In the June issue of ALB, we reviewed the legal spending habits of Asia's largest 25 companies. Here we examine where that spend is going and what measures firms are taking to lure more of it

On 2 April last year, Norton Rose made a successful return to Hong Kong after a three-year hiatus ... so much so that managing partner David Stannard walked off with the 'Managing Partner of the Year' Award at the inaugural Asian Legal Business Awards in November.

Not long after the Hong Kong re-opening, Norton Rose's Singapore-based Asia managing partner Paul Giles told ALB that the firm was acutely aware of the initial financial burden associated with setting up a new office, but believed that the Hong Kong office could and would recover those costs within its first year. "We have been planning for this return and the investment that it requires for some time," he said.

And Giles and Stannard were keen to convey the importance the firm placed on Hong Kong in the context of the wider, global picture. "[It] is a major market in its own right and an important part of the global market," said Stannard.

"People talk about the market here getting smaller," added Giles. "I think that is a view of a market - it may be a Hong Kong view of the Hong Kong market - but it is not necessarily the view of a global law firm of the global market."
And acting locally but thinking globally was the motto of a key client from whom the firm had immediately targeted more billable hours.

Central to the success of Stannard and Giles at the firm's worldwide partner ballot box in April this year - following which the latter assumed the chairmanship of the UK firm) - was the return of Norton Rose to HSBC's Hong Kong panel just four months after returning to the jurisdiction.

In March of last year, Giles told ALB: "We do work for Hong Kong Bank all around the world. It is a major client of the firm and, quite naturally, we hope we'll be able to develop that practice ... further. We still have good friends at Hong Kong Bank and I hope we will have an opportunity to represent them."

And the firm has been true to its word. Norton Rose's recent transactions for HSBC have included: advising it on a US$100m Islamic lease financing for a LNG carrier; advising it and Bangkok Bank on the US$53m refinancing of a 120MW cogeneration power plant in Thailand; and acting as UK and Hong Kong counsel to HSBC Holdings plc on its US$15bn acquisition of Household International, Inc. The latter was last year's largest cross-border deal in the US and the second-largest acquisition worldwide.

So what?

Close to the client
With a market capitalisation of nearly US$130bn [making it the largest company in Asia], HSBC is a major purchaser of legal services. The strategy of Norton Rose's revived Hong Kong office to deliberately target HongkongBank raises interesting questions about what constitutes a key client for a firm and how a firm goes about managing and nurturing such an important relationship.

Latham & Watkins' Hong Kong managing partner Mitchell Stocks says: "We try to cultivate long-term deep relationships with people who are active in the markets where we have something strong to offer them.

Additionally, we are following the development of individual infrastructure projects with the projects work that we do and we use those as opportunities to represent new people that might be active in that particular transaction."

Despite the fact that larger companies almost certainly possess the deeper pockets, many are exercising greater pressure on their external spend. This has led to them becoming far more discerning customers of legal service providers as they seek to handle more and more matters in-house. Fee and billing arrangements are under greater scrutiny than ever, with fee caps, volume discounts and panel use now the norm.

The net result is that external firms are often getting briefed either when workloads peak, for litigation, or for very specialised work.

For many of the large international firms in Asia that rely on the big-ticket deals, staying close to key clients and being sensitive to their concerns has become imperative. The alternative is a rather humble exit from the region: just ask CMS Cameron McKenna, Cravath Swaine & Moore and Dewey Ballantine, among others.

Of ALB's 'Top 25' Asia-Pacific companies, US firm Lathams has acted for Hang Seng Bank and ANZ Bank, as well as HSBC, on a range of project financing matters. "Those are definitely good corporate clients in the region and we're grateful to have the opportunity to work with them," says Stocks.

Like Norton Rose, he adds, Lathams adopts a deliberate strategy of pursuing specific clients. "We follow various projects and try to see how the projects develop. We try to find out who the actors are and then try to contact those people with whom we already have an existing relationship - so we go from a point of strength in terms of our marketing effort."

