Project Finance International

Transcription

1 November Issue 230 Project Finance International CONTENTS Introduction 50 Tables 51 Deal list 54 Americas 56 Asia Pacific 59 EMEA 62

2 Legal Review Introduction The Magic Circle fights back The Magic Circle London law firms resumed their place at the top of the Thomson Project Finance International legal survey. Last year was definitely the year of the White Shoe New York firms, but a minor US power slowdown and a Latam slowdown has had an impact. The Australian firms were back in strength. By Rod Morrison. This is the third year PFI has conducted its law firm survey.the survey records the performance of firms in the international project finance business.to ensure the aim is met there are two criteria in the survey - it includes only deals over US$500m which have reached financial close and only the main roles - for banks/funders and sponsors - are counted. Other roles are recorded.the survey has been successful in pinpointing the performance of the leading international firms unlike some surveys, which have tended to throw up surprising results based on the inclusion of surprising roles or deals. It is noteworthy that the same international names tend to figure in the survey. The decision to keep to the same format and list all the deals counted means, via PFI, a comprehensive record of international law firm performance and the roles they undertook in various jurisdictions for various sponsors is now available going back to the start of 1998.The previous surveys were published in PFI issue 181 November and PFI issue 206 November 29. This year Latham & Watkins remained at number two but fellow New York firm Milbank Tweed slipped from one to six in the global rankings. Shearman & Sterling slipped one place to number seven but Skadden Arps slipped right down into mid table from 5 th.allen & Overy went back to number one while London stalwarts Clifford Chance, Linklaters and Freshfields moved up. The regional tables once again show how little real globalisation of project finance law firms in terms of its main markets, New York and London. In the Americas table there was just one Magic Circle, Clifford Chance, with just one mandate.the slowdown in Latam deals has exacerbated this trend, many Latam deals do use a range of counsel. But the purely US domestic deals, which dominate this year s Americas table, are the preserve of the New York firms. In the Europe, Middle East and Africa region, the picture is more balanced with Latham & Watkins, Milbank Tweed and Shearman & Sterling involved. However it is still dominated by the London firms with Allen & Overy taking a surprisingly big lead. The firm had a rounded mix of telecoms, power and infrastructure deals in the region. It needed only one more mandate, in Asia, to put it at the top globally. The Asian market has perked up.the Australian firms sagged a little last year.two were in the top 10 but only with three deals each.this year Allens Arthur Robinson upped its total to five, Freehills remained on three deals but Clayton Utz upped two to three and Blake Dawson Waldron went from nought to two.the Australian market, across a healthy range of sectors, has fully picked up again after its 1999/2000 lull and the deal pipeline is healthy.elsewhere in Asia the market is obviously less active in terms of deals closed. Into the tables, however, came local South Korean and Singaporean firms, an interesting development.the South Korean firms have introduced themselves to the market via a range of infrastructure PPI deals.the Singaporean firms are in too on the Chartered Silicon deal. If Singapore does sell its power assets next year, they will probably remain in the tables. Corporate activity in the project finance sector has slowed as the overall investment banking markets have slowed.the huge boom in the M&A market actually drove the M&A legal market.the TMT explosion in addition helped to drive corporate expansion. Now both markets have imploded, overall fees are down and the need for expansion slowed. In project finance, as said already legal globalisation has yet really to occur in any case.the White Shoe was evidence in London while Clifford Chance made an impression with its Rogers & Wells buy in New York. However in both cases, neither had a substantial impact on the tables. US domestic power deals are the preserve of New York firms and A&O continues to dominate in London.The balance could shift next year. More Latam deals and a slowdown in the US could make the Americas region look more international.the growth in the Middle East market, which was on the verge of taking off until September 11, could come back next year and the US firms will in that case do much better in Europe.The Australians will remain a significant factor next year in the global tables.the one thing about lawyers is, of course, they cannot create project finance business. But they do need the same degree of commercial nouse in picking when to invest or not to invest to deal with market trends.this is, however, a fairly static market. It is interesting to note only one firm in the Global Top 10 in 1998/9 is not in the Global Top 10 from 1998 to now, Chadbourne & Parke. It had 8 deals in 1998/9 but just one in 2000 and no deals in the latest table.this year Freshfields is a new entrant to the Global Top 10 but it did not do quite enough to get into the three yearly top Issue 230 Project Finance International November

3 Legal Review Introduction Global September 2000 to September 2001 Funders Sponsors Total Allen & Overy Latham & Watkins Clifford Chance Linklaters & Alliance Freshfields Bruckhaus Deringer Milbank Tweed Shearman & Sterling Allens Arthur Robinson White & Case Clayton Utz Freehill Hollingdale & Page Ashurst Morris Crisp Blake Dawson Waldon Dewey Ballantine Kim & Chang Norton Rose Simpson Thacher & Bartlett Skadden Arps Sullivan & Cromwell Allen & Gledhill Andrew & Kurth Baker & Botts Baker & McKenzie Bracewell & Patterson Cameron McKenna Cleary Gotlieb Davis Polk Dorsey & Whitney Garrigues & Andersen Giliberti e Associati Hunton & Williams Jones Day0 1 1 Kim & Ko King & Spalding Lee & Lee Lee & Ko Lovells Mayer Brown & Platt Nossaman Guthner Knox & Elliot Phillips Fox Troutman Sanders Washburn Briscoe & McCathy0 1 1 Winston Strawn Winthrop Stimpson Putnam November Issue 230 Project Finance International 51

