China Law & Practice Awards 2007: The Finalists

As the demand for PRC advice has grown, so has the interaction and cooperation between foreign and local firms. Under the Schedule of Specific Commitments on Services, foreign law firms are specifically permitted to enter into long-term relationships with local law firms. However, no foreign law firm may provide specific opinions on the application of Chinese law, and even locally-qualified lawyers that wish to work for foreign law firms must temporarily surrender their practice credentials in order to do so.

TOP FIRMS OF THE YEAR

Awards for Firm of the Year will be given to top domestic and international law firms that have distinguished themselves in five key practice areas. In order to make the following shortlists, these firms have demonstrated a capacity to advise on groundbreaking deals, as well as being market leaders in their respective categories between July 2006 and July 2007.

The law firms' commitment to the PRC legal market has been proven in the quality and breadth of their work. The awards recognize the submitted entries of firms that have advised on key aspects of the most significant deals of the past year in the fields in which they have been shortlisted. From this pool of entrants, panelists will also select an overall PRC Firm of the Year and an International Firm of the Year.

Baker & McKenzie

This year, top global firm Baker & McKenzie secured finalist positions in no less than four out of five Firm of the Year categories: capital markets & corporate finance; mergers & acquisitions (M&A); project finance, infrastructure & energy; and securitization & structured finance.

In capital markets, the firm acted as Hong Kong and US legal counsel to issuers such as China Coal Energy (the second-largest coal enterprise in China), Shanghai Jin Jiang International Hotels, and China BlueChemical.

Baker & McKenzie was also involved with a number of significant M&A deals over the past year, such as China National Aviation's sale of a principal stake in Dragonair to Cathay Pacific, its joint venture with Air China, Swire Pacific and CITIC Pacific in Cathay Pacific, and its subsequent privatisation. The deal was valued at HK$10 billion (US$1.3 billion), and changed the structure and competitive landscape of the aviation industry in Hong Kong and China. The firm also advised China Network Communication Group on its proposed joint venture with Telef¨®nica Internacional in connection with shareholding in PCCW, the holding company of Beijing Gas Group, which engages in the supply and sale of piped natural gas and related businesses in Beijing.

Baker & McKenzie also acted for Beijing Enterprises on its HK$11.6 billion acquisition of Beijing Gas Group, the largest supplier of piped gas in Beijing, and advised CNOOC on the procurement of its South China Sea oil refinery project - the largest oil refinery project in China - with a total investment of US$2 billion. The firm's role in the project was to advise on the contract structures, drafting and negotiating procurement agreements. The firm also acted as project counsel on the development and financing for PetroChina's three liquefied natural gas terminals in China.

Freshfields Bruckhaus Deringer

Freshfields Bruckhaus Deringer is shortlisted as a finalist for Firm of the Year in capital markets & corporate finance; M&A; and private equity & venture capital. Freshfields advised on the top capital markets deal of the year, that of Industrial and Commercial Bank of China (ICBC), which listed on the Hong Kong and Shanghai exchanges in the first-ever A- plus H-share listing. The firm also advised Lehman Brothers, Goldman Sachs, UBS and other managers in connection with the record-breaking US$1.5 billion convertible bonds issue by China Petroleum and Chemical Corporation (Sinopec).

Freshfields advised financial services provider Fortis on its HK$3.5 billion cash purchase of a controlling 50.48% stake in the Hong Kong-based Pacific Century Insurance Holdings, as well as advising Bank of China on its acquisition of the entire issued share capital of Singapore Aircraft Leasing Enterprise, the largest aircraft leasing company based in Asia, for US$965 million.

Freshfields also advised Temasek Holdings on a number of transactions over the past year, including raising its stake in Citic Resources Holdings, a US$60 million expansion capital and management buy-in investment in Chinese salt producer Jiuda Holdings, and advising Temasek as part of a group of companies including Merrill Lynch and Deutsche Bank on an investment of US$400 million in Hengda, a subsidiary of Evergrande Real Estate. Freshfields also advised Warburg Pincus on its investment in Hong Kong's Titan Petrochemicals Group, an oil logistics company operating in China, Hong Kong, Singapore and Malaysia.

