Leveraging An International Platform To Bring Maximum Value To Clients

Monday, November 21, 2011 - 14:59

Editor: As head of Proskauer’s office in Hong Kong, please tell our readers about the Hong Kong office’s key practice areas, the size of your office and the individual practice areas represented in the office.

Tal: Our Asia practice is focused on M&A, private equity (both fund formation and downstream transactional work), general corporate and U.S. capital markets. We have 20 fee earners in two offices (Hong Kong and Beijing), and we continue to expand. Over the past 12 months we have added partners and associates and, as a result, are in the process of relocating our Hong Kong offices to a larger space. We have recently opened our Beijing office and are busy recruiting there as well. We focus on cutting-edge and strategic transactions, clients, practice areas and industries (such as sports, entertainment and real estate/hospitality) where we can leverage our international platform and add maximum value to our clients. That strategy has been serving us well in the U.S. and Europe and is proving itself in Asia as well.

Editor: Has the office become more involved with natural resource deals involving cross-border investments – both with Chinese investments abroad as well as with foreign investors interested in doing joint ventures with Chinese companies? 

Tal: Yes, we have, and we have had the opportunity to represent both sides. We have represented a Latin American company selling natural resources to a Hong Kong/Chinese entity as well as Asian investors acquiring precious metal assets in Africa. That is clearly an area that will continue growing over time and allows us to work together with our offices in London, Sao Paulo and the U.S. to take advantage of our global platform.

Editor: Please describe some of the noteworthy deals your office has undertaken in the last two years. 

Tal: The last two years have been busy for Proskauer in Asia. We have handled an increasing number of transactions, both in-bound and out-bound, in numerous practice areas and industries. Some representative transactions include: 

  • RRJ Capital, a newly established investment fund, in its first private equity investment in China as it subscribed to common stock of AAB Group China for a consideration of $50 million with a post-money valuation of $585 million
  • China Construction Bank International in a number of private equity investments in various industries in China, including clean tech, consumer products and transportation 
  • Votorantim Novos Negócios Ltda., the private equity arm of the Brazilian financial and industrial conglomerate Grupo Votorantim, on the $390 million sale of iron ore mining, pipeline and port project in Brazil to Honbridge Holdings Limited. Honbridge is a Hong Kong Stock Exchange-listed company
  • GTC China, a subsidiary of Kardan Group, in its 50 percent sale of Galleria Chengdu, a shopping mall located in Chengdu, to MGPA and its resulting joint venture with MGPA 
  • Shun Tak-China Travel Shipping Investments Limited in its acquisition of the passenger ferry business operations between Hong Kong and Macau, New World First Ferry Services (Macau) Limited and New Ferry-Transporte Maritimo de Passageiros (Macau), Limitada 
  • Mori Building, one of the largest real estate developers in Japan, in connection with the restructuring of its pre-IPO investment in Hyatt