4 Legal Review Introduction Global Top to 2001 Funders Sponsors Total Allen & Overy Shearman & Sterling Milbank Tweed Clifford Chance Latham & Watkins Skadden Arps Linklaters & Alliance Allens Arthur Robinson Sullivan & Cromwell White & Case Americas September 2000 to September 2001 Funders Sponsors Total Latham & Watkins Milbank Tweed Shearman & Sterling Dewey Ballantine Skadden Arps Sullivan & Cromwell White & Case Andrew & Kurth Baker & Botts Bracewell & Patterson Cleary Gotlieb Clifford Chance Davis Polk Dorsey & Whitney Hunton & Williams Jones Day0 1 1 King & Spalding Mayer Brown & Platt Nossaman Guthner Knox & Elliot Simpson Thacher & Bartlett Troutman Sanders Washburn Briscoe & McCathy0 1 1 Winston Strawn Winthrop Stimpson Putnam Issue 230 Project Finance International November

5 Legal Review Introduction Asia Pacific September 2000 to September 2001 Funders Sponsors Total Allens Arthur Robinson Clayton Utz Freehill Hollingdale & Page Blake Dawson Waldron Clifford Chance Linklaters & Alliance Kim & Chang Shearman & Sterling Allen & Gledhill Allen & Overy1 0 1 Baker & McKenzie Freshfields Bruckhaus Deringer Kim & Ko Latham & Watkins Lee & Lee Lee & Ko Milbank Tweed Phillips Fox Simpson Thacher & Bartlett EMEA September 2000 to September 2001 Funders Sponsors Total Allen & Overy6 3 9 Clifford Chance Freshfields Bruckhaus Deringe Linklaters & Alliance Ashurst Morris Crisp Latham & Watkins Norton Rose White & Case Cameron McKenna Garrigues & Andersen Giliberti e Associati Lovells Milbank Tweed Shearman & Sterling November Issue 230 Project Finance International 53

6 Legal Review Project list Project Country Cost (US$m) Sector Hutchison 3G UK 7,253 Telecoms Allen & Overy - Banks, Freshfields Bruckhaus Deringer - Sponsor Linklaters & Alliance, represented Hutchison on 3G licence, Clifford Chance, represented shareholder DoCoMo and represented vendors on vendor financing CCFC II Revolver USA 4,400 Power Latham & Watkins - Banks, Washburn Briscoe & McCarthy - Sponsor Chad-Cameroon Pipeline Chad 4,000 Oil & Gas Clifford Chance - Banks, Linklaters & Alliance - Sponsor Allen & Overy, represented World Bank, White & Case, represented US Exim, Baker & Botts, represented Chevron and Petronas in buying the Shell and Elf interest Amena 3G Spain 3,846 Telecoms Clifford Chance - Banks, Freshfields Bruckhaus Deringer - Sponsor Shearman & Sterling, represented Ericsson Hamaca Venezuela 3,600 Oil & Gas Davis Polk - Banks, Latham & Watkins - Sponsor Freshfields Bruckhaus Deringer, represented US Exim Mobilcom Germany3,500 Telecoms Allen & Overy - Banks, Freshfields Bruckhaus Deringer - Sponsor Shearman & Sterling, represented Ericsson Teco Panda USA 2,700 Power Latham & Watkins - Banks, White & Case - Sponsor SEI Pepco USA 2,650 Power Skadden Arps - Banks, Troutman Sanders - Sponsor Reliant EnergyUSA 2,500 Power Winston & Strawn - Banks, Baker & Botts - Sponsor Hong Kong Disneyland Hong Kong 2,320 Leisure/Property Clifford Chance - Banks, Baker & McKenzie - Sponsor E-Plus 3G Germany2,236 Telecoms Linklaters & Alliance - Banks, Allen & Overy - Sponsor Daegu-Pusan ExpresswaySouth Korea 2,100 Infrastructure Linklaters & Alliance and Kim & Ko - Banks, Kim & Chang - Sponsor NRG Portfolio Revolver USA 2,000 Power Latham & Watkins - Banks, Skadden Arps - Sponsor PG&E Turbine Warehousing USA 1,560 Power Simpson Thacher & Bartlett - Banks, Hunton & Williams - Sponsor Chartered Silicon Partners Singapore 1,540 Industry Wafer Fabrication 6 Expansion Allen & Gledhill - Banks, Lee & Lee - Sponsor Sithe Boston Generating USA 1,500 Power Dewey Ballantine - Banks, Latham & Watkins - Sponsor Milbank Tweed, development counsel Rome Airport refi Italy1,500 Infrastructure Allen & Overy - Banks, Giliberti e Associati and Lovells - Sponsor Al Taweelah A1 UAE 1,463 Power Norton Rose - Banks, Milbank Tweed - Sponsor White & Case, represented ADWEA ANP USA 1,375 Power Milbank Tweed - Banks, Andrew & Kurth - Sponsor Condea Chemie Germany1,200 Petrochemicals Linklaters & Alliance - Sponsor, Allen & Overy - Banks OCP Pipeline Ecuador 1,200 Oil & Gas Shearman & Sterling - Banks, Sullivan & Cromwell - Sponsor PSEG Waterford/Lawrenceburg USA 1,200 Power Latham & Watkins - Banks, Shearman & Sterling - Sponsor Birmingham Northern Relief Road UK 1,196 Infrastructure Allen & Overy - Banks, Ashurst Morris Crisp - Sponsor Southern Cross Cable Australia 1,100 Telecoms Simpson Thacher & Bartlett and Clayton Utz - Banks, Allens Arthur Robinson - Sponsor Clifford Chance, advised on English law issues Energias Eolicas Europeas Spain 1,059 Power Garrigues & Andersen - Banks, Allen & Overy - Sponsor 54 Issue 230 Project Finance International November

