Opportunity South of the Border: Jones Day's Mexico City Perspective

Tuesday, June 30, 2009 - 01:00

Editor: Please tell us about your background and describe how and why you and your firm came to be part of Jones Day.

De Ovando: In 1984, after practicing with another Mexico City law firm, I joined with a group of both younger and more senior lawyers to found De Ovando y Martínez del Campo, S.C. Our new firm became very active in representing clients in financial-related matters. When we launched the firm, banks had been nationalized. So our early clients were principally private securities firms and factoring and leasing companies. When the banks were privatized, we were actively involved in the legal aspects of the privatization process, including representing both local and international clients who were involved in the process in some way. As we expanded, we served clients in other areas of activity, including large retail stores, hotel chains and a number of conglomerates.

We got to know Jones Day two decades ago and helped them serve clients here in Mexico, including clients located in Mexico that were publicly placing securities in New York. This relationship grew closer as a result of our more frequent interaction with its Madrid office after that office was appointed the head of Jones Day's Latin American practice. In 2007, serious conversations began to take place with Jones Day about combining the two firms, which we have now accomplished.

We were very happy to do this because being part of such a great internationally recognized firm offers immense advantages, even in our own recruiting efforts domestically. It is very difficult to grow laterally in Mexico. Having the Jones Day name and culture and the One Firm Worldwide model is a strong selling point here.

Editor: How does your office interact with Jones Day's Madrid office and the existing Latin American practice?

De Ovando: The Madrid office heads Jones Day's Latin American practice, and we are an integral part of that practice. The Madrid office provides the Mexico City office with a uniquely important link to Spain, whose investors are playing particularly important roles in Mexico - notwithstanding that presently Spain is severely impacted by the international financial crisis. Spanish investors are involved mainly in real estate and infrastructure projects. We represent them in their investments in hotels, hospitals, roads, natural gas operations and real estate. For a global law firm like Jones Day to have offices in Madrid and in Mexico is a great convenience for Spanish investors. In Mexico two out of the four largest banks are Spanish Banks. We have BBVA (BBVA Bancomer) and Santander (Banco Santander Serfin). BBVA Bancomer ranks first, with Citigroup (Banamex) second and Santander third. Obviously Spain brings great financing strength to our country.

Editor: What opportunities does an office in Mexico City present for Jones Day's clients in the U.S. and elsewhere?

De Ovando : The opportunities are immense. For instance, we see great opportunities for our firm in project finance. Remember that we have significant infrastructure needs here. Many projects get financing from the government and government agencies, but large projects also need private capital. The kind of infrastructure projects that Mexico is considering will be substantial generators of work for our office. Building a 400-kilometer road requires a $3 billion investment. Not only is substantial legal work involved in the financial arrangements, but also in the contractual arrangements required to construct the road - and the government's plans contemplate not just one such road but a multiplicity.

Another kind of project that will generate work for our office is the privatization of existing toll roads. The government has deposited the proceeds of the privatization of those roads into trusts that will be used to partially finance other infrastructure projects, such as roads, bridges and seaports.

While the government's current plans for infrastructure development are very ambitious, two impediments need to be overcome. One is that plans for reforming the legal system to meet the needs of business must be expedited and the other is that some of the private entities that are participating in financing the projects are themselves facing financial problems.

Of course, it must be recognized that the role of government can also restrict the role for cross-border activity in Mexico. For instance, we still have restrictions on investments by Americans and other foreigners in certain industries. The oil business here is for all practical purposes a monopoly of the state. Generation of electricity is certainly a monopoly. There are limitations on foreigners participating in television broadcasting stations, radio stations and airlines.

Editor: What about the capital markets situation?

De Ovando: Capital markets have suffered here as much as they have suffered worldwide. However, one of our clients, Compartamos Banco, recently announced that it will seek the placement of a $150-million bond issue. This is a hopeful sign that the market is recovering.

Editor: Are you seeing growth in litigation? How important is arbitration?

De Ovando: Although Mexico is not by nature a litigious society, litigation has grown tremendously. NAFTA has brought into our country more multinational companies that are accustomed to using litigation to achieve their goals. The other day, while representing some Canadian clients, I discovered that there is actually more arbitration happening in Mexico than in Canada. Large arbitrations involving foreign and Mexican parties generally take place in either Mexico or in Paris. We are inclined to recommend the use of the ICC in Paris.

Editor: What is the merger and acquisition environment in Mexico?

De Ovando: When countries undergo a crisis, generally the weaker are forced to join the stronger. For that reason, we are beginning to see an increase in M&A activity. Air travel has declined as a result of the H1N1 flu scare. I would not be surprised if limitations that were imposed on foreign ownership of certain airlines in the past are lifted to permit them to survive.

Editor: What particular trends should our U.S. readers be aware of?

De Ovando: I have already mentioned important trends affecting infrastructure development. Mexico also has a very large automobile industry, although that industry is suffering from the worldwide decline in demand. Because China and India are growing, their need for our raw materials is increasing, and Mexico is very strong in mining. We have very large mining facilities in not only silver but copper and other materials. Mexico is also a large producer of steel. I see China and India now taking significant roles in Mexico. These changes bode well for our firm's future. Whenever a change occurs, there is activity, and whenever there is activity, you need lawyers. As these changes become more global in scope, the importance of having an integrated global firm like Jones Day increases.

Editor: Are there any issues affecting relationships between the U.S. and Mexico?

De Ovando: The discrimination against Mexican trucks crossing into the U.S. is a very serious problem for both countries. It is a source of other effects that do not appear in the newspapers. The cost to American consumers is immense. It includes the charge of $150 for each border crossing, and there are over five million crossings each year. An even greater cost is added by virtue of the unloading and loading of cargoes and the waiting time spent by drivers. Furthermore, because long lines of trucks are forced to park on the Mexican side of the border while they wait, drivers waiting in line may be tempted by narcotic gangs to add smuggling to their legitimate business.

As the U.S. is now starting to recognize, Mexico has a tremendous problem with the rising power of organized crime. Much of this is aided by the flow of arms from the U.S. The criminals are better armed than our army in many cases. One way the U.S. can help stem the flow of drugs from Mexico is to address the flow of guns into Mexico.

Please email the interviewee at fdeovando@jonesday.com with questions about this interview.