Russia’s oil-driven economic revival is generating a flood of corporate work and surging demand for City partners. Richard Lloyd reports on Moscow’s white-hot legal market
Although Skadden Arps Slate Meagher & Flom has been in Moscow since 1992, its office in the Russian capital is still rather modest. Around 30 lawyers handle a typical Skadden diet of high-end corporate finance work. But reinforcements are available at short notice. The firm has Russian visas for every one of its 115 lawyers in London, to avoid the usual overnight delay in visa processing whenever extra English and US-qualified lawyers are needed on the ground in Russia.
The demand for extra lawyers is high. Typically, at any one time about 35 of Skadden’s London lawyers are involved in Russian work and making good use of their visas. Since the 1998 financial crisis, when most foreign law firms scaled back — Skadden had little more than a nameplate in Moscow for more than a year — the Russian legal market has been transformed by Russia’s booming economy.
Vladimir Putin has brought political stability and, although due to step down as president, looks set to continue to play a prominent role in government. Meanwhile, high oil prices mean that Russia is awash in petro-dollars. Between 2002 and 2006, gross domestic product almost trebled from $345bn (£175bn) to $984bn (£498bn).
Capital markets practices, in particular, are in overdrive, as increasing numbers of Russian companies go public. The initial public offering (IPO) surge has fuelled considerable growth at established international firms in Moscow.
Clifford Chance (CC) has gone from around 40 lawyers in 2002 to more than 130 today. White & Case, another local leader, has seen its office swell from around 10 lawyers in 1998 to almost 100 today — a track record that helped former Moscow head Hugh Verrier become chairman of the firm in October.
Thus far, Moscow has not seen an influx of new entrants into the market, but that may be changing. Last autumn, Simmons & Simmons became the first law firm to launch in Moscow since Jones Day’s 2004 debut, hiring the former general counsel of Russian investment bank Renaissance Capital to lead a finance practice.
“There is so much business here that new entrants are bound to be successful,” enthuses veteran Baker & McKenzie partner Paul Melling, who set up Bakers’ office in 1989. For many firms, the biggest problem remains finding enough bodies to do the work.
London has been the biggest beneficiary of the boom. Thanks in part to the tougher regulatory demands of New York, the UK has emerged as the favoured place for Russian companies to go public, and English law has become the governing law of choice for many Russian corporate finance deals. That has meant plenty of work for London lawyers and bankers — international law firms are finding that the road to success in Moscow runs through the City.
To put the IPO boom into context, from 1994 to 2004, Russian companies raised a total of $1.6bn (£808m) on all markets. In the first six months of 2005, as the market began to heat up, Russian companies, such as steel giant Evraz Group, raised a total of $2.4bn (£1.2bn) on the London Stock Exchange and its subsidiary markets, most often the Alternative Investment Market (AIM).
Since 2005, the pipeline of IPOs has swelled to include the $10.6bn (£5.3bn) London float of Rosneft Oil Company in July 2006, the $1bn-plus offering of steel company Severstal in London in November 2006, and Russian savings bank Sberbank’s $9bn (£4.5bn) offering in early 2007.
While the credit crunch has put a brake on the flow of listings — the multibillion-dollar London IPO of aluminum giant RUSAL was postponed in September because of market turmoil — lawyers say there is still a glut of companies looking to list overseas or in Russia.
RUSAL’s lead UK adviser, Ashurst, says that the Russian company has swiftly become one of its most lucrative clients.
Although London has become the IPO market of choice for Russian businesses, US law firms have taken their fair share of the work. Most of the documentation may be written under English law, but the style is one that US lawyers can easily recognise.
Cleary Gottlieb Steen & Hamilton advised Rosneft and Sberbank on their listings and has generally emerged as issuers’ counsel of choice, typically appearing beside Linklaters, the go-to firm for underwriters. Debevoise & Plimpton, Dewey & LeBoeuf, Skadden and White & Case have also profited from Moscow’s corporate finance boom.
The model that Skadden, Cleary and Debevoise have followed is to develop highly focused, uber-profitable corporate finance practices of no more than 30 lawyers. In contrast, the leading UK players — Allen & Overy, CC, and Linklaters — all have more than 50 lawyers covering a wider range of practices.
Cleary, Freshfields Bruckhaus Deringer and Linklaters have all moved partners to Moscow from New York and London. But as Freshfields Moscow head Jacky Baudon admits, finding lawyers willing to move to Moscow can be tough. He says, perhaps with a hint of desperation, that he would willingly take more: “I don’t even need them to speak Russian.”
London-based backup remains crucial. Skadden is not the only firm to regularly deploy UK-based lawyers on Russian deals. Akin Gump Strauss Hauer & Feld’s 30 Moscow lawyers, acting for clients such as Russian oil and gas giant Lukoil, regularly call on a pool of 20 lawyers based in London. Cleary partner Daniel Braverman, who has been a lead partner on many of the firm’s Russian IPOs, including Rosneft and Sberbank, is based in London, while Dewey & LeBoeuf’s Brian Zimbler splits his time between Moscow and London.
International firms have begun to make up their first Russian partners, most recently Dmitri Kovalenko at Skadden in 2007 and Murat Akuyev at Cleary at the start of 2008. But the supply of Russian lawyers remains tight. “It is a unique market, in that the economy and legal market have grown more quickly than the system can produce lawyers,” says Moscow and London-based Skadden partner Pranav Trivedi.
US and UK firms tend to hire lawyers who have graduated from one of a handful of elite Russian law schools (such as the Moscow State Institute of International Relations) and who have a second law degree from a US or UK law school. “We could hire 10 attorneys tomorrow if we could find them,” says White & Case partner Eric Michailov. Also competing for lawyers are local corporations and investment banks, both Russian and foreign.
Between an over-abundance of work and the scarcity of talent, firms can find themselves stretched too thin. Last year Latham & Watkins lost both its Moscow-based partners. Capital markets partner Varun Gupta left for A&O in April, and in August former practice head Anya Goldin — the ‘queen of the IPO’, according to Gupta — became general counsel of Russian technology, telecoms and real estate conglomerate Sistema JSFC. Latham moved quickly to fill the void, hiring capital markets partner Mark Banovich from Dewey & LeBoeuf in September.
“Latham is very committed to Moscow,” Banovich says, citing aggressive plans to build the office from around 15 lawyers today to 40 within a few years. In the meantime, the firm might consider following Skadden’s lead and arranging visas for its London lawyers. Missing out on Moscow’s boom is a play that few can afford to make.
A version of this article first appeared in The American Lawyer, Legal Week’s US sister title.