7 Legal Review Project list Project Country Cost (US$m) Sector Escondida 1V Chile 1,045 Mining Milbank Tweed - Banks, Sullivan & Cromwell - Sponsors IP5 SCUT Portugal 1,012 Infrastructure Allen & Overy - Banks, Ashurst Morris Crisp - Sponsor Ratchaburi Thailand 1,006 Power Latham & Watkins - Banks, Freshfields Bruckhaus Deringer - Sponsor Mozal II Mozambique 975 Industry White & Case - Banks, Linklaters & Alliance - Sponsor Clifford Chance, represented Mitsubishi, Ashurst Morris Crisp, represented JBIC NRG PJM USA 950 Power Milbank Tweed - Banks, Dorsey & Whitney - Sponsor InterGen Cottonwood USA 900 Power Dewey Ballantine - Banks, Bracewell & Patterson - Sponsor Tele Norte Leste Participacoes GSM Brazil 850 Telecoms Mayer Brown & Platt - Banks, Milbank Tweed - Sponsor Cleary Gottlieb and Gibson Dunn & Crutcher represented the vendors ISAB Energy Refi Italy 827 Power Linklaters & Alliance - Banks, Shearman & Sterling - Sponsor EdFI Egypt 732 Power White & Case and Freshfields Bruckhaus Deringer - Banks, Clifford Chance - Sponsor Alice Springs to Darwin rail Australia 736 Infrastructure Allens Arthur Robinson - Banks, Blake Dawson Waldron - Sponsor Clayton Utz, represented the government Cableuropa ONO Spain 714 Telecoms Latham & Watkins - Banks, Clifford Chance - Sponsor Ilijan Power Philippines 700 Power Milbank Tweed - Banks, Shearman & Sterling - Sponsor Winston & Strawn, represented US Exim, Denton Wilde Sapte, represented offtaker NPC Yallourn Energy Australia 680 Power Freehill Hollingdale & Page - Banks, Phillips Fox - Sponsor Allens Arthur Robinson, represented former syndicate, Minter Ellison, represented vendor, Mallesons Stephen Jacques, represented minority vendors and mezzanine noteholders Las Vegas Monorail USA 649 Infrastructure King & Spalding - Banks, Nossaman Guthner Knox & Elliot - Sponsor Hong Kong Hutchison Global Crossing Landline Hong Kong 641 Telecoms Allen & Overy - Banks, Linklaters & Alliance - Sponsor A2 Swiecko-Lodz Poland 637 Infrastructure Allen & Overy - Banks, Cameron McKenna - Sponsor Callide C Australia 637 Power Allens Arthur Robinson - Banks, Freehill Hollingdale & Page - Sponsor Piatco Philippines 628 Infrastructure Shearman & Sterling - Banks, Clifford Chance - Sponsor Melbourne Airport refi Australia 623 Infrastructure Allens Arthur Robinson - Banks, Blake Dawson Waldron - Sponsor A1/M1 refi UK 586 Infrastructure Clifford Chance - Banks, Freshfields Bruckhaus Deringer - Sponsor Ameren Missouri USA 551 Power Winthrop Stimpson Putnam - Banks, Jones Day - Sponsor Qafco Fertiliser Phase IV Qatar 550 Petrochemicals Norton Rose - Banks, Latham & Watkins - Sponsor Celumovil Codelco Colombia 550 Telecoms Shearman & Sterling - Banks, White & Case - Sponsor Chonan-Nonsan ExpresswaySouth Korea 548 Infrastructure Kim & Chang - Banks, Lee & Ko - Sponsor Telstra Saturn Cable New Zealand 543 Telecoms Clayton Utz - Banks, Freehill Hollingdale & Page - Sponsor Alinta Gas Australia 517 Power Clayton Utz - Banks, Allens Arthur Robinson - Sponsor Cana Brava Brazil 500 Power Clifford Chance - Banks, Cleary Gotlieb - Sponsor November Issue 230 Project Finance International 55