He adds: "Each of our offices in different regions of the world pursues relationships with various clients who are active in that market. We do try to keep track of our good clients who are moving who we have worked closely with on an individual basis. If they happen to be returning to Europe or the US, we certainly try to smooth their transition by introducing them to our people. Likewise, we get those kind of referrals for people that are moving into Asia."

Lathams' relationship with ANZ, says Stocks, dates back to when the firm worked across the table from it on a number of prior transactions. "Sometimes the best way to get to know somebody is actually being on the other side of a deal or representing a different party on the same deal."

Stocks led the Lathams team that advised the commercial lenders on the US$4.3bn Nanhai Petrochemicals Project in China [see page 10]. The US firm acted for China Development Bank, The Bank of China, and Industrial Commercial Bank of China on the renminbi side; and ANZ banking Group, Bank of Tokyo-Mitsubishi, Crédit Agricole Indosuez, Mizuho Corporate Bank, HSBC, IntesaBci, Sumitomo Mitsui Banking Corporation and WestLB on the US dollar side.

"That really came out of our efforts to secure a role on a particular project," says Stocks. "It was a combination of project orientation and thinking strategically about clients who are active in the areas we see ourselves as being competent in."

Allen & Overy is another firm that has strategically targeted specific clients and is yet another beneficiary of HSBC, this time in the area of tax-driven structured financing - and at the expense of Baker & McKenzie.

Partner Joseph Tse says: "The general syndicated loan market was extremely competitive last year. A&O has, in some cases, consciously lost some plain vanilla deals because of pricing. It has decided not to play the game of low-balling."

Recent work for HSBC includes advising the bank: as coordinating arranger on a HK$24bn (US$3.08bn) term loan and revolving credit facilities for Cheung Kong Finance Company; on a US$75m term loan facility for Indian Railway Finance Corporate Limited; on the issue of A$800m (US$526m) guaranteed floating rate notes, due 2008, by Hutchison Communications Australia; and, in relation to an off balance sheet receivables financing for Nanjing Ericsson Panda Communications.

Says Tse: "Clients know that the top-tier firms are not the cheapest in town and are looking for technical ability and overall service quality."

Although these firms are subject to market forces, low-balling is not a game that they want to play, he adds. "But there is still a lot of interesting, good work out there and it's a question of trying to identify those opportunities and position oneself properly to try and capture that work."

Strengths and weaknesses
Just as law firms are becoming increasingly sophisticated at positioning themselves strategically to capture work from preferred clients, so too are the clients reciprocating.

Many have not bought the one-stop-shop propaganda so prevalent in this age of globalisation, and have sought specialised advice from specialist advisers.

Of ALB's in-house 'Top 25', Denton Wilde Sapte can count CLP Holdings, Hutchison Whampoa, Kookmin Bank and Samsung Electronics as key clients. But it is the work the UK firm has completed for China National Offshore Oil Corporation (CNOOC) that has perhaps grabbed the headlines.

In the last 18 months, Denton has acted on the last four cross-border transactions for CNOOC which, when including CNOOC's acquisition of an 8.33% interest in the North Caspian Sea Project in Kazakhstan for the consideration of approximately US$615m, takes the UK firm to almost US$2bn worth of deals.

"So obviously we're doing something right," says Denton partner Tom Deegan.

"CNOOC was exactly the sort of client we were after," he says. "It would have seen our literature before and would have known of our reputation. It was and is a sophisticated buyer of legal services. Just because it did not have a history of cross-border deals ... it still knew who did what in the market. It understood who could provide it with the necessary services."

And it was Denton's familiarity with an Indonesian asset [oil interest], says Deegan, that initially won it the interest of CNOOC. In 2002, CNOOC asked the firm to get involved in the Repsol deal - where Denton advised on its acquisition of nine companies owning working interests in five oil and gas properties in Indonesia from Spanish oil giant Repsol-YPF group for approximately US$585m.

"And they've kept coming back since," says Deegan. "The CFO told me only last week that they like the product that they are getting."

This was so much the case that, following Repsol, Denton was retained for CNOOC's acquisition of an interest in the North West Shelf Project (named in ALB's 'Top 10 Deals of the Year') in Western Australia for the consideration of approximately US$348m, and its acquisition of a 12.5% interest in the Tangguh LNG Project in Indonesia for an estimated US$275m.

