in the Kingdom, and indeed in the Middle East.

Areas of interest

Egypt, expected by the IMF to grow by 5.5% this year, has also got firms’ attention. Al Tamimi opened an office in Cairo three years ago with one Egyptian partner – and now has seven, plus 15 associates. Hourani contrasts the North African country with Saudi: ‘It is a different type of client and work. The private sector is extremely active in Egypt. M&A, capital markets, banking and finance are the three dominant areas of work for us.’

‘If you want to act for any government or government-owned entity in Abu Dhabi, they really like to see that you have got a local office, you just can’t do that from Dubai.’ Richard Gimblett, Holman Fenwick Willan

White & Case recently advised A15, an Egyptian tech investment fund, on the sale of its 76% stake in UAE’s TPAY Mobile to Africa’s Helios Investment Partners, advised by Norton Rose Fulbright. ‘It was the region’s first dragon. That is where the return from one investment is greater than the whole amount of the fund raised in the first place,’ says Dubai-based team leader Marcus Booth, who moved from London last year to lead White & Case’s private equity practice in MENA. ‘The wider region is very much open for business. Activity levels are very strong and what you see more and more from a private equity and financial sponsors’ side is a realisation of opportunity here.’ Another M&A deal, led by Booth earlier this year, saw Goldman Sachs invest in Modanisa, a Turkey-based fashion retailer for women in Muslim countries, advised by Baker McKenzie.

Clyde & Co has around 50 partners across its five offices in the Middle East, making it one of the region’s largest international firms. Jonathan Silver, who has led the firm’s MENA operations since 1989, says a balanced portfolio of work enables the firm to take advantage of increases and adjust to decreases in the market as and when they arise. ‘Healthcare and education are very active at the moment, and we have developed a pre-eminent position in both of those sectors right across our network, including in Oman, the UAE and Qatar.’

Clyde recently advised GEMS Education, a Dubai-headquartered private education provider, on establishing and restructuring schools in the UAE; and Aldara Medical Corporation on the development and operation of a state-of-the art outpatient facility in Riyadh that is scheduled to open this year.

Alongside state-led investment and diversification, pro-market reforms are good news for lawyers.

A raft of new regulation introduced in the past 12-15 months include: a new UAE foreign investment law that will allow 100% foreign ownership of onshore companies across certain sectors, and a long-term visa system for investors, entrepreneurs and professionals; a new companies law in Kuwait that will make it easier to set up a business there; the introduction of PPP legislation as well as new competition and bankruptcy laws in Saudi Arabia; and the launch of a permanent residency programme for expatriates in Qatar. Silver, who has practised in the Middle East for the past 39 years, says: ‘The pace of regulatory change is the highest it has ever been.’

Spread betting

In line with changes to the region’s economy, international law firms have diversified their offerings. White & Case historically focused on project development and finance but has become a full-service law firm in the last five years according to Doug Peel, who leads its Middle East practice. The firm’s regional practice has doubled in size over the same period and now has five offices and around 110 lawyers. Says Peel: ‘If you are in a position to have counter-cyclical practices in the region you are weighted against the impact of volatility in the oil price.’

Construction disputes are currently ‘a thriving business’ for the firm’s dedicated Dubai-based practice. Peel observes that these types of disputes can last for some time and carry over into periods when oil prices bounce back. Most of White & Case’s construction disputes are in arbitration – ad hoc or institutional – increasingly in regional centres such as the Dubai International Arbitration Centre or the ADGM Arbitration Centre in Abu Dhabi.

At HFW, contentious work accounts for around two-thirds of the firm’s global revenue, and this is reflected in the Middle East too. ‘We do a huge amount of local litigation and are the third most-active law firm in DIFC courts,’ Gimblett says. ‘At a commercial level, there is a lot of confidence in them.’ Based in the Dubai International Financial Centre, these are English language, common law courts that are staffed with retired English and Singaporean judges. Last year, the DIFC courts saw a 29% increase in the number of cases to 670, while the total value of cases of the main court of first instance (including arbitration-related) broke £2bn.

HFW employs 31 Arab-speaking lawyers who assist in aviation, shipping, insurance and other disputes before the local courts. ‘It is a feature of the region that local courts are very jurisdiction-hungry, so if you are doing business in the region there is always the risk that you could end up in front of a local court anyway,’ Gimblett notes. ‘You may have a jurisdiction clause in your contract but they won’t necessarily pay much regard to that.’

The firm’s Abu Dhabi’s office opened in October with the hire of a team from Reed Smith, including its regional managing partner. In contrast, several international law firms, including Latham & Watkins, Norton Rose Fulbright and Herbert Smith Freehills, have closed their offices in the UAE capital in recent years. HFW has since added Bird & Bird’s global infrastructure head Richard Lucas, a defence and infrastructure projects lawyer, who is now managing partner of the Abu Dhabi office. ‘If you want to act for any government or government-owned entity in Abu Dhabi, they really like to see that you have got a local office, you just can’t do that from Dubai,’ says Gimblett.

Dentons has been in the region for longer than most, opening in Cairo in 1964 and in Dubai and Abu Dhabi in 1969. Now with over 125 fee-earners in nine offices across the UAE, Saudi Arabia, Oman, Jordan, Qatar, Egypt and Lebanon, its main areas of activity are linked to banking, energy, construction and dispute resolution. ‘We are here for the long term and have thrived through periods of growth and slowdowns,’ says regional managing partner Paul Jarvis. The world’s largest law firm is currently advising on a number of the largest construction arbitrations in the UAE, Saudi Arabia, Oman and Qatar, according to Jarvis. It has also grown business in banking and finance; it has advised on a number of ‘first of a kind’ transactions, such as the first sukuk issue by a real estate investment trust in the MENA region (Emirates REIT), and the first international capital markets issue by an Omani company (Mazoon Electricity Company). Dentons advised Emirates REIT and Mazoon and the bonds were worth $400m and $500m respectively.

Despite the positive noises from firms active in the Middle East, political risk is still seen by observers as dominating this turbulent region. However, Gimblett notes that viewing the region homogenously can lead to false assumptions: ‘There have been pockets of massive difficulty, Iraq, Syria and an ongoing conflict in Yemen, but if you look at where we practise, the UAE is still a very stable jurisdiction politically, and I would say the same still applies for Saudi, notwithstanding certain recent issues. It is more the economic issues that drive our concerns.’

Those concerns are real. However, with the IMF expecting the regional economy to recover to about 3.2%, in 2020 the outlook is looking sunnier, particularly for firms that can adjust to the ups and downs in the Middle East. LB

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‘The Middle East. We will try to make it better, but it is a troubled place’: the words of Donald Trump as he announced the recent military strikes targeting Syrian president Bashar Assad’s chemical weapons facilities. Although there is some truth to his sweeping statement, most of the over 400 million citizens in the 17 countries that comprise the Middle East region beg to differ. While the World Bank estimates that GDP growth in the region slowed from 5% in 2016 to 1.8% in 2017 – fuelled by oil production cuts and geopolitical tensions – this is projected to rebound to 3% in 2018 and 3.2% the following year.

The region’s lawyers point to the six Gulf Cooperation Council (GCC) economies as leading the way, supported by infrastructure investment. ‘It’s a very good time in the region,’ says Doug Peel at White & Case, head of the firm’s Middle East practice, which is spread across five regional offices: Cairo, Riyadh, Doha, Abu Dhabi and Dubai. ‘We are busy all the way around – there’s substantial activity in all the GCC countries and in Egypt.’ Last year White & Case – along with Latham & Watkins – advised JPMorgan, Citi and HSBC on Saudi Arabia’s debut 144A/Reg S Sukuk programme, including the issue of $9bn Sukuk.

‘There’s a lot of major infrastructure work still being undertaken in the region,’ says Peel’s fellow partner Michael Turrini. ‘Whereas some of the big projects elsewhere are getting cancelled, the Middle East remains very vibrant. There’s a lot of investment, a drive to upgrade the major infrastructure of all the countries – a bit of a renaissance.’

‘Whereas big projects elsewhere are getting cancelled, the Middle East remains very vibrant. There’s a lot of investment – a renaissance.’
Michael Turrini, White & Case

Husam Hourani, managing partner of Al Tamimi, which has 330 lawyers in 17 offices across nine countries in the region, agrees: ‘In the past year, we have focused mainly on Egypt and Saudi Arabia, which have been extremely busy.’ In Egypt, he notes, the government has been working hard to attract mainly GCC investment in real estate and construction.

Although regional IPOs have been notably thin on the ground since the 2014 collapse in oil prices, more may follow the successful December 2017 listing of Abu Dhabi National Oil Company for Distribution on the local stock exchange. Al Tamimi and Shearman & Sterling were the advisers. Saudi Arabia and the UAE have a number of IPOs in the pipeline this year with up to a dozen Saudi and nine UAE companies expected to list.