8 Legal Review Americas Portfolios and political risk For US project finance it was the year of the portfolio deal, and accordingly it was the year of Latham & Watkins, who edged out Milbank Tweed and ended up with a hand in nearly all of 2001 s major transactions. In Latin America law firms who have chalked up deal after deal in the Brazilian and Venezuelan exploitation and development sectors since 1997 may have to turn their attention, in a low oil price era in 2002, to issues such as a late-breaking power generation regulatory environment in Brazil and increased attention to environmental and political risk in the region. By Alison Healey and Nicole Gelinas. North America In the world of portfolio deals, US project finance lawyers devoted much of their time to the issue of flexibility and fundamental vs non-fundamental default - concepts that continue to evolve as this type of financing structure shows no signs of going out of style. Despite some evidence of a shift back to the contracted single asset financing toward the end of the year, the Teco Panda joint venture, NRG, Calpine,ANP, and Sithe all managed to put together portfolio financings in excess of US$1bn each, and New Jersey s PSEG came close to the billion-dollar mark with US$822m.The structure was hotter than ever, and strength in this arena seemed to take the place of synthetic leasing specialization as the trait developers and lenders alike looked for in choosing counsel. Latham represented lenders on Teco Panda, NRG, PSEG, CCFC II, and Calpine s Pasadena leveraged lease, but also played the other side, acting as counsel for Sithe in their Boston deal. Despite the uniqueness of each portfolio deal, the firm found itself dealing with two major issues - 1) under what circumstances a developer can take assets out of a portfolio, and 2) what happens when something bad happens to one of the plants in the portfolio. The former issue came into play particularly in the US$2bn NRG deal which was the first blind pool of assets financed in a construction revolver in the US.While Calpine was simply looking to raise financing as quickly as possible for its explosive growth plans prior to becoming investment grade, NRG wanted to push the market with a structure which would give them the ability to have total control over its portfolio. The revolver allowed NRG to quickly and costeffectively finance its expansion in the US while continually pursuing additional acquisitions as well as greenfield and brownfield development.this facility was similar to the Calpine construction facilities, but offered much more flexibility - an issue many lenders had a problem with in syndication. The facility allows for assets to be taken out of the portfolio when and how NRG deems appropriate.all other non-recourse, secured portfolio financings to date have been either static, fixed asset portfolios or, to the extent they were structured as revolvers, made it easy to add assets to the portfolio but very difficult to release any collateral associated with refinanced assets. The revolvers of the latter type are built on the principle that as time goes by and new assets are financed, the currently financed portfolio becomes overcollateralized; tying up the assets of the borrower. But in the NRG revolver, the portfolio and the security package are what is financed, and assets that are refinanced or sold are completely released from the collateral pool. In order to get lenders more comfortable with this type of unprecedented blind pool risk, lead arranger CSFB along with Latham & Watkins structured a set of release conditions that measure the geographical and operational diversity of the remaining portfolio as well as its financial robustness over the term of the facility and throughout a hypothetical long-term refinancing period. Once these release conditions are met the lenders do not have the right to deny the release of the collateral. The year was also characterised by zealous environmentalism and its resulting countless permit delays as well as the technology problems. Lawyers have had to step in to focus an increasing amount of time on getting lenders and sponsors more comfortable with the question of what will 56 Issue 230 Project Finance International November

9 Legal Review Americas happen to a portfolio financing if one of the plants encounters serious problems. For example, if one plant in a portfolio loses its operating permit, can lenders then foreclose on all the plants in that portfolio? The turbine problems which affected NEG s La Paloma, Lake Road, and Millenium plants and perhaps most notably ANP s US portfolio were an example of such problems.the ANP portfolio was financed with a US$1.4bn loan led by Citibank and Société Générale. Milbank acted as counsel for lenders on that one dealing with a market which was initially reluctant to do the homework on the technology but ultimately came together for a successful syndication. But the concept of fundamental versus nonfundamental default has become a critical one for credit committees. For the most part, a catastrophic occurrence like the bankruptcy of a project company would constitute fundamental default for a portfolio loan, but operating problems at one plant would not. Although the concept seems to have been worked out by lawyers, the specifics of what is fundamental continues to vary from deal to deal and depends primarily on how many assets are in the portfolio, since plants in a portfolio of only two are much more vulnerable than those in a portfolio of nine or ten.the location of plants and their fuel type in relation to each other is also a factor that is examined. The California crisis took up the time of many of the firms working extensively on the regulatory side of things, including Chadbourne & Park.The firm hosted a conference called California Chaos where attorneys and consultants met with a roomful of project finance bankers to discuss California power market structure irregularities which led to the crisis and the effects of utility bankruptcy on qualifying facilities (QFs). Though a combination of factors including the Federal Energy Regulatory Commission (FERC) s market mitigation policy eventually combined to ease the California burden and put project developers and bankers back on track with their plans, endless negotiations with California and its Department of Water Resources continue to tie up lawyers as a number of deals remain on hold pending resolution of contract issues left over from the crisis. Firms have also been working on things like reviving nuclear power, as the market saw its first non-recourse financing tied to a nuclear acquisition, with the Citibank - led US$305m letter of credit for Entergy. And even though 2002 may not be as active, Teco is already in the process of doing another portfolio deal, as are Florida s FPL Group and PG&E s National Energy Group, so the pipeline seems as busy as ever for firms specialising in these intricate structures. Latin America No real upstarts surprised the Americas legal market these year; Latham & Watkins and Milbank Tweed simply switched places from last year to keep their top two rungs. UK-based firm Freshfields Bruckhaus Deringer, which did not place in the Americas top 25 at all last year, secured a rung on the Latin American project finance table in 2001 due to its representation of the US Export-Import Bank with regards to the Hamaca transaction in Venezuela.The Ex-Im Bank provided a US$628m bank guarantee due 2018 for the US$1.1bn Hamaca oil development project, which reached financial close in June. The portion was closed in the record time of just three months after the commercial bank mandate was awarded, Hamaca s bankers said at the time. Observers can expect to see Freshfields in additional project deals next year.the firm recently brought on partner Mark Spivak, formerly co-head of Vinson & Elkins project development and finance team. Spivak is based in Washington DC, where he will work with five other US-based project finance partners. Freshfields also beefed up its structured finance expertise with the addition of New York partner Tim Little from Shearman & Sterling. While the addition of Freshfields to the Hamaca team added to the deal s European flavour, the two top commercial banks on the bank portion (the Royal Bank of Scotland and BNP Paribas) decided to go to the New York office of Davis Polk & Wardwell for their legal advice. Davis Polk partner, E Waide Warner Jr. headed up the firm s representation of the deal. Hamaca was Warner s third go-around in the Venezuelan petroleum project sector in the past two years, as the firm also represented the banks in 1999 s Cerro Negro and Fertinitro deals. Warner has already parlayed the Hamaca representation into a new job for himself in Venezuela; Davis Polk also recently advised Credit Suisse First Boston and Goldman Sachs on the US$500m notes currently being placed in the market on behalf of state-owned oil company financing vehicle PDVSA Finance Ltd. The sponsors chosen firm on the Hamaca deal, Latham & Watkins, was also no stranger to the sector.the firm represented the sponsors of the St Croix petrochemical project in Venezuela in 2000 and of the Cerro Negro project in Baker & McKenzie also played a role in the November Issue 230 Project Finance International 57