"We make sure we deliver a standard of service to them at a very high level that is very partner hands-on," says Deegan. "You do need a high degree of partner involvement. It's not the sort of relationship where you can have a junior team with partner supervision."

As a very sophisticated spender of legal services, CNOOC also demands a streamlined team that advised on all aspects of their needs, says Deegan.

"We're very much focused on delivering a product that is obviously fundamentally sound legally, but is also very commercial in its approach," he says. "The team I've got basically has to be 24/7 during the deal, not just at the completion of the deal."

But even housing such virtues is not enough to secure certain other types of work from CNOOC.
Secretary, general counsel and senior vice-president of the Company, Cao Yunshi, lists 'high reputation and achievement', 'type of industry', and 'price' as his top criteria for selecting external counsel. This has resulted, in the past, in the company turning to the likes of Freshfields for its IPO and Skadden Arps Slate Meagher & Flom for a series of listings.

Rather than operating a formal panel, CNOOC has a number of favoured firms and, says Deegan, it recently turned to Sidley Austin Brown & Wood - due to its New York capability - for a relatively small separate listing of a subsidiary.

"So it recognises what we're best at and what we can provide a service for," says Deegan. "It knew we didn't have a New York office therefore we didn't get involved."

Panel use is common among other 'Top 25' clients, particularly those that originate from Australia. Gilbert + Tobin has recently been officially appointed to the Westpac panel; Corrs Chambers Westgarth is on Telstra's panel for IP, property and disputes; and Freehills was reappointed to Telstra's legal panel this year.

Stocks says: "Some projects you get because you've got a longstanding relationship with a particular client and they have a preference for using you and they try to ensure that you're retained in some capacity on a particular transaction on which they're involved.

"In other cases, the sponsors have a preference for both their counsel and for lenders' counsel."
He adds: "Although some clients have panels of preferred lawyers in any given region, they are allowed to deviate from that if they've had a good experience with a particular firm. So there's still work to be had even if you're not on the panel. But it's always better, of course, to be on the panel itself."

Know your client
With increasing pressure on their legal spend, in-house counsel are, more than ever, re-evaluating the way they use outside counsel. Many law firms have responded to this challenge by adopting more of a 'sector focus' to their practice - almost a move away from the 'one-stop-shop' model advocated by so many so recently.

Australian firm Allens Arthur Robinson was recently forced into making such a call with a team of patent attorneys. The firm identified a potential problem between one of its longstanding orginator pharmaceutical clients and a generic pharmaceutical company that one of its attorneys had advised before joining Allens in 1999.

Orginator pharmaceutical companies are fierce competition to generic pharmaceutical companies - which Allens had decided to start acting for as well a few years ago - in the international drugs market.

To avoid any conflict, Allens chose to act for originator companies only, leaving the patent team - including patent attorney Wayne McMaster and partner Robert Cooper - to join fierce rivals Mallesons Stephen Jaques' patent practice, where it will be free to act for the unnamed generic pharmaceutical company.

If a key client is one that is prepared to spend a lot of money - over time - for the service that you offer, it pays to know what you are and what you're good at.

UK firm Bird & Bird has successfully expanded its operations in Hong Kong by adopting the same industry-specific approach that has served it so well in London.

It now provides a range of corporate and commercial legal services to clients in the communications, e-commerce, information technology, intellectual property, life sciences, sport and media sectors.

Partner Edward Alder says that with almost half of its lawyers now outside the UK, the firm is more a multinational rather than a London firm.
He adds: "We were viewed as a boutique operation in Hong Kong until 2001. But now, half the firm is doing corporate and half is doing CMT work."

Denton Wilde Sapte's practice, meanwhile, focuses on energy, banking and finance, TMT, and real estate, and deliberately targets clients in these practice areas.

"That's absolutely what we are doing," says Deegan. "I hate to use clichés but we are 'sector focused'. We've realised that we're not all thing to all men."

He adds: "When you analyse which of your 'Top 25' clients we have acted for it actually neatly fits into the sectors where we see ourselves."