Roundtable: Banking 2012
The International Who’s Who of Banking Lawyers has brought together three of the leading practitioners in the world to discuss key issues facing lawyers today.
Participants
RICARDO M ARANGO
Arias Fábrega & Fábrega
Panama
Drew & Napier LLC
Singapore
Clifford Chance LLP
Hong Kong
NEW MONEY v OLD MONEY
Who’s Who Legal: How does the level of restructuring work compare to that of financing work this year? Are investors still lacking confidence in the market to initiate new money deals?
Huw Jenkins: There have been relatively few new restructuring opportunities this year as Asian loan books have held up well. Added to the fact that liquidity has been available in local debt markets, this has meant that activity levels have generally been weighted towards new money versus old money.
Sandy Foo: We have actually seen a healthy level of fresh financing in Singapore and the region this year. Restructuring work has not been a dominant feature although there is a fair bit of re-financing due to borrowers taking advantage of the present interest climate.
Ricardo M Arango: In Panama, the level of new money deals far exceeds the level of restructuring work. In fact, except for a few isolated cases, there is almost no restructuring work. The Panamanian economy has grown every year in this decade, even during the recent international financial crisis. In 2010, the GDP of Panama, according to World Bank statistics, was 7.5. Fuelled by a massive government infrastructure programme, which includes anchor projects such as the Panama Canal expansion and the construction of a metro for Panama City, and significant direct foreign investment into the country, the Panamanian economy is expanding rapidly. The local banks are well capitalised, highly liquid, and had almost no exposure to toxic assets, so their balance sheets are healthy. All this has resulted in significant levels of new money deals.
IMPACT OF POLICIES
Who’s Who Legal: How have governmental policies affected the confidence felt by your clients in the banking industry? Have you seen an impact on the level of work?
Huw Jenkins: The last quarter has seen an uptick in market flex enquiries, particularly in the US dollar markets, pointing to the direction that yields are going to have to rise to meet banks’ internal hurdle requirements. Banks have also been getting their balance sheets ready for Basle 3 implementation, which in some cases has involved selling illiquid assets, including loans. This is leading to good buying opportunities for some, as well as creating competition with new lending for use of available balance sheets.
Sandy Foo: Singapore has benefitted from many years of stable government - government policies are generally consistent and transparent, so most investors have a high level of confidence in Singapore. In particular, in the banking industry, the central regulator (the Monetary Authority of Singapore (MAS)) is well-regarded for its prudent but pro-business policies/initiatives. MAS is a regulator but it is also tasked with the development and growth of Singapore as an international financial centre. Our regulations are therefore constantly being reviewed and refined to enable us to be at the forefront of financial industry regulation and development. That, of course, does translate into a fair bit of work for our regulatory partners – for example, in the areas of private wealth, fund management, compliance et cetera.
Ricardo M Arango: Banking regulators in Panama have been improving the level of supervision and regulation of the Panamanian banking centre for years. In this respect, the Superintendence of Banks has done extraordinary work, balancing good regulations with the promotion of a sound business environment. Banks have implemented Basil I rules and the Superintendence of Banks is now moving towards implementing various aspects of Basil II. AML regulations are very stringent. Today, Panama stands as one of the best banking centres of Latin America. There is a high level of confidence of clients and customers in the Panamanian banking industry.
KEY INDUSTRIES
Who’s Who Legal: Some of our sources remarked that infrastructure and natural resources are helping to boost financing work. Which industries are creating the most work in your region?
Huw Jenkins: Energy and natural resources continues to be a key driver. However, it is not alone. Our REGAL group has had a strong year with the gaming and leisure environment in Asia proving resilient. Also, China’s growth continues to throw up new lending opportunities pretty much across the board. One of the transactions we were most proud of was acting for the financiers of SSI’s, Thailand’s largest steelmaker, purchase of Corus’s assets in Teeside, UK. The buying strength of companies with a strong balance sheet and strengthening currency is not limited to China.
Sandy Foo: I would agree that infrastructure and natural resources are key drivers. While Singapore, being a city-state, does not have her own natural resources, our neighbours Indonesia and Malaysia do. We have, in particular, seen a lot of work in connection with these industries in Indonesia in the last few years. Real estate plays have also been another major driver of work (and the underlying real estate assets are mostly in Singapore and China for most of our recent deals).