10 Legal Review Americas Hamaca transaction, with the firm s representation of sponsor group Petrolera Ameriven in relation to EPC contracts. Shearman & Sterling (banks) and Sullivan & Cromwell (sponsor group) closed the books on a year-old mandate this year with the financial completion of a US$900m deal for the OCP crude oil pipeline in Ecuador. Sullivan & Cromwell is likely to deal with environmental permitting and liability issues similar to those raised during the OCP transaction again next year; the firm is also named as project company representation on the upcoming Camisea natural gas upstream and downstream development transaction in Peru. The OCP transaction illustrates the importance of early planning by the sponsors in working with the host country government, in that case Ecuador, to establish a sustainable state of the art foreign investment regime, said Sergio J. Galvis, a partner in Sullivan & Cromwell s New York office and the coordinator of that firm s Latin American practice.the transaction also highlights the importance of early, ongoing and transparent discussions among the project, relevant governmental entities and interested community and non-governmental organizations (NGOs) with respect to environmental and other community and social issues.the establishment of a clear legal framework and the pro-active engagement by the project and sponsors of governmental and community groups are critical components today of any successful emerging markets natural resource project, Galvis said. The Camisea project, like OCP, is planned for an environmentally sensitive region fiercely protected by local and international advocacy groups.the groups are getting smarter, one bank told PFI recently. Groups including Greenpeace, Oxfam, Friends of the Earth,Amazon Watch and the Rainforest Action Network achieved a large measure of success this year in getting mainstream press attention to centre on the environmental and indigenous people issues raised in the OCP deal. Milbank Tweed partners worked hard to keep its telecoms expertise in practice this year, despite market sentiment that would not allow for a deal like 2000 s US$1.775bn BCP project financing in Brazil.The firm scored a major victory in August, when it successfully represented full-service telecom company CANTV in Venezuela against a hostile US$1.4bn tender offer initiated by AES Corp. Milbank New York partners Lawrence Lederman, Robert Mullen and Mark Weissler developed a defensive strategy for CANTV that resulted in the company s implementation of a share buyback plan and extraordinary dividend announcements; shareholders ultimately bought the package despite aggressive marketing throughout the early autumn by AES. Milbank also represented Brazil s Tele Norte Leste Participacoes with regards to its successful US$850m of a GSM network this year. Successful projects next year may be smallscale and difficult. Someone will have to be the first to try investing in a new thermoelectric power plant in Brazil s emerging regulatory environment; several projects are now close to awarding an advisory or arranger mandate. Law firms who represent sponsors and bankers in thermo deals in the sector will have to dispense advice on building and financing projects without benefit of firm rules governing the awarding of environmental licenses, generator-todistributor Annex V spot market payments, private distributors responsibilities under power rationing rules, and new accounts for fuel cost and currency risk mitigation. Clifford Chance (who advised the lenders on the Cana Brava hydro project in 2001), Cleary Gotlieb (who advised the Cana Brava sponsors) and Winston & Strawn (who advised the lenders on the El Paso Energy Macae merchant plant in 2001) may have an early leg up on the local environmental permitting issues, but the rest of the field is virtually open. While sponsors have been asking some new questions regarding political risk and business interruption insurance following the September 11 attacks in the US, players in the region have not signalled any change in doing business in the Latin American markets, said one attorney. The major localised issues, including currency convertibility and devaluation issues in Argentina and Brazil and protection from local violence in Colombia, have not changed markedly in the past three months. Several may be well-positioned next year to advise on environmental, regulatory and political risks within the region.vinson & Elkins partner Christopher Erckert, based in Washington DC, has extensive experience in the Brazilian and Mexican power sectors, and has worked closely with multilateral organisations such as the Inter- American Development Bank (IDB) in recent years. Chadbourne & Parke partner Kenneth Hansen, also based in Washington, has extensive experience in global political risk and currency inconvertibility issues, and has a close relationship with the Overseas Private Investment Corp (OPIC). Sullivan & Cromwell s Sergio Galvis has dealt with environmental permitting and political risk issues on the OCP transaction in Ecuador this year, and also has the backing of his firm s worldwide regulatory expertise. 58 Issue 230 Project Finance International November