The giant of all IPOs – Saudi Aramco’s $100bn listing – is widely anticipated as part of the Kingdom’s sweeping economic reform programme, although the decisions on where and when to list have not been made, with White & Case prominent among the firms advising.

‘People are waiting to see what will happen with Saudi Aramco – if it goes ahead then that may trigger a waterfall effect of a lot of other Saudi and regional companies coming to market,’ says Chris Macbeth, counsel at Cleary Gottlieb Steen & Hamilton in Abu Dhabi, from where the firm advises several sovereign wealth funds. He points to the consolidation of two leading funds into a $200bn vehicle: in March, Sheikh Mohammed bin Zayed Al Nahyan, the crown prince, announced that Abu Dhabi Investment Council (ADIC) will join Mubadala, which merged with the International Petroleum Investment Company (IPIC) last year. ‘It still remains to be seen what the impact of those developments will be,’ says Macbeth.

‘There aren’t many firms with lawyers who have almost 35 years’ experience of privatisations internationally – that’s clearly going to be a growth market in Saudi,’ says Campbell Steedman, managing partner of Winston & Strawn’s regional practice, who joined from White & Case in October 2016. He says of the Aramco IPO: ‘It’s the flagship transaction in Saudi – the jewel in the crown in terms of value – but it doesn’t really achieve the government’s diversified share ownership objective. The key element is going to be what the proceeds are used for – how they reinvest that money into stimulating the Saudi Vision 2030.’

‘If Saudi Aramco goes ahead that will trigger a waterfall effect of with a lot of other Saudi and regional companies coming to market.’
Chris Macbeth, Cleary Gottlieb Steen & Hamilton

This plan aims to reduce Saudi’s dependence on oil by diversifying its economy, and developing the health, education, infrastructure, recreation and tourism sectors.

The battleground

The ebb and flow of Middle East work is something which Jonathan Silver has seen over several decades: he has been the head of Clyde & Co’s regional operations since 1989. While some firms have reduced their local footprint in recent years by leaving Abu Dhabi and Qatar – Latham, Clifford Chance, Herbert Smith Freehills, Weil, Gotshal & Manges and, most recently, Norton Rose Fulbright, which closed its Abu Dhabi office in January – Clyde & Co continues to sail on regardless, adding an Oman branch in February in association with Fatma Al Mamari.

This takes its regional office count to five: alongside Dentons, the largest Middle East presence among international firms in terms of locally-based lawyers. Silver points to ‘the two-way flow of investment in and out of Dubai,’ which remains the preferred regional hub for most. But he also acknowledges the strength of competitive pressure on fees. ‘There are an increasing number of law firms in the region chasing largely the same pot of work – inevitably price competition is going to be heightened,’ he says.

He is also excited by the potential of Saudi: ‘The reforms are really good news, very positive. They will have a very big influence. The 2030 vision means that Saudi is an extremely important market. We’ve seen tremendous growth there: we’re the only firm that has a fully integrated operation and we have the biggest presence on the ground. Saudi is becoming increasingly sophisticated in its demands and we are responding. We’ve got insurance specialists, an IP specialist, construction specialist, a marine and an employment specialist there. We will increase the number of people further.’

At Dentons, which has offices in the UAE, Saudi, Oman, Qatar, Lebanon, Jordan and Egypt, regional managing partner Paul Jarvis says: ‘The firm has performed very well in the Middle East this year. We’re very well hedged in terms of core practice areas and geographies.’ In response to local difficulties, he is phlegmatic: ‘Whoever you talk to, oil prices are either too high or too low; the dollar’s too strong or too weak; there’s a war here, there’s a war there. You get used to the fact that there’s always something interesting going on, and frankly, you just get on with it and work out how best you can maximise your practice.’

Banking and construction have been particularly strong over the past year, he notes, with significant work being referred from and to the US, Hong Kong, China, and Singapore, as well as from Dentons’ expanded international network. ‘Our banking clients are increasingly looking outside their domestic markets for business,’ he comments. ‘Other firms take the approach that they don’t need offices in multiple jurisdictions: they can use strong local firms, which is a perfectly viable model. Some regional firms have sought to expand to other markets.’

Hogan Lovells first opened in Dubai in 2007, three years after the Dubai International Financial Centre (DIFC) was established. The firm’s practice centres on finance, corporate and commercial, dispute resolution, construction and projects, according to construction and disputes partner Nabeel Ikram. ‘Our clients were initially international companies doing work in the Middle East, but we now do a lot of work for local companies, government departments, local banks and contractors,’ he says. ‘It’s a competitive market but that’s the case everywhere. You’ve got to be on top of your game wherever you are, there’s no easy ride here. Some of the older firms here probably did have an easy ride for many years, but that’s obviously changed.’

Among offshore firms active in the region, Angela Calnan, group partner in Collas Crill’s trust and fiduciary team, says: ‘We see a lot of clients and intermediaries in Dubai. But in the end, clients are often based in the wider GCC and simply come to Dubai as a more convenient meeting place for the client advisory team.’

A relatively recent arrival, CMS opened its Dubai office in 2012. ‘We chose it as our hub because that’s where many energy companies are headquartered for the region,’ says Middle East managing partner, John O’Connor. ‘Since then we’ve expanded into other sectors and deliberately opened up in more unusual places. After Dubai, we opened in Istanbul, Lebanon, Iraq and Oman, where we were the fourth international law firm to have an office at the time. The local market was delighted to have another alternative and it’s done extremely well.’

‘Oil prices are either too high or too low; the dollar’s too strong or too weak; there’s a war here, there’s a war there. There’s always something interesting going on, and frankly, you just get on with it.’
Paul Jarvis, Dentons

Two years ago CMS also opened in Tehran and last September, established an alliance with Feras Al Shawaf in Riyadh, making it the only international firm operating on the ground in both Iran and Saudi. O’Connor describes the CMS regional operation as ‘pretty well hedged in terms of market fluctuations’. As evidence, the Dubai office delivered 30% revenue growth last year with strong double-digit growth elsewhere in the region. ‘We’re a very stable and dynamic practice,’ he says.

Africa continues to be a growing focus of Middle East investors’ attention, but it cuts both ways. ‘There are a lot of flows in both directions – from and to Africa,’ says Ikram. ‘Dubai is an exciting place, which African people see: this has developed very quickly, this is the type of place we can take inspiration from. I don’t think you should underestimate that.’ Silver agrees: ‘There’s a lot more trade coming backwards and forwards. It’s not one way out of Dubai into Africa, it’s in both directions. Also, Chinese companies are using Dubai as a regional hub for investing into Africa and into other parts of the Middle East.’

Alastair Young, managing partner of Dentons’ Dubai office, comments: ‘We work with businesses that use Dubai as a springboard as well as businesses based in Africa through our South African and Kenyan offices. We’ve advised on a number of financing, infrastructure and construction projects built out in Africa which have a Dubai element to them.’

Peel adds: ‘We do a significant amount of Africa-related work from the UAE offices, including project finance, capital finance and disputes work, from both Abu Dhabi and Dubai. This is not only working for multinationals running their Africa business from the DIFC, but also a function of the relationships that we have and the people we have on the ground.’

Trump may view the Middle East through a simple lens, but the region can only be understood as a complex, multifaceted prism. ‘Multinationals do factor various risks into their consideration, but political risks seems to be low down on the scale,’ says Silver. ‘Certainly, if one looks at the way in which they have expanded and are continuing to expand their businesses, I don’t see people taking political risk as a very high priority on their decision-making agenda.’ LB

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Emerging markets are by nature volatile, frequently impacted by events such as political instability, civil unrest, corruption and other economic forces. The extremes of growth and decline could hardly be more apparent than in the Middle East, where the collapse in oil prices has prompted a great deal of soul searching.

Saudi Arabia, for example, is going through the most radical social and economic reform programme in its history, and Iran is still subject to ongoing trade sanctions and uncertainty connected to US foreign policy. Added to this, these two nations share deep enmity, which demands high levels of diplomacy on the part of firms that target both jurisdictions.

Despite several years of tumbling oil prices, ongoing conflict in Syria and Yemen, and the world turning its attention to other geographic territories, such as Africa, it is clear that the Middle East has not had its day.

Rahail Ali, Hogan Lovells’ Dubai managing partner and global head of Islamic finance, says the tough climate is forcing governments to make radical choices: ‘There is a view that infrastructure development and investment appetite fluctuates with the price of oil. There is some truth in that, but the dampened oil price and outlook has been critical in pushing governments to address infrastructure development as a way of moving away from oil dependence.’

However, no-one is talking up the market too much. Large cross-border M&A deals involving Middle East parties have been thin on the ground. In 2016, National Bank of Abu Dhabi (NBAD) acquired First Gulf Bank (FGB) for $14.8bn with Freshfields Bruckhaus Deringer advising FGB and Allen & Overy (A&O) acting for NBAD, but few other deals have gained international attention.