Ricardo M Arango: Public and private infrastructure projects are driving the growth of the Panamanian economy. The current administration has launched a US$13 billion government infrastructure programme in five years, which for a 3.5 million people country is a very significant programme. This programme includes the US$5.6 billion expansion of the Panama Canal, a US$1.5 billion metro for Panama city, a new sewage system and the cleaning up of Panama Bay, a massive reorganisation and expansion of public roads and highways, the construction and expansion of several international airports, and the construction of a significant number of hospitals, schools and public housing. The private sector is investing primarily in infrastructure projects in the areas of power generation and distribution (hydros), ports and tank farms, mining, business parks and free trade zones, hotels and resorts, and housing developments, among others.
ISLAMIC FINANCING
Who’s Who Legal: By the end of August 2011 there had been 60 Islamic bond sales worldwide, worth US$15.3 billion. Has your practice seen a lot of this kind of work? Is Islamic financing now fully established or likely to grow further? Are new forms of financing feasible in a global market that is still stagnant?
Huw Jenkins: Islamic finance has established itself as a viable alternative source of funding to conventional finance, particularly as borrowers seek to diversify their funding base. However, there is still huge growth potential, particularly here in Asia. We have recently advised on the landmark dual-tranche sovereign sukuk issuance by the Government of Malaysia and have recently also advised PT Natrindo Telepon Seluler (AXIS), the Indonesian based subsidiary of Saudi Telecom on a US$1.2 billion multi-sourced Shari’a-compliant financing. As Asian countries continue to reform their laws and regulations to accommodate Islamic finance, as Japan has just done and as we expect from Hong Kong in the near future as well, we see this to be an area of increasing growth for us.
Sandy Foo: Islamic financing is definitely a growing area and likely to see (a lot) more growth. As to the feasibility of new forms of financing, money makes the world go round – I don’t think we should underestimate the will and resourcefulness of lenders in finding new ways to do deals in challenging markets.
Ricardo M Arango: To our knowledge there have been no transactions involving Islamic financing in Panama. We have not seen any of this work. There might be opportunities in the future.
CHALLENGES
Who’s Who Legal: What are the challenges of practising within a global banking market? Are clients demanding more international capability from counsel?
Sandy Foo: The banking and finance market has been increasingly “globalised” for many years now. As we learnt with the 2007 crisis and the volatility in the markets since, most of the international financial centres are closely linked and inter-linked so the “challenges” are not really new. The need to work in multiple time zones and to be responsive to all, the need to be familiar with international trends and not just the domestic market, the need to at least have a working knowledge of key comparative differences between your domestic norms and those of our key major markets, so yes, the ability to do cross-border deals is definitely a “must” for clients selecting counsels in this day and age. At the same time, despite progress having been made to align international regulatory standards, the developed economies of the world are still quite far from having fully aligned financial regulatory standards and frameworks. Hence, in the area of financial services regulation, it remains vital to work with experienced local counsel familiar with specific domestic regulatory requirements.
Huw Jenkins: Clients are having to adapt quickly to changing market conditions, utililsing expertise across their networks. Global but local has never been truer. Local markets continue to benefit from good liquidity but products need to be structured in a manner suitable for those markets. Once outside of the local markets, solutions need to enable access to all available credit and capital markets, with increased demand for bank bond combinations.
Ricardo M Arango: Definitively, clients are demanding lawyers to keep the same standards used in the global banking market. In this respect, the practice is becoming one wordwide. A very significant part of our work is cross-border lending into Panama, representing banks such as JP Morgan Chase, Citibank, Deutsche Bank, and BNP Paribas lending to Panamanian borrowers, mainly for infrastructure projects. There is also a lot of work related to lending activities by banks established in Panama to borrowers in Central America and the region. This is the case of some of our clients such as HSBC Panama, Bladex, Bancolombia, and Banco General the largest Panamanian-owned bank. Panamanian companies also access international capital markets with some frequency. All of these transactions require our lawyers to have international capabilities. In fact, most of our lawyers who work in the capital market and banking groups have been educated outside of Panama, trained in law firms in New York, London and other major financial centres, and are admitted to practice in multiple jurisdictions.