11 Legal Review Asia Pacific Active Asia Pacific legals Asia-Pacific is undergoing a period that may be worse than the 1997 financial crisis. But that does not mean that activities in the PF world would freeze. On the contrary, while the amount of closed deals this year may be less than that of last year, a significant number of projects are brewing and proceeding, and the year-end is suddenly seeing an influx. Minerva Lau and Sharon Klyne report. The region will probably never be the same again. The hectic dizzying days of the early nineties is unlikely to be repeated but a fair amount of work still exists and more are expected in the new-year. According to Mitchell Silk, a partner at Allen & Overy, there are three sectors keeping the legal world busy. Our Asian projects team is seeing a high degree of activity in three general areas - growth sectors like oil and gas, petrochemicals and water, maturing and new markets including Korea, Philippines,Viet Nam, Sri Lanka and Bangladesh and new products involving new risk mitigation tools like political risk guarantees and the application of projects skills at the core of complex privatisations and M&A transactions, he explained. Indeed, Silk s comment has been echoed by other PF lawyers in the region. China has become the flavour of the month and its mega-petrochemical projects are the talk of the town. It is one market emerging like the honey that the bee-like law firms are flocking to. The four mega-petrochemical projects in it alone amount to at least US$13bn worth of capital and debt. These are the Nanhai petrochemical project of Shell and China National Offshore Oil Corp (CNOOC), Shanghai project of BP and China Petroleum & Chemical (Sinopec), Fujian petrochemical project of Exxon Mobil,Aramco of Saudi Arabia and China National Petrochemical Corp and the Nanjing project of BASF and Sinopec. In addition, there is also the massive US$14.5bn east-west gas pipeline project which is still to select a preferred bidder. Projects in China are expected to be funded heavily not only by foreign banks but also by domestic lenders.thus documentation will be a combination of those governed under the Chinese law and the New York or UK law. International law firms cannot practice in China so major firms would usually have local associates. Throughout all the years, joint venture contracts were governed under the Chinese law.an agreement with a domestic partner is governed under the PRC law. Financing however will be governed under the foreign law, especially when there are foreign lenders involved, said Jack Su of Shearman & Sterling. However, one of the most challenging areas, is securities over projects, which are governed under the Chinese law, he added. Surprisingly, even Indonesia is offering some goodies to bankers and lawyers. Since the crisis, it has been put aside by the financial market and most banks have set zero country limits for lending. However, despite the non-investment grade of the country, a few oil & gas projects have started knocking at the doors of banks and law firms. Indonesia is expected to become a primary area of activities next year, remarked lawyers.there is the PGN s gas pipeline project with Singapore,Train I project,tangguh project led by BP, Pertamina s Blue Sky project and other oil field developments. Legal work is also focused on a sector on new markets, which sometimes are referred to as developing economies or non-investment grade sovereigns.and they have provided opportunities with a number of power deals recently completed.two major power projects deals in Meghnaghat and Haripur of Bangladesh and one in Kelanitissa of Sri Lanka, all sponsored by AES Corp, achieved financial closing this year. Vietnam, too, has suddenly, sprung into action. Already, one water deal, the Thu Duc water treatment project, offered the first foreign-owned build, operate and transfer (BOT) project that was ever-completed in the country.then, there are the Phu My 2.2 and Phu My 3 projects which are in the process of seeking financing. On the other end of the new markets spectrum are the developed countries like South Korea and Japan. Both are new to the PF world but have indicated signs of warming to the concept. South Korea is becoming more reliant on PF tools and there are about three major domestic firms active in limited recourse financing. In the Daegu - Busan Expressway project, for example, offshore lenders were advised by Linklaters but the onshore lenders had Kim & Ko and the sponsors were advised by Kim & Chang. In Japan, the picture is somewhat different. Japan is not known to be a lawyer-ed society and there is a heavy reliance on good faith among the different parties involved.that is slowly changing, however. November Issue 230 Project Finance International 59

12 Legal Review Asia Pacific Financing on a limited recourse or non-recourse is considered a new concept and it was only recently that the domestic banking industry and even the government has succumbed to the idea, although slowly.while the government s private finance initiative has been launched for a few years now, it s only during the last two years, and especially this year, that it opened tenders for a relatively significant number of projects to be undertaken and financed by the private sector. To date however, most legal work on projects are related to offshore activities. The involvement of law firms is seen more in offshore projects where there is a Japanese offtaker, a Japanese sponsor or Japanese lenders. Usually, these are projects that supply energy to Japan, remarked Tokyo-based Hendrik Gordenker of White & Case. Also a major area for legal work is the ongoing privatisation and the merger and acquisition activities in the region.the privatisation process in South Korea, Singapore and the Philippines are keeping the lawyers busy pitching for a role either on the buyer s side, seller s side and also the government s side. State-owned power generation companies will be dismantled and assets will be sold to the private sector.the Philippines has already appointed its legal advisers for the privatisation of the National Power Corp and the first sale of assets could happen early next year. Singapore s power sale, initially scheduled for this year, will now happen by the second half of 2002.And the schedule is the same for South Korea, which already has separated the gencos of Korea Power Corp into six companies. And with the expected flow of projects in the region, PF teams in law firms have been strengthened. Noticeably, law firms have expanded their teams that will focus on China. For example, Norton Rose, which is in the process of establishing an office in Beijing, has hired two partners to lead its China practice. Its two French-qualified partners - Deschandol and Deslandres - are considered among the first foreign lawyers to be active in mainland China since 1985 and they had been running a largely stand-alone China practice in Beijing with the previous firm. Lovells, too, has appointed a former general counsel for Nortel networks in Asia as a partner to be based in Beijing.The international law firm of Paul,Weiss, Rifkind,Wharton & Garrison has elected Lester Ross to the position of Counsel and he will be based in its Beijing office. Certainly, a strong sign of increasing activities in the region is the setting up of new offices or beefing up of teams in Asia, not just in China. For example, Jones, Day Reavis & Pogue has set up a PF team in its newly established Singapore office headed by Emad Khalil, who is the global co-head of the firm s PF practice. In Bangkok,Watson, Farley & Williams has opened a new office and its team, which includes Thai lawyers, will provide advice on both Thai and English law. Linklaters has appointed seven new partners to be based in Hong Kong,Tokyo and Singapore.These are in addition to the already more than 200 lawyers based in the region. Aussie firms in buoyant mood Australian project finance lawyers have much to celebrate into the year-end, with the volume of work surging strongly this last quarter.while some reported a patchy first half, all agree the influx of new deals in the market the past few months will keep them busy well into the first half of 2002, in spite of the events of September 11. The Australian project finance market has seen a surge of deals coming to the market especially in the last quarter of the year.the pipeline of deals includes the A$300m Cross City Tunnel project, the A$1.25bn Western Sydney Orbital ring road, the A$815 Lane Cove extension, the sale of National Rail Corp and NSW Freight Corp, and the Ministry of Defence s tender to replace its ageing patrol boats. As usual, toll road projects feature strongly in the pipeline. Peter Doyle, partner of Mallesons Stephen Jaques in Sydney, observes that the NSW government is most experienced in dealing with private investment in road projects, and has committed to toll road structures that are bankable by the private sector. The government s track record in toll roads has led to a greater degree of confidence that they can deal with the private sector. However, in NSW and some other states, there have been some instances of the private sector having unsatisfactory experiences with government in their involvement in hospitals and justice administration particularly prisons, Doyle said. Interestingly, there is still significant debate about risk transfer in the Australian market notwithstanding that governments and the private sector have had the benefit of observing risk transference in the UK PFI market. Governments are still trialling quite aggressive risk allocation even in follow up projects in the same industry. Robert Milliner, a partner of Mallesons in Melbourne notes that there are a number of current proposals where the market for the government s proposed risk allocation is yet to be tested. For example, on the Cross City Tunnel, it will be interesting to see whether the winning bidder s proposal conforms with the Road and Traffic Authority s preferred position and whether this is similar to the deal on the last toll road, the Eastern Distributor. Final risk allocation on this project is likely to set the scene for the Western Sydney Orbital ring road and the Lane Cove extension projects, said Milliner. Final bids were submitted last month by three bidding groups - Baulderstone Hornibrook, parent company Bilfinger & Berger Bauaktiengesellschaft and Deutsche Bank; Leighton Contractors; and Transfield and Multiplex Constructions. 60 Issue 230 Project Finance International November

13 Legal Review Asia Pacific Aside from road projects, there are a number of large greenfield projects that may reach financial close in the next 12 months.these include Methanex s A$3bn methanol project in Western Australia, Semag s magnesium plant in South Australia, Oswal Fertiliser s US$370m ammonia plant in Karratha,Western Australia and Cintroleum s gas-to-liquids project also in WA. Aside from greenfield projects and privatisations, a new source of work for law firms and banks alike is the entry of public private partnerships such as in Victoria, and New South Wales. Other states that have announced or are seriously considering PPP policies are Queensland, South Australia, and some believe eventually Western Australia. New South Wales announced its long awaited public-private partnership policy and a list of projects worth A$5bn over the next four years earlier this month.the list of potential PPP projects includes toll roads, prisons, water projects and schools. However the announcement has failed to excite industry players, and instead has disappointed many, having waited more than a year for the announcement. One of the issues is the small size of some of the mooted projects. For example, quite a few of the water projects are below A$40m, and banks believe that a project of this small size will not be able to be privately financed.a project needs to be a minimum A$100m if it is to be financed in the private sector. There are also some reservations as to how committed the NSW government really is to public private partnerships, considering it took more than a year to announce its policy.this has given the impression to the market that there are factions within government who are not keen to proceed down this track.also, state governments have not had a good track record in getting the right private finance structure. Victoria too has launched a few PPP projects in the market, of these, the one that has attracted a lot of interest from the private sector is the A$300m re-development of the Spencer Street station in Melbourne into an inter-modal transport hub.while for some in the industry grouse it is more a property play than PPP project, the government will pay the winning bidder an availability charge over the duration of the year concession period. Lawyers believe that there will be new innovative financing structures devised for these projects, depending on the process and risk allocation of the deal. Project finance lawyers have generally not seen a retreat of the Australian syndication market after the terrorist attacks on September 11. However there have been immediate documentation changes to loan agreements mainly surrounding the inclusion of market disruption clauses. Phillip Cornwell, partner and head of project finance of Allens Arthur Robinson explained, This essentially states if a bank thinks there is a major disruption to the syndication market either overseas or in Australia, or the syndication markets have failed to return to their pre-september 11 state, then the bank is entitled to refuse to fund. He added, This is tougher than the now almost ubiquitous market flex, and banks seem more relaxed having put in the clause. However, the clause has not been tested yet, and it is a still a matter of opinion, and not of law, as to what constitutes a major disruption to the syndication market. Still borrowers have had no choice but to accept its inclusion if they want bank financing, said lawyers. Another impact of the events of September 11 has been on the insurance market, and the cost and availability of such insurance. Banks are looking for terrorism cover for property deals and infrastructure projects, and lawyers are seeing it becoming more difficult for clients to secure cover. The reinsurance market is currently running away from terrorism cover, and the crunch will come in January 2002, when a lot of insurance policies are up for renewal, observed Allens Arthur Robinson s Cornwell. To fill up this gap in the availability of insurance, Allens Arthur Robinson is involved in on-going negotiations between the Insurance Council of Australia, and Commonwealth and state governments, with proposals being discussed including direct government indemnities or the establishment of a reinsurance pool, which in turn is supported by the government. With the sudden focus on insurance and terrorism risks, banks are now looking harder at the material adverse change clauses in their loan agreements. But aside from closer scrutiny of the documents, most have not seem particular signs of tighter financing structures being adopted by project finance banks. Another issue that has arisen from the attacks in the US is the re-entry of market flex clauses.these clauses pertain to the pricing of the loan, the terms and margins. Nicholas Grambas, partner of Freehills based in Melbourne said, Banks are reluctant to give firm underwriting commitments without market flex clauses and appropriate material adverse change clauses. Previously, especially in bid financing, banks would normally put in up to 30-day underwriting commitments without these market flex clauses (and in some cases, without material adverse change clauses as well), but now it is difficult to do so. Firms are also seeing clients gravitate to the country s top three finance firms Allens Arthur Robinson, Freehills and Mallesons Stephen Jacques, especially for the big projects.the firms have also been successful in persuading the market to accept non-exclusive appointments, whereby a firm s partners in Melbourne and Sydney would act for competing bidders with the establishment of Chinese walls. November Issue 230 Project Finance International 61

14 Legal Review EMEA A&O s EMEA magic circle Put the word Allen in your law firm s title and it appears a sure fire bet the firm will move to the top of Project Finance International s legal survey - Allens in Australia and of course Allen & Overy in EMEA. There is probably more to it than just the name, both have strong bank related practices, but it appears a useful tip. Yet despite A&O s dominant success, this year, the EMEA market remains diverse for project lawyers. By Rod Morrison. International A&O s success this year was built on a fairly well rounded portfolio of deals - four large infrastructure deals, three in the now struggling telecoms sector, just one in power and one industrial scheme. Deals have continued beyond those included before survey cut off date, September.A&O was involved in the recently closed the E1bn Dutch HSL deal and the US$570m Ras Laffan IWPP. The words Graham Vinter, one of London top pf lawyers, are usually associated with the success. Sometimes sponsors do complain about being beauty paraded by Vinter and then left in the hands of others but that is a less heard complaint these days.actually Vinter luckily (for him, of course) took a three month sabbatical in the summer and returned in September in time for the above mentioned deals to close. On Ras Laffan, this was no legal or commercial formality as the Middle Eastern market wobbled after September 11. However the State of Qatar stepped into cover the insurance exposure and the loan margin was increased. A&O s practice and strength obviously extends well beyond Vinter and its move from power, the power behind much of the pf EMEA market in the 1990s, to infrastructure shows that.a&o has always topped the EMEA table in PFI s survey. Clifford Chance is well rated, particularly with Peter Blake on the power side.as said, there were fewer power deals this year but this sector is likely to pick up again in 2002 and Clifford will do as well as anyone. Its wide international network is praised although some feel it needs to be a bit deeper. Linklaters had a diverse bunch of closed deals from Chad to Mozambique but at least this shows international strength. Freshfields leapt up the EMEA tables largely due to telecoms deals. It has the LU PPP deal to keep it busy on the infrastructure side. Slaughter & May, the fifth Magic Circle firm, is highly regarded but expensive. It has a projects capability which emerges from time to time on the deal list. Of the others,ashursts always shows up on the deal list with one or two schemes, usually infrastructure linked. Norton Rose has slipped from first to second division over the years but Jeffrey Barrett is well regarded, and the firm is now said to be competitive on fees. Cameron McKenna is said to be making a PPP infrastructure push as is Masons. A year of two ago the big question, relating to both project finance and other disciplines, was the merger of New York and London firms to make a super global practice.this talk has died down along with general fall off in activity in the international capital markets. Firms are now focused on their existing deal flow. Still securitisation lawyers still seem in demand. On the projects front Freshfields was one firm which picked up a well established New York team from Milbank Tweed while Clifford Chance merged with Rogers & Wells. Of course the New York firms have been in London for some time and a select few have made a success of project finance. So what of the Americans? A poorer showing this year at face value. But actually some have been very busy with the Middle East. Even despite the Middle East market wobble, a few deals will have closed since the survey cut off date but before the end of the year including Ras Laffan IWPP, Shuweihat, Oman LNG and Equate.To follow next year is a range of deals (Alba, Bapco, Ras Laffan LNG 3 & 4, Omifco, Sohar Refinery, Sasol GTL, Jubail United for instance) in which the NY and London firms will be involved. The legal work on the Middle East deals is often shared between London and New York. US sponsors are sometimes involved, US Exim is sometimes involved. In Qatar many deals are actually only done under US law which obviously gives the US firms an advantage. If US Exim is involved, its legal provisions have to be covered by US law. In addition if the sponsor is thinking about an international bond, US law is the natural code. On some deals, such as Oman LNG, both English and US law is used.the 62 Issue 230 Project Finance International November