‘This is still an emerging market. There is still an enormous amount to be done in terms of infrastructure and economic growth.’
Jonathan Silver, Clyde & Co

Husam Hourani, managing partner of Al Tamimi & Company – the Middle East’s largest law firm with 17 offices in nine countries and Legal Business‘ International Firm of the Year in 2016 – concedes that last year was especially tough for the firm and the first quarter of 2017 has not proven substantially better, although he suggests the firm’s ubiquity across the region and its full-service approach has been pivotal to sustaining satisfactory revenues. While major transactions have been scarce, the firm saw growth in regulatory and arbitration work, and increased its activity in key sectors such as education, healthcare, hospitality and TMT. Hourani adds that the firm has recently launched a tax department to account for the new corporate tax and VAT regime in the UAE. In addition, its Kuwait arm has been ‘extremely busy’ with infrastructure projects that were recently approved by the government.

Kuwait is one market that tends to move slowly, but has attracted some interest from foreign advisers. Sam Habbas, a senior partner at ASAR – Al Ruwayeh & Partners in Kuwait, says that local corporates are currently looking to tap the capital markets after the recent $8bn sovereign bond issue by Kuwait itself. Clifford Chance (CC) and ASAR advised the State of Kuwait, with A&O and local practice International Counsel Bureau advising the banks.

Building the future

It takes time for economic remodelling to filter through in the form of engagements to the region’s top law firms. Yet while a range of firms have been forced to retrench, including by closing offices – most notably in Abu Dhabi and Qatar – there is genuine optimism, not least because Middle East governments have no choice but to sail against the headwinds.

Budget surpluses enabled many states to take on bold infrastructure programmes when oil prices were high, but these only went so far. Now, they are arguably even more imperative. ‘This is still an emerging market, notwithstanding the huge amount of development in the last 20 years,’ comments Jonathan Silver, Clyde & Co’s head of Middle East and North Africa (MENA). ‘There is still an enormous amount to be done in terms of infrastructure and economic growth.’

But the Gulf region’s commitment to infrastructure development could take a heavy toll on government finances. Standard & Poor’s estimated last year that capital projects would create a $270bn gap between the amount of money required to fund capital programmes until 2019 and the amount that will be allocated through contract awards.

Kuwait’s usually slow-moving market is attracting more attention

Dwindling government finances are leading to privatisation programmes and the promotion of public-private partnerships (PPP) as states reshape the Middle East economy. Arqaam Capital, the emerging markets investment bank, said last year that the state funds over 80% of infrastructure projects in Saudi Arabia, but that the government was committed to pushing PPP to limit capital expenditure, and to increase efficiencies in project execution and management. Saudi Arabia has embarked on a concerted airport PPP scheme, which has included the $1.4bn Prince Mohammad Bin Abdulaziz Airport in Medina. The Law Firm of Hassan Mahassni advised the sponsors.

Saudi Arabia is not alone in its aim to privatise and promote PPP arrangements. Dubai, Kuwait and Qatar have all passed new PPP laws in the last few years. Yet nearly a quarter of PPP projects in the MENA region have been abandoned since 1996, according to MEED, the business intelligence service, suggesting poor deal structuring as the primary reason for failed projects. Habbas, though, is confident that lessons have been learned and PPP initiatives are now much more likely to be successful.

The Dubai Electricity and Water Authority announced in 2016 that it would tender renewable energy projects valued at over $7.35bn, with the bulk of these being structured through PPPs. Andrew Greaves, Addleshaw Goddard’s head of the Gulf Cooperation Council (GCC) region, says: ‘Given where the oil price is, governments have no option but to seriously consider a PPP model of sorts. It can serve the demand of the public for investment in infrastructure, schooling and healthcare and we are going to see more PPPs coming into the region. Regional governments are looking at it in a way that they weren’t a couple of years back.’

‘The governments have learned a lot over the last six to eight years. We’re likely to see some successful pilot PPPs in the next year or two.’
Michael Watson, White & Case

White & Case Abu Dhabi partner Michael Watson remarks: ‘There is now a renewed appetite for doing PPPs. It is a question of being more efficient and incentivising people to benefit from international best practice. We are seeing it happen with people looking at PPP or semi-privatisation structures, like in the utilities sector. The governments have also learned a lot over the last six to eight years. We’re likely to see some successful pilot PPPs and semi-privatisations in the next year or two.’

Neil Cuthbert, a Dubai-based banking and finance partner at Dentons, believes that Middle East governments are intent on changing their procurement methods with much more of an emphasis on long-term partnership and sources of finance: ‘A big Chinese contractor told me last week that Saudi Arabia always tendered everything historically, but is now moving towards the direct negotiation route. They want to find a partner like a Chinese contractor that they are happy with and then negotiate the best possible deal. They recognise that the Chinese can bring the money and that they are often willing to finance up to 85% of the construction cost.’

Dubai-centric

China’s focus on augmenting trade links (see box, ‘Help from the East’, below) has helped to reinforce Dubai’s status as a key global and regional hub. It is a welcome phenomenon for law firms that suffered from the effects of the financial crisis, which hit Dubai especially hard in 2009, and then the oil price plunge, which has severely affected government spending power across the Gulf.

Campbell Steedman, who joined Winston & Strawn’s nascent Dubai branch in 2016 as managing partner for the Middle East, says that the emirate must be considered – despite its recent troubles – as one of the world’s principal financial centres: ‘The GCC region is still very much a business hub and Dubai in particular is a gateway for investment from Asia to Africa and Asia to Europe. Further, Dubai continues to be an enclave of political security and relative economic stability in the region.’

There is a widely-held view that the Arab Spring of 2010 and 2011 reinforced Dubai’s position in the region, particularly with the civil unrest in Bahrain, another historically significant financial centre.

Silver says that Dubai’s proximity and commercial connection to Africa should not be underestimated as it begins to rival London and Paris as a primary business hub for the continent: ‘If you look at the way Dubai has developed, it has a business model that stands away from oil and gas, and acts as a regional service hub. Emirates now carries more passengers in Africa than any other airline. It shows how important Dubai has become for the African and other regional markets.’

‘A big Chinese contractor told me Saudi Arabia always tendered everything historically, but is now moving towards the direct negotiation route.’
Neil Cuthbert, Dentons

Multinationals such as Mastercard, Visa, AstraZeneca, DHL, FedEx and Microsoft now run their Africa businesses from Dubai. The Dubai International Financial Centre (DIFC) has also cemented the emirate’s prominent position on the regional and global stage, and became home to 447 registered financial institutions in 2016.

Although other Gulf states such as Abu Dhabi and Qatar have developed their own financial centres, they have not achieved the prominence of the DIFC.

Chris Macbeth, counsel in Cleary Gottlieb Steen & Hamilton’s Abu Dhabi arm, says that the Abu Dhabi Global Market (ADGM), the emirate’s international financial centre, has performed well since its launch in 2015. Even so, it is more than a decade of development behind the DIFC.

The ADGM’s launch and progress has not stopped international law firms from retreating from Abu Dhabi. Having flooded the market in the hope of winning engagements from major sovereign wealth funds, such as the Abu Dhabi Investment Authority and Mubadala Development Company, firms then pulled out when they realised that Abu Dhabi’s small number of oil-rich institutions tended to work with an equally small group of long-term legal advisers.

Many firms naturally felt that the high commercial property costs and the lack of residential capacity was not conducive to maintaining a presence in Abu Dhabi. Latham & Watkins, Herbert Smith Freehills (HSF), Simmons & Simmons and Hogan Lovells are among those that have retreated from the emirate and consolidated their UAE presence in Dubai in the last two years.

Equally, Qatar’s promise as a fruitful place to provide legal services has not lived up to billing. The country is infamous for its stifling bureaucracy and few international firms have felt compelled to be present or remain there. Latham closed its Doha branch in 2015, while CC and HSF pulled-out in February this year.

This has all reaffirmed Dubai’s status as the principal legal centre in the Gulf, although Debashis Dey, a partner in White & Case’s Dubai arm, believes that firms retreating from other markets has caused it to become over-lawyered. ‘Firms are now hunting in packs, chasing the same client,’ he says. Weil, Gotshal & Manges is the latest casualty, deciding to close its Dubai outpost this summer.

‘Dubai is a gateway for investment from Asia to Africa and Europe. It continues to be an enclave of political security and economic stability.’
Campbell Steedman, Winston & Strawn

Dey says that White & Case sees the region differently to others, with offices in Dubai and Abu Dhabi and presences in Saudi Arabia and Egypt through formal associations with local firms: ‘Our strategy is to have global resources on the ground, typically those who understand the market but have the global expertise. The key is to find the right kind of resources and build your offering around clients that you feel will be with you during the up and down cycles.’

Shane Morton, head of recruitment firm Taylor Root’s Middle East operation, says that business is steady for him, but law firms have realised that the ‘streets aren’t paved with gold’. In recent years, his focus has gradually shifted to in-house roles as private practice demand has declined.

Difficult economic conditions and an oversupply of lawyers is not a recipe for overwhelming optimism, but there remains little evidence of dejection, especially in Dubai where London’s big four Global 100 firms all maintain sizeable operations. Hogan Lovells’ Ali says the negative headlines around falling oil and property prices skew the true picture: ‘You can take the negative view that the region has more than its fair share of geopolitical issues, with conflicts in Yemen and Syria and the antagonism between Saudi Arabia and Iran. But, alternatively, you can take a positive view, with all this Chinese investment into the region and the Middle East being seen as a springboard for Africa work. We are not frustrated or fazed by the negative sentiments; you have to be positive and take the long-term view.’ LB

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Oil price volatility is a fact of life in the Middle East. At below or around $40 a barrel, the region has been dealt a hard dose of realism. Developing economic models that rely less on oil and gas revenues is now the order of the day, while national governments have had to rein in notoriously lavish spending programmes.

Law firms that rushed into the Middle East as it became a significant driver of global economic activity amid soaring oil prices a decade ago, now have to review their strategies.

Rahail Ali, Hogan Lovells’ Dubai managing partner, sums up the mood: ‘It would be foolish for anyone to say that the level of legal business is not affected by the oil prices. It dictates the amount of liquidity in the region and the appetite for substantial transactions. Oil is a volatile commodity. You have to take the rough with the smooth.’

Michael Kerr, Dentons’ Middle East managing partner, agrees that the region’s sudden impression on global legal consciousness circa 2008 is no longer as powerful: ‘We are now seeing the fiscal reality that exists because the high levels of activity that came with the Middle East’s awakening naturally abate over time. This new fiscal reality is also currently seeing the short-term impact from the fluctuations of the petrocarbons market.’

Oil and gas-rich states such as Abu Dhabi, Qatar and Saudi Arabia no longer have bottomless wealth and seemingly endless spending plans. In February, Standard & Poor’s downgraded Saudi Arabia’s credit rating to A- and took away Bahrain’s investment grade status.

Certainly the shift in economic outlook has not bypassed the legal profession. A string of international firms have decided to overhaul their Middle East strategies, some radically. In the April 2015 edition of Legal Business, we reported on Latham & Watkins’ decision to close its Abu Dhabi and Qatar offices and concentrate its resources in Dubai and Riyadh, Saudi Arabia’s capital.

Latham’s move was followed by a number of competitors, who also retreated from Abu Dhabi as firms finally recognised the limited number of clients and mandates available in the historically oil-rich emirate. ‘There are not too many organisations with attractive legal budgets,’ admits one partner at a leading UK-based international law firm.

Simmons & Simmons announced the closure of its Abu Dhabi office in January 2016, indicating that existing Abu Dhabi clients would continue to be served from Dubai. It is a proposition that would have held little credence a few years ago when the Abu Dhabi government and government-linked companies demanded that their legal advisers show a commitment to the jurisdiction by having a physical presence there. Firms now recognise that this stance has softened, but also that the small number of major institutions that frequently use outside counsel are usually tied to their preferred legal advisers. One partner at a major UK-based international law firm says that he has given up trying to curry favour with Mubadala, the hugely affluent Abu Dhabi sovereign wealth fund, because of its entrenched relationships with firms such as Shearman & Sterling.

Shearman has been present in Abu Dhabi for over 40 years and its longstanding relationships have enabled it to advise Mubadala on its development of Dolphin Energy and Sheikh Mansour bin Zayed Al Nahyan, the deputy prime minister of the UAE, on the acquisition of Manchester City Football Club. Way back in 1971, it advised on the creation of the Abu Dhabi National Oil Company (ADNOC), a client that it still represents today.

With a small number of firms taking the lion’s share of the big Abu Dhabi mandates, it is not surprising that firms such as Herbert Smith Freehills and Baker Botts have recently shut down their local branches and pulled team members north to Dubai.

Shane Morton, head of recruiter Taylor Root’s Middle East operation, says that Abu Dhabi’s status has faded: ‘Eight years ago, many firms thought Abu Dhabi would grow to be a rival financial centre to Dubai, but that didn’t occur. Dubai’s place as the principal regional hub is now cemented.’

A year ago Latham surprised the market by announcing that Doha and Abu Dhabi could be and would be serviced from a consolidated office in Dubai. Subsequently, three of its Dubai partners – Charles Fuller, Andrew Tarbuck and Anthony Pallett – joined Hogan Lovells.

However, Christopher Jobson, Clyde & Co’s Abu Dhabi managing partner, says: ‘What we are seeing is not a contraction of the market but a shakeout of the firms that had no real understanding of the market they were operating in or had limited sector specialism. Further office closures are inevitable as there are firms operating on the margins of people and profitability.’

Doug Peel, head of White & Case’s Middle East practice, says many firms made poor decisions on the basis of market hype a decade ago: ‘Many firms rushed into the Middle East during the oil price boom believing that the spending spree would go on ad infinitum. It is natural now for them to head for the door.’

The effect of geopolitical tensions that exist in part due to Iran’s gradual reintegration into the global economy and the ongoing conflict in Yemen should not be underestimated. While the West is principally focused on the war in Syria, the Gulf has been consumed by war in Yemen, where UAE and Saudi Arabian troops have suffered multiple casualties. This has eaten further into Saudi Arabia’s already depleted budget, along with its involvement in supporting anti-government militia in Syria.

Brave faces

Despite the gloomy outlook, international firms are far from giving up on the region. This month, Clyde & Co promoted two new partners in Abu Dhabi and one in Dubai, while Freshfields Bruckhaus Deringer also made up two partners in Dubai.

Jobson believes that firms with larger resources and a more full-service approach are better equipped to ride out a capricious climate. ‘Inevitably, low oil prices mean changes in the market. Undoubtedly governments are looking to operate differently and look to restructuring, outsourcing, streamlining and innovation, and different governments are talking about privatisation. It gives us two opportunities; when you see a contraction in the market you will see a spike in disputes, but it also raises opportunities in the corporate space, whether that be M&A activity, restructuring or consolidation. We have to show flexibility and have the nous on the ground to adapt and change. When you have 40 partners, 300-odd staff and a full-service capability, you can work on both sides of the equation, more so than when you are one partner and three assistants.’

Kerr holds a similar view: ‘As the regional economies and governments become more mature and the business community becomes more mature, you will find there is an increasing expectation from those that distribute the work and government work, that the law firms that benefit are the ones that are in and of the community. There will be some markets, but not all, where if you want the work, you will have to be there.’

A report by Natixis Commodities Research predicts that oil prices will rise to $54 per barrel towards the end of 2016, providing a much-needed fillip to the Middle East’s flagging economies. It provides another reason to be optimistic, although prices will still be some way off the point where traditional oil-rich nations begin to replenish their budget reserves.

Robin Abraham, Clifford Chance’s Middle East managing partner, says the region has a long way to go before the economy roars again, but believes that government-led programmes are going to make a difference: ‘The UAE and Qatar have break-even oil prices at around $60 to $70 a barrel before they have to raise new funds or dip into their plentiful reserves. The position is different in Saudi Arabia, which is reported to need oil prices to be north of $100 to balance its books, and there is lots of noise about breaking up the Saudi economy, privatisation and opening up more to foreign investment. We sense that politically there is momentum to do it.’

The typical Middle East economic model of big oil and gas revenues and low taxes is beginning to shift. Economic diversification initiatives are taking hold in a variety of Gulf states. Saudi Arabia has introduced a new five-year plan, which will include a wide-ranging privatisation programme and the introduction of new taxes. The 2016 to 2020 National Transformation Plan is likely to include the IPO of Saudi Aramco, making it the most valuable listed company in the world. The privatisation of several of its subsidiaries is also planned, according to recent statements by deputy crown prince Mohammed bin Salman al Saud (see box, ‘Opening up’).

Governments in the Gulf are striving to increase revenues from industries other than oil and gas. The Gulf Cooperation Council (GCC) – which includes Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the UAE – is also developing new income streams through the introduction of corporate tax and VAT over the next three years.

Sam Habbas, senior partner of Kuwaiti firm ASAR – Al Ruwayeh & Partners, says that Kuwait’s government is likely to respond with a package of corporation tax, a privatisation programme and less-generous benefits for Kuwaiti citizens. Habbas also suggests this has resulted in heightened activity in the ‘debt capital markets area as local issuers consider now being a good time to tap the capital markets to shore up their balance sheets’.

In another blow to the region’s low-tax status, Dubai Airports is introducing a passenger fee to help finance new infrastructure and to boost capacity. Dubai Airports is expected to serve 118 million passengers by 2023, according to its chief executive Paul Griffiths. Kerr believes that each GCC government is developing a materially different economic mindset: ‘It has become clear across the region that there is a pressing need to be more diversified and less dependent on petrodollars.’

Equally, law firms have recognised the need to be less reliant on government-linked work as Gulf states have pulled back on investment and certain infrastructure projects in order to address their more parlous fiscal situation.

‘The Saudi market is much less penetrable than other markets. It is about who you know.’

Martin Amison, Trowers & Hamlins

‘Demand is changing,’ observes Husam Hourani, managing partner of Middle East firm Al Tamimi & Company. ‘You can basically downsize, do less and reduce the number of lawyers and employees, or you can change strategy and discover that there are plenty of opportunities. For instance, our employment law practice is booming and we have never seen as much regulatory work as in the last few months.’

Pervez Akhtar, Freshfields’ Dubai-based managing partner for the MENA region, is also sanguine about the climate: ‘Law firms that are reliant on government-linked work are going to be affected more disproportionately than others, but those whose practices are more focused on high-end M&A continue to be very busy. We’ve actually been massively busy over the last year.’

Hourani says that Al Tamimi’s once-frenetic IPO practice has slowed enormously over the last two years, but suggests that activity has shifted: ‘Most banks in the GCC are looking to capital increases to support their balance sheets, which provides opportunities, whether plain vanilla or convertible bonds. There are lots of new ideas here, but they are different in nature to what law firms are used to. This change of mentality is easy for some and more difficult for others.’

Riding a different wave

In 2015 Shearman launched an office in Dubai and entered into an affiliation with Dr Sultan Almasoud & Partners in Saudi Arabia. Marwan Elaraby, the firm’s Middle East managing partner, comments: ‘Abu Dhabi remains our hub in the Middle East but the evolution of our business into Dubai and Saudi Arabia ensures that we can best capitalise on the diversification in economic activity that is taking place across the region as a whole.’

Meanwhile, Holman Fenwick Willan announced the launch of three new associations in Saudi Arabia, Kuwait and Lebanon in January this year. Erik Scheer, a member of Baker & McKenzie’s global executive committee who has responsibility for the Middle East, says that his firm’s regional practice had a very strong final quarter of 2015: ‘Oil prices have become the new reality and clients have begun to adapt and focus on ways to benefit and the opportunities out there.’

Hogan Lovells takes a similar view, having hired three new partners in Dubai from Latham at the end of last year, and Ali says the firm is not disheartened about the collapse in commodity prices: ‘The firm’s view of the region is that it fully recognises that the Middle East is an emerging market and is subject to the vagaries of an emerging market, but fundamentally we have a hugely positive outlook for MENA. We are bucking the trend and have recruited three great guys when others are cutting back.’

Firms report a relatively buoyant M&A scene as opportunistic investors, such as private equity houses, are taking advantage of more attractive valuations. ‘If you have a client that is sitting on a cash pile for some reason it is a great time to buy another company in the hydrocarbon industry,’ Peel comments.

Deals in this sector continue, although Mergermarket data indicates that there were just five Middle East M&A transactions valued in excess of $1bn in 2015, the two largest being in the oil and gas sector. In the biggest deal of the year, Latham advised Kuwait-based Equate Petrochemical Company on its $3.2bn acquisition of MEGlobal International in the UAE. Shearman & Sterling advised The Dow Chemical Company on the sale of its interest in MEGlobal to Equate. Elaraby says: ‘Regional M&A deals are proceeding as a result of depressed public valuations, limited reliance on leverage and committed equity that needs to be deployed.’

In another regional oil and gas deal, Freshfields and Irish leader Arthur Cox advised Emirates National Oil Company (ENOC) on its $2.83bn acquisition of an additional 46.1% stake in Dubai-based Dragon Oil, to become the sole owner of the company. Allen & Overy and Dublin-based Mason Hayes & Curran advised Dragon Oil.

‘What we are seeing is not a contraction of the market but a shakeout of the firms that had no real understanding of the market they were operating in.’

Christopher Jobson, Clyde & Co

Freshfields continues to service a number of regional and international private equity sponsors through its Middle East offices. In November 2015, it advised Warburg Pincus and General Atlantic on their acquisition of a 49% stake in Network International, the UAE-based payment-processing business focused on the Middle East and Africa, from The Abraaj Group. It also represented International Finance Corporation and Abraaj on the sale of Saham Finances, the Morocco-based insurance company, to South Africa’s Sanlam, the largest insurer in Africa.

Akhtar believes that private equity houses are looking beyond macroeconomic instability and unearthing attractive energy assets. ‘International private equity houses see the collapse of the oil price as an opportunity to find targets and more accessible sellers that are more amenable to bringing in a partner or fresh capital that they can’t access locally.’

Even with pressure on public finances, construction and projects still appear to be plentiful. Richard McLerie, the UAE general manager of JLegal, the recruiter, says there is a real dearth of project finance lawyers in the Middle East in contrast to the demand for this expertise. He believes that construction work is buoyant for both contentious and non-contentious work: ‘There is a lot of arbitration and front-end work which tells you that a lot of key projects are still going ahead.’

Transport systems, such as Riyadh’s 85-station metro, are another means by which governments encourage economies to diversify.

Dubai-centric

Dubai is the one state to pioneer infrastructure development and economic diversification and become the gold standard in the Gulf. It opened its own metro system back in 2009 and has built a business environment that other Gulf cities can only dream of matching. With Abu Dhabi and Qatar’s capital Doha noticeably affected by oil values, Dubai has managed to further solidify its position as the pre-eminent financial centre in the Middle East.

With the world’s busiest airport and air connections to all parts of the globe, its prominent worldwide status looks assured, especially given its ability to ride out the effects of the global financial crisis, which put its major institutions and real estate sector in severe peril – it was however forced to ask for a $10bn bailout from Abu Dhabi in 2009.

Firms now view Dubai as the principal centre to base their Middle East teams and service regional work as well as local mandates. Ali remarks: ‘Dubai has very clearly emerged as the centre for the whole region. It provides a very stable environment for corporates and professional advisers to operate in.’

While many firms recognise the importance of having a presence in key economies such as Saudi Arabia, most are happy to resource much of the work out of Dubai. It provides a relatively appealing business and social climate for both expatriates and natives.

‘Dubai is a crucial part of our Middle East strategy,’ Scheer says. ‘It is where a lot of cross-border deals take place and we also see many of our global clients using Dubai as a hub for regional investments and the management of subsidiaries in Africa and the region. We certainly don’t expect that to change. Dubai is a very attractive location to set up shop and have a regional base.’

It is a dramatic turnaround for a city that many felt would never recover from the 2009 bailout but Dubai now stands unchallenged as the regional’s legal capital. In the age of low oil prices, that domination looks set only to increase. LB

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Latham & Watkins doesn’t make strategic missteps. Or at least that appeared to be the case until March, when the firm announced that it will close both its Abu Dhabi and Qatar offices later this year, relocating staff to its Dubai operation. Bill Voge, chair and managing partner of the firm that has been by most yardsticks the standout success story of the last 20 years, said the firm had been wrong in assuming there were four distinct hubs that the firm needed to service clients in the Middle East – Abu Dhabi, Dubai, Qatar and Saudi Arabia – and so after seven years in the region, the firm was consolidating its Middle East presence into Dubai and Riyadh.

For international firms, finding the appropriate business model and strategy for the Middle East has been a puzzle. The region was never more alluring than at the height of the pre-financial crisis period of 2007 and 2008. Intoxicated by crude oil prices at nearly $150 a barrel in the summer of 2008, the Middle East could hardly have felt more prosperous. As ostentation gripped the region, Dubai powered ahead with ambitious projects such as the man-made archipelago Palm Jumeirah and the Burj Khalifa, the world’s tallest building. Naturally, the legal profession sought to capitalise.

Co-publishing feature:
Background and market factors – Richard McLerie, JLegal

Campbell Steedman, a Dubai-based M&A partner at White & Case, who moved to Dubai with Norton Rose in 2007, says that local sentiment was too single-minded at the time. ‘When I first arrived here, the market was about buying everything, there were no thoughts about a rainy day,’ he says. ‘People were buying and building silly things without full consideration, while some law firms were opening here with the perception that the Middle East was a honey pot.’

But it wasn’t long before the market turned sour. While the Palm Jumeirah and Burj Khalifa remain conspicuous features of the Dubai landscape, two larger and more ambitious artificial island developments, Palm Jebel Ali and Palm Deira, have remained unfinished since being put on hold in 2008. Dubai entered into a period of severe fiscal distress during the global financial crisis and was bailed out by its neighbour, Abu Dhabi.

A more subdued atmosphere exists today, particularly following the effects of the Arab Spring in 2010 and 2011, and law firms have retuned to a soberer market. ‘In our case, we have focused on getting the right level of resource into the right products, such as infrastructure, oil and gas and financial institutions, and we have focused on demonstrating the right level of commitment of resources and in working hard on building relationships,’ says Steedman.

All that glitters

That said, opulence never really disappeared from the Middle East and large projects and transactions have been (and remain) relatively plentiful. However, Gamal Abouali, an Abu Dhabi partner at Cleary Gottlieb Steen & Hamilton, says that this doesn’t necessarily translate to easy riches for law firms. ‘A lot of firms expected the Middle East to be an El Dorado,’ he comments. ‘It was easy to get fooled by the big-ticket projects and investments that were announced in the Middle East without realising they don’t always come with significant legal budgets. Some underestimated the amount of competition in a region where contacts and client relations are critical to generate work.’

Abu Dhabi, the oil-rich emirate, has posed a particular test for law firms. Furnished by its wealth, it launched a series of major infrastructure projects, sought to position itself as a key commercial and financial centre, and made a number of ambitious overseas investments. The Sovereign Wealth Fund Institute says that the Abu Dhabi Investment Authority has some $773bn in global assets.

Back in 2008, as Dubai was positioning itself for international influence, Abu Dhabi and nearby Qatar threatened to overtake it. But the global financial crisis appeared to relegate their ambitions more so than Dubai, even though the latter experienced graver fiscal problems.

Around the time the crisis kicked off, a cohort of international law firms established operations in Abu Dhabi in the hope of becoming part of an investment and transaction windfall. With Dubai struggling in the wake of the economic downturn and compelled to seek financial aid from Abu Dhabi, this only reinforced the view that Abu Dhabi was the place to be. However, many have since discovered that while Abu Dhabi has a huge amount of wealth, the riches are actually concentrated in a small number of institutions and sovereign wealth funds.

‘Abu Dhabi has a number of very important and high-profile clients but I would say that they are limited in number and they tend to develop close relationships with a small number of firms,’ Abouali comments.

Recently, firms such as Hogan Lovells, Holland & Knight and now Latham have decided to shut down their presences there. Shane Morton, a Dubai-based partner at legal recruiter Taylor Root understands why firms were fixated on being present in locations such as Abu Dhabi and Doha, but believes that the market fundamentals are no longer as compelling. ‘A lot of firms rushed in to jump on the Abu Dhabi boat in 2007/08 as it was about to sail, but then it didn’t really sail. Only a handful of firms dominate there. It is not really a diverse enough market for firms to put big numbers on the ground,’ he says.

Many within the region believe Abu Dhabi and Qatar require firms to demonstrate commitment and a willingness to help develop the professional services industry there. A Dubai business card has little currency in Abu Dhabi, according to Martin Amison, a London-based energy partner at Trowers & Hamlins who spent eight years in the Middle East. ‘Turning up in Abu Dhabi with a Dubai business card is a no-no,’ he says. ‘They want someone who is based locally and they are affronted by being serviced from down the road.’

Even so, Villiers Terblanche, Latham’s managing partner for Abu Dhabi, Dubai and Doha – at least until Abu Dhabi and Doha close – says attitudes are changing. ‘In the last five or six years there has been quite a change in the market. Users of legal services are more quick to hire the best lawyer for that particular mandate as opposed to the one that is particularly close to them.’

Terblanche also believes that the relationship between Abu Dhabi and Dubai has gradually become more co-operative rather than competitive: ‘There is a symbiotic relationship between Dubai and Abu Dhabi, which is akin to the connection between New York and Washington DC. They spin on slightly different axes, but they work together pretty well.’

Morton agrees that Abu Dhabi institutions are now more relaxed about working with Dubai-based lawyers. ‘Maybe politics has also changed the dynamics a little,’ he comments. ‘Many Abu Dhabi institutions still want firms to have an office there, but they are not so concerned about lawyers driving down the Sheikh Zayed Road from Dubai to help out.’

Angela Calnan, head of Collas Crill’s fiduciary practice and the firm’s MENA group, agrees. ‘In my experience, regional clients do tend to gravitate towards Dubai and the DIFC [Dubai International Financial Centre], in particular, when meeting with advisers. There are several reasons for this; first, clients from the wider region such as Saudi, Bahrain and Qatar are comforted by the fact that their paperwork is stored away from home and is, therefore, at least psychologically more private; second, clients can see multiple advisers in one consolidated location, including their lawyer, banker and investment manager. They are all likely to be within walking distance of the DIFC.’

Latham appears at ease with its decision to close its offices in Abu Dhabi and Doha. But the strategy does appear surprising, given its sizeable Qatari client base, which includes the State of Qatar, the Qatar Investment Authority, Qatar Petroleum, Qatar Chemical Company and Qatar Gas Transport Company. With such a portfolio of clients, why would it move away from them?

Voge recognises that some smaller clients and smaller mandates may be lost to firms that have a physical presence in Doha, but he expects the premium work to remain with Latham. ‘We have been active in the market for more than two decades and for most of our clients in Doha we have had this discussion and they have made it clear that they will continue to use Latham,’ he says.

He is adamant that a Dubai presence is perfectly suitable to service Abu Dhabi, Qatar and the surrounding region, apart from Saudi Arabia, which is viewed as a distinct market. ‘The rationale was simple. We surveyed our clients that we were serving in the Middle East as well as our clients with business interests in the region and they were indifferent as to whether we were in Doha, Abu Dhabi or Dubai,’ he comments. Flights between Doha and Dubai take just over an hour.

Voge’s analysis gives credence to the position of Dubai as a hub for the region. Husam Hourani, the managing partner at Al Tamimi & Co, a Middle East law firm headquartered in the UAE, says that he is surprised that more firms haven’t identified Dubai as a base for the vicinity and that many have been so quick to expand into other centres. ‘The way we see the Middle East is that if you want to do the big work – the privatisations, the capital markets offerings and the infrastructure projects – then you have to be close to the banking community that advises on this,’ he says, arguing that the DIFC is where much of the region’s financial power and influence is wielded.

Sam Habbas, senior partner at Kuwaiti firm ASAR – Al Ruwayeh & Partners, concedes that Dubai is the recognised commercial and financial centre for the GCC, but believes that firms still have to invest considerable time and effort into each local jurisdiction: ‘Each GCC market has its own particular way of doing business and also has its own unique set of business and cultural sensitivities and expectations that need to be considered. A firm based in Dubai might be successful in targeting Kuwait-based clients and transactions, but we believe such success would be driven by having successfully developed relationships in Kuwait and forging those relationships with local market knowledge and practice.’

Georges Racine, a partner at Swiss law firm LALIVE, which has an office in Doha, admits that Dubai is certainly some distance ahead of other financial centres in the region, but it is not out of sight. ‘Despite Dubai’s earlier start and current lead, Doha is definitely building a reputation for itself,’ he comments.

‘We have found that local Qatari clients, notably public institutions and state enterprises, like to deal with firms that have an office in Qatar,’ he adds.

And at Dentons, which has decades-long experience of practising in the Middle East, Michael Kerr, managing partner for the region, warns against lumping jurisdictions together. ‘There is a danger of viewing the Middle East as one block,’ he says. ‘There are very different legal systems even in the Gulf. Some markets are moving to the stage where you have to be on the ground and be part of the DNA to win the decent projects.’

Inimitable Saudi

Saudi Arabia represents a specific test to international law firms, given the size of its economy and its unique characteristics. Latham’s decision to maintain its presence in Dubai and Riyadh recognises that while Dubai may be a viable operational hub for the Middle East, it cannot cover the distinctive demands of Saudi Arabia and its ample economy. ‘One market where not being present there is a definite disadvantage is Saudi Arabia,’ Abouali says.

While many of the international banks have centred their Middle East presences in Dubai, these have limited influence in Saudi Arabia, where the local banks, including Arab National Bank, Al Bilad Bank and Al-Rajhi Bank, are fundamental to financing transactions and projects in the state.

Further still, domestic regulations demand that law firms be owned and run by Saudi nationals and, as such, the local operations of global firms have historically been associated to the international practice with no direct financial connection. This changed in January 2014, when Clifford Chance launched the first joint foreign and Saudi-owned practice in the jurisdiction, building on its co-operation with local firm Al-Jadaan & Partners Law Firm since 1998. Clyde & Co was the second international firm to receive approval from the Saudi authorities in September 2014 to establish a jointly-owned Saudi Arabian practice in partnership with its long-term associated firm Abdulaziz A Al-Bosaily Law Office.

But the continuing restrictions on foreign law firms still prevent them from exploiting opportunities in the world’s 19th largest economy, a nation that has ambitious plans to diversify its market and boost employment for the local population. According to Forbes, Saudi Arabia has 16% of the world’s proven petroleum reserves and despite the reduction in oil prices, it still has the financial firepower to push through its many economic initiatives.

Since the accession of King Salman earlier this year, there have been a number of initiatives to improve the decision-making process in government. It has merged the two education ministries, and King Salman has appointed new ministers for justice, Islamic affairs, agriculture, municipal affairs, health and information. The king also appointed Mohammed Jadaan as the new head of its capital markets authority. Saudi Arabia’s stock markets are expected to be opened to foreign investors later this year, signalling the nation’s increasing enthusiasm for overseas capital.

Such is Saudi Arabia’s economic growth, infrastructure plans and new willingness to engage with foreign investors, it has made the jurisdiction more compelling to the global legal community. Baker & McKenzie’s associated Saudi practice, Legal Advisors, Abdulaziz I Al-Ajlan & Partners, opened an office in Jeddah in October 2014, adding to its existing presence in Riyadh.

In April, DLA Piper announced the launch of a Jeddah office, its second in Saudi Arabia after Riyadh, with plans to open a third office in the eastern province of the country later this year. However, Saudi Arabia’s airstrikes on neighbouring Yemen and its Shia Houthi rebels demonstrates the volatile nature of the region. While places such as Dubai, Abu Dhabi and Doha are considered safe and stable, the same cannot be said for the rest of the Middle East. Even Bahrain, a key global financial centre for many decades, has made headlines with its own civil uprising that has persisted sporadically since 2011.

Egypt was at the heart of the Arab Spring and has experienced two revolutions since 2010. But despite the unstable nature of the political environment, it is a market that still captivates the attention of the regional and international legal profession. Al Tamimi established an association with Egyptian firm Nour & Taha in January this year. Led by Al Tamimi partner Mohamed Khodeir, it is branded as Khodeir Nour & Taha (in association with Al Tamimi & Company).

Egypt is undeniably an attractive market for international firms but is not without casualties. Trowers & Hamlins closed its Cairo office in 2014 and terminated its association with Nour Law Office. ‘No-one could have foreseen the Arab Spring and its effect on Egypt,’ Amison remarks. Alongside Baker & McKenzie, Dentons is currently the only international firm to have a presence in the North African state, while local firm Matouk Bassiouny is a member of the alliance DLA Piper Africa.

Pervez Akhtar, managing partner of Freshfields Bruckhaus Deringer’s Middle East operations, still views Egypt as a key market for the firm, despite the uncertain outlook: ‘The revolution in Egypt had a very big impact because it is a big market for us, but it has gone back to some level of normality.’ The firm is advising a series of private equity and strategic investors on transactions involving the nation. Last year the firm represented Egypt-listed private equity firm EFG Hermes on the $150m sale of its 19% stake in Damas International.

Akhtar says that despite all the challenges associated with being present in the Middle East, it is still possible to achieve impressive financial performance. Even though big legal mandates don’t necessarily translate to significant fees, he believes firms can be successful through a conservative approach: ‘Year on year, we are one of the most profitable regions in the Freshfields network. We are careful in not wanting to grow too fast. We run a very compact model, which enables client delivery, but at the same time also allows for cost control and we are very focused in terms of the types of clients we want to partner with and the work we do.’

It would appear that in this new-found era of restraint, there are opportunities for focused practices to generate profitable income. This brings us back to Latham: while even the smartest outfits can sometimes make the wrong decisions, the astute acknowledge errors and rectify them in time. LB

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‘You can’t be a credible financial centre without having a credible Islamic finance programme,’ says Qudeer Latif, head of Clifford Chance’s global Islamic practice. With studies expecting the Muslim population to grow twice as fast as the non-Muslim demographic over the next 20 years global financial institutions and governments are falling over themselves to offer Islamic finance products.

According to EY’s latest study of the global Islamic finance market, the total amount of Islamic assets held by commercial banks was expected to have grown by around 40% from 2011 to 2013, from $1.3trn to $1.8trn. 78% of international Islamic assets are held in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey. In Qatar, for example, Georges Racine, director of Swiss firm Lalive’s Doha operation, says that Islamic banking has grown quicker than the banking sector as a whole over the past few years as a result of its government’s supportive measures.

Comments Racine: ‘The Islamic finance sectorin Qatar got off to a strong start this year with the announcement by the Qatar Central Bank of plans to issue a combination of conventional and Islamic government bonds worth $6.6bn, an amount significantly larger than past quarterly debt offerings.’

But with western economies showing clear signs of recovery, Sharia (Islamic) law limitations mean the scope of products available to investors is still a fraction of what is offered by conventional banking. Neil Miller, global head of Islamic finance at Linklaters, says that the Islamic finance product is best delivered unassumingly, without overstating its importance and complexity. ‘Going out there and over-exaggerating the intellectual effort is counterproductive,’ he says.

Nonetheless the growth of Islamic finance, by any yardstick, has been substantial. Dating back to medieval times when tradesmen from the Middle East engaged in financial transactions governed by Sharia law, it was not until the 1980s that Islamic finance really started to gain momentum. By the 1990s, the industry was no longer limited to niche banks as large western financial institutions started offering Islamic finance.

Arguably, Islamic finance has capitalised on the mistrust generated by the recent global economic crisis, which saw western financial systems crippled by speculative trading, a practice prohibited by Sharia law. But while deeming certain financial instruments haram – or forbidden – can safeguard against huge losses on a bank’s balance sheet, making Islamic financial products Sharia-compliant can be far from straightforward.

The same but different

An Islamic finance product is essentially the same as its western counterpart ‘but to make it Sharia-compliant you add an extra layer of complexity’ according to Muneer Khan, partner at Simmons & Simmons. This additional layer is designed to satisfy the scrutiny of Islamic scholars, who sit on the boards of banks and approve products. Most tend to have a legal qualification, and in some cases a doctorate in economics, as well as a deep understanding of Islam, so they understand the need for Islamic financial lending from a secular and a religious viewpoint.

There is a shortage of experienced scholars, with many sitting on more than one bank board, potentially causing conflicts of interest. According to Latif: ‘It’s very hard for them not have a conflict of interest.’ However, some jurisdictions, such as Oman, have put measures in place to prevent scholars moving between banks, reducing the chances of conflicts.

Nonetheless, Hossam Abdullah, head of Islamic finance at Kuwaiti firm ASAR – Al Ruwayeh & Partners, says: ‘Boards of Sharia scholars at financial institutions rule on whether activities and products follow religious principles such as bans on interest payments and pure monetary speculation. They are also involved in audits that determine whether the institutions are operating in a Sharia-compliant manner. At the same time, the scholars are on the payroll of the Islamic banks, which they vet, an arrangement contrary to good governance, according to a statement by the Governor of the Central Bank of Kuwait.’

An added complication is that scholars can differ in their opinions. ‘The UAE does not have a central Sharia board or committee, and therefore it is up to the individual Sharia boards of each bank to decide what is permitted for that bank. As a result one bank may allow a structure or product while another may not,’ says Jody Glenn Waugh, a banking partner at Middle East firm Al Tamimi & Company. Most advisers have longstanding relationships with Islamic scholars and Baker & McKenzie banking partner Bilal Kahlon, who is based in its Bahrain and Doha offices, says: ‘We get involved with the scholars on each deal from the very beginning.’

‘We take products to scholars; we know how the scholars work, we know what is important to them and what their concerns are likely to be. It tends to be a considered and very positive process getting these products approved,’ says Nadim Khan, head of Islamic finance at Herbert Smith Freehills (HSF). He notes that while scholars acknowledge the need to increase the range of products, they will not do so by compromising their integrity.

Islamic finance products include murabaha, where a bank buys an asset for a third party and sells it with a mark-up rather than lending with interest; mudaraba and musharaka, in which partners provide capital to a Sharia-compliant business and profits are distributed based on ratio of capital provided; leasing or rental contracts, ijara; istisna, which is a contract where a commodity or an asset is delivered at a pre-determined future time at an agreed price – it can be combined with ijara to finance greenfield products; and finally, the sukuk – the Islamic bond which was first issued in Malaysia in 2000 before first appearing in the Middle East in Bahrain in 2001.

One of the largest murabaha transactions of 2013 was the $645m Mobily deal, involving Saudi Arabian telecoms company Etihad Etisalat (Mobily) buying products from Ericsson and Nokia Siemens. Latham & Watkins advised Mobily, led by Dubai-based partner Craig Nethercott, while Allen & Overy (A&O) advised the arrangers, Crédit Agricole and Deutsche Bank, through Islamic finance specialist Atif Hanif.

The ijara is often used in conjunction with sukuk issuance, although Shearman & Sterling used a two-tranche ijara lease financing in its advice to Asian Development Bank, Islamic Development Bank and a consortium of Pakistan financiers on the financing of the two wind power projects in Pakistan in June 2012. In this deal, the Pakistan financiers also used musharaka funding.

The Fauji Foundation was the principle sponsor of the project and was advised by Pakistani practice Orr, Dignam & Co.

Of the available products, the sukuk was undoubtedly the game changer for Islamic finance. Unlike a conventional bond, a sukuk’s value is based on an underlying asset and is not simply a debt instrument. The model bears some comparison to securitisation in that it monetises an asset’s future cashflow and constitutes partial ownership in an asset from which ‘rent’ rather than interest is paid. Although Malaysia leads the world in sukuk issues, accounting for around 65% of the total, it is considered an insular market, mainly confined to local borrowers and investors.

Last year, the Crown Prince of Dubai, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, launched the Dubai Centre for Islamic Banking and Finance with the aim of establishing Dubai as the world’s capital for Islamic finance. Although it has yet to win this crown, last year Clifford Chance, led by Stuart Ure and Latif, advised Sharjah Islamic Bank on its $1.5bn sukuk issue on both Nasdaq Dubai and the Irish Stock Exchange. Dentons, led by banking partner Qasim Aslam, advised the lead arrangers, HSBC and Standard Chartered Bank, on the deal.

Increasingly, sukuk issues are making headlines. In April, A&O and Latham took the lead roles in advising on Saudi Electricity Company (SEC)’s $2.5bn international sukuk issue, the largest-ever Rule 144A sukuk offering, which will allow it to be sold to international investors. Hanif led the A&O team, in association with local firm Zeyad S Khoshaim Law Firm in advising SEC, while Latham picked up a role for the joint lead managers, Deutsche Bank, HSBC and JPMorgan, from its New York, Dubai and London offices led by Harj Rai, Nomaan Raja and Lene Malthasen. This bond had a 30-year tranche, which is the longest tenure of any international sukuk issue and matches the 30-year sukuk issue by SEC in 2013.

‘Given the interest in last year’s landmark offering it is no surprise that investor demand has once again been strong for this follow up issue,’ says Hanif. ‘This underlines the international investment community’s growing familiarity and comfort with Islamic products.’

Global assets of Islamic finance

Source: The Banker, EY

Sukuk global issues

Source: Zawya Sukuk Monitor, Islamic Financial Information Service

Innovation the key

To reap the benefits of Islamic finance, law firms have to develop new structures rather than regurgitating commoditised products. For example, sukuk have developed from being linked to solely tangible assets to a hybrid system where up to a third of the underlying assets can be intangible. The use of mobile phone airtime as an intangible asset was a major step in the creation of hybrid sukuk and developing a hybrid now would cost around $250,000 in legal fees, according to leading Islamic finance advisers – a lucrative market. One reason why even a standard sukuk generates more fees is that it comprises more separate documentation than a conventional bond.

White & Case advised on telecoms company Etisalat’s syndicated financing in 2007 using mobile airtime as an asset, with Baker & McKenzie acting for the mandated lead arrangers, which included ABN Amro and Calyon. With mobile airtime established as Sharia-compliant, in 2010 Etisalat adopted the structure for its sukuk programme but no issue was made until another telecoms company, Ooredoo, issued a $1.25bn sukuk in December last year. Latham advised Ooredoo on this deal, led by Nethercott and Rai. Clifford Chance, led by capital markets partner Debashis Dey with Islamic structuring advice provided by Latif, advised the arrangers, DBS Bank, Deutsche Bank, HSBC Bank, QInvest and QNB Capital.

Another example of intangible assets being used in Islamic finance was the $800m Dubai Salik financing in 2012, the world’s first Islamic road toll financing. Advisers on this deal included Dentons’ Aslam, who advised Citigroup, Dubai Islamic Bank, Emirates NBD and Commercial Bank of Dubai. Other advisers to the arrangers on this deal included Nadim Khan for HSF.

‘You can structure sukuk with all manner of underlying assets, including airline tickets, airtime and hydrocarbons. Lawyers and Sharia structuring advisers continue to try and push boundaries on behalf of their clients, but it is essential that all parties fully engage not only with the Sharia scholars but also with industry participants. Failure to do so will result in structures being criticised and open to attack,’ says Bilkis Ismail, counsel at King & Wood Mallesons SJ Berwin based in Dubai. ‘Airline tickets’ is a reference to the Dubai-based airline Emirates’ sukuk last year that was structured around ticket sales. The deal was led by A&O’s capital markets partner Anzal Mohammed and was worth around $1bn.

Linklaters represented the underwriters on this deal, including Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD Capital, Standard Chartered Bank, and the team was led by Richard O’Callaghan. Walkers Global acted for the Emirates on its issuance through Medjool, the Cayman issuer vehicle.

Other examples of innovative sukuk issues include the one made by Dana Gas last year, which was led by Hadef & Partners’ head of banking Alan Rodgers and Latham corporate partner Bryant Edwards. This deal is notable because it restructured a sukuk through the exchange of Dana Gas’ existing sukuk certificates with two new tranches, one convertible into equity and one non-convertible. The deal was worth $1bn and was the first of its kind in the Middle East.

But despite some seemingly groundbreaking projects in Islamic finance, others aren’t convinced by how much true innovation has occurred. ‘In terms of absolutely new products, I don’t think that’s happened at all,’ says Miller, arguing that the last really groundbreaking development was the sukuk itself. What has followed, he says, is more of an evolution of existing products.

One nascent area is Islamic derivatives – on the face of it impractical because derivatives imply speculation and would therefore be a haram practice. But Islamic derivatives are a form of hedging against a real economic risk that all banks and businesses face. The International Swaps and Derivatives Association (ISDA) has come up with a standard set of rules specific to them.

‘In the UAE there is an inherent risk of derivative transactions being found to be speculative or uncertain, which can impact on enforceability,’ says Al Tamimi’s Waugh. ‘In saying that, derivative transactions are very common here and most are fairly vanilla structures, hedging an actual commercial risk, for example currency or interest rate fluctuations, and therefore the risk is arguably lower. Another aspect to this is Sharia-compliant derivatives, which again arguably lowers the risk due to the structures and underlying assets utilised.’

Simply put, if an institution is involved in a transaction and it has currency exposure, it can hedge that exposure but the transaction has to be carefully structured. These are bespoke products for sophisticated customers and can command relatively high fees.

Going global

Islamic finance is now a truly global phenomenon, with the UK planning to release its own sukuk next year, and Luxembourg, South Africa and Hong Kong also recently putting in measures to tap into this growing market. Hong Kong passed a bill in March that will allow its government to raise around $500m via sukuk, while Luxembourg has a similar bill currently passing through parliament. And South Africa plans to issue its debut international sukuk in 2014.

Muneer Khan at Simmons says that a UK sukuk has been on the cards for some time. ‘The idea of the sukuk was kicked off under the previous government and there was a detailed process of consultation. However, for a number of stated reasons it did not previously proceed,’ he says. Miller of Linklaters has been advising the Government on the issue, with a team led by City capital markets partner Elaine Keats. The sukuk is understood to be worth £200m, with HSBC providing financial advice.

The UK remains important in the context of Islamic finance, with the London Stock Exchange second only to Malaysia by number of listed sukuk. By consensus, this goes far in cementing London’s position as a leading global financial centre.

The attraction of the west to Islamic finance products is clear: it gives governments access to additional forms of financing and the high level of liquidity in the Middle East.

‘There is a sense that Islamic finance fared a bit better in the economic downturn as its main characteristic is having a real asset or business interest at the centre of the financing structure – a solid interest rather than vapour, meaning that it has steered away from problematic and highly structured derivatives products,’ says Dentons’ Aslam. ‘The markets liked that self-controlling feature at such a delicate time for the global economy.’

According to Rodgers, Islamic financing is increasingly being used for funding major projects where conventional western banks may be unable or unwilling to exceed their regional or territorial boundaries. It can generally be incorporated into infrastructure financing, asset financing, and real estate financing and, as a form of structured financing, it can sit side by side with conventional financing. As such, most of the major financial institutions have an Islamic offering. That said, HSBC recently shut down its retail Islamic funding offering, although this made up for less than 1% of its total Islamic finance revenues and the consensus is that the local banks control the retail segment of the market. HSBC is still very much in the game when it comes to wholesale Islamic banking.

Any suggestion that Islamic finance has seen its peak is soundly rejected by legal advisers involved in the industry. While it is true that only between 1% and 2% of global assets are Sharia-compliant, the industry is growing and is here to stay.

‘I’ve been involved in the industry for 12-13 years now, I’ve heard people saying throughout that time that this is a passing fad and it’s going to fizzle away because it’s more expensive, but there’s a critical mass. There are hundreds of Islamic financial institutions, hundreds of Sharia-compliant funds and it continues to grow,’ says Simmons’ Muneer Khan.

HSF’s Khan shares this sentiment: ‘It would be wrong to dismiss it as a fad. You only have to look at the geographies participating or announcing plans to participate in the sector. The UK and Hong Kong have approved legislation facilitating sukuk issuance and Luxembourg is close to doing so.’

But problems remain. ‘Islamic finance does not have the same bandwidth of products that you have in conventional banking. We’re not there yet,’ he says.

One symptom with this lack of products is, according to Latif, a tendency for investors to buy and hold products rather than sell them on to the secondary market, partly due to lack of supply and because Sharia principles frown on trading securities in many contexts.

Another concern, according to Miller, is the amount of law firms claiming to have expertise in Islamic finance. Innovation in this area is where the truly significant fees come from – simply jumping on the bandwagon and churning out commoditised murabahas and ijaras will lead to pricing pressure and profit drain. ‘There are people who talk Islamic finance up and haven’t got the resources,’ he says. ‘You get new entrants into the market, but if they haven’t got track record or experience they’re going to find it very difficult. There are a few firms that have tried to operate in this space and failed.’ LB

david.stevenson@legalease.co.uk

Sukuk listings at London Stock Exchange

Source: London Stock Exchange

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