Jun He Law Offices

PRC firm Jun He Law Offices is a finalist for Firm of the Year in both the capital markets & corporate finance and securitization & structured finance categories, having acted as PRC adviser on a number of groundbreaking deals this year.

Jun He was appointed by Belle International Holdings as PRC counsel in its reorganization and listing on Hong Kong's main board, which became one of the top ten initial public offerings (IPOs) of the year. The firm also provided comprehensive legal services for the company's listing application, including issuing PRC legal opinions and participating in listing-related work, such as prospectus drafting.

Jun He also acted as the counsel of the lead arranger in a deal granting a Rmb6 billion (US$797 million) and US$250 million syndication loan facility to Shanghai General Motors, and acted as counsel of the lender in a US$63 million loan facility to MSREF Century Palace (Residential) to finance the acquisition of a residential property complex located in Pudong New Area, Shanghai by Morgan Stanley Real Property Fund.

King & Wood

Leading PRC firm King & Wood is a finalist in four categories: capital markets & corporate finance; M&A; project finance, infrastructure & energy; and securitization & structured finance.

King & Wood acted as PRC counsel to a long list of issuers of IPOs on PRC, Hong Kong and overseas exchanges, including ICBC (see above, also advised by Freshfields Bruckhaus Deringer), Industrial Bank, Bank of Communications, China CITIC Bank and Sino Gold. It also advised the underwriters in the IPOs of Pinan Insurance and China Agri-industries.

Having acted for Guangdong Development Bank on its corporate restructuring and strategic investment since 2005, King & Wood was able to advise on the first deal in China where the seller bank was willing to trade in with controlling interests of the bank, thereby allowing an investors' consortium to become the majority shareholder with 85% of the bank's shares after closing the deal.

In M&A work, King & Wood represented acquirers such as DaimlerChrysler, Moody's, and SHV (China) Investment, which acquired 90% equity shares of Guangzhou Zhenrong Gas Chain Operation, one of the largest gas operation companies in southern China.

Paul, Hastings, Janofsky & Walker

Paul, Hastings, Janofsky & Walker is a finalist as Firm of the Year for its work in both M&A and securitisation & structured finance. In the latter, the firm advised Citigroup on the completion, with Macquarie Bank, of a landmark US$145 million floating-rate commercial mortgage backed securitization (CMBS). The transaction is the first cross-border CMBS securitization in the PRC, and involved the issuance of US$145 million worth of floating-rate secured notes by Dynasty Assets (Holdings), a Cayman Islands incorporated special purpose vehicle.

In M&A work, Paul Hastings represented Wal-Mart Stores in its acquisition of a 35% interest in Bounteous Company's Trust-Mart chain, which consists of 173 stores in 36 Chinese cities and more than 31,000 employees. With this acquisition, Wal-Mart more than doubled its presence in China.

The firm also advised CapitaLand Retail China in its acquisition of two retail malls in Beijing for US$209 million from Beijing Hualian Group Investment Holdings.

Shearman & Sterling

Shearman & Sterling is a finalist for the Firm of the Year award in three categories: capital markets & corporate finance; M&A; and project finance, infrastructure & energy.

In addition to representing the underwriters Merrill Lynch, Credit Suisse, Deutsche Bank, China International Capital Corporation and ICEA Capital in connection with the dual listing of ICBC, the firm has also advised on a number of deals that have allowed Chinese companies to tap US funds. Such listings include those of Air China (by way of a Level 1 American depository receipts programme), Solarfun Power Holdings (with a NASDAQ listing), and Qiao Xing Mobile Communication (which made US$160 million through primary and secondary offerings of ordinary shares and a listing on the New York Stock Exchange).

Although most noted for its expertise in technology and telecoms, Shearman & Sterling's M&A deals this year also included representing Trust-Mart in its US$1 billion sale to Wal-Mart Stores (as discussed above).

Shearman & Sterling also represented Shenzhen Huawei Investment & Holdings in its US$882 million sale of its interest in Huawei-3Com to 3Com Technologies, and represented CBC Capital Partners in connection with its investment in MySpace China, together with NewsCorp. Other clients include: The Longreach Group, Hunan Valin Steel Tube & Wire in its joint venture with Lone Star Technologies, and Kingsoft Corporation.

In project finance, infrastructure & energy work, Shearman & Sterling represented KEPCO in the US$1.5 billion acquisition of a portfolio of 12 power plants and nine coal assets in Shanxi province. This deal was the largest ever private portfolio acquisition of power projects in China, and involved complex structures such as a series of puts [or calls] that will each kick in at different times, and an offshore equity finance element. The firm also advised KEPCO in the development and financing of a wind power project in Gansu province, China.

Other projects for Shearman & Sterling in this area include that of Dow Chemicals, with a US$9 billion coal to chemicals project in Shanxi province, which will be the largest-ever foreign direct investment (FDI) project in China and the largest ever project financing in China. The firm also advised BASF and Sinopec on a US$1.5 billion dollar refinancing and US$900 million expansion of the IPS petrochemical project in Nanjing.

White & Case

White & Case was also a leading player this year, with nominations for project finance, infrastructure & energy, and securitization & structured finance.

The firm represented Deutsche Bank in a number of complex financing transactions in China, in which domestic operating companies with significant capital expansion programmes received offshore loan and bond financing through funds raised by shareholders.

White & Case also represented Asian Development Bank in its acquisition of a stake in China Gas Holdings, which is part of a package that will provide approximately US$149 million in funding to China Gas Holdings.

DEALS OF THE YEAR

In addition to honouring the top firms of the year, China Law & Practice will also give awards to the firms which worked on what our panelists regard as the deal of the year in each of these sectors, based on received submitted entries. While the volume of these deals is certainly impressive, factors such as complexity, ingenuity, impact on and relevance to the PRC legal services market, and setting of precedent are all taken into account both for shortlisting and selecting awards to be given for these deals.

Capital Markets & Corporate Finance

This year was a groundbreaking time for IPOs, particularly for banks and dual listings. One such issuer, China Merchants Bank, was already listed on the Shanghai Stock Exchange at the time of its Hong Kong IPO, which created a number of complex issues surrounding shareholder communications. Providing prospective IPO investors with better information than was available to existing A-share shareholders, dealing with profit forecasts, and the publication of syndicate research reports were among the challenges that needed to be addressed by legal advisers on this deal.

Mergers & Acquisitions

The past year has seen a boom in M&A activity, as FDI continues to rise and regulators are allowing many deals to go through. Excess liquidity and rapid economic growth have added to the frenzy of buying and selling assets, including those of former state-owned enterprises. Both local and foreign law firms have seen a great deal of business as a result.

Private Equity & Venture Capital

It seems that nothing can stop the tenacity of buyout firms with a desire for Chinese assets, and this year has been no exception. What is notable, though, is the increasing complexity and ingenuity of such transactions, from investment of public funds into private equity (such as the State Administration of Foreign Exchange's investment into Blackstone), to consortium bids for companies (such as the acquisition of Shuanghui Group, China's largest food-processing company).

Project Finance, Infrastructure & Energy

As China develops, projects continue to grow in size and complexity, in addition to being more technologically advanced. The Hynix-ST chip manufacturing project was one of the largest yet for China's semiconductor industry, and was one of the first limited recourse project financing for a wholly foreign-owned semiconductor chip manufacturing plant in China that was financed predominantly by PRC banks. The security arrangements were made complex by the presence of senior and junior lenders, resulting in a highly negotiated inter-creditor agreement. Due to the large size of the senior syndicate - 10 PRC banks and 10 foreign banks - a syndicate agreement was also signed.

Securitization & Structured Finance

In this practice area that is quickly developing in the PRC, three deals in particular led the field for their uniqueness.

A first in the shipping field, Citibank's contract novation arrangement (in place of the typical assignment of refund guarantee in respect of the shipyard's refund obligations under the shipbuilding contract) means that if the shipyard defaults, the SPV borrower has the right to novate the shipbuilding contract to China Shipping Development Company [CSDC] in consideration for CSDC paying the instalments already paid to the shipyard at the time of default.

This year also saw the establishment of China's first qualified domestic institutional investor (QDII) investment fund based on the newly promulgated guidelines (see separate feature in this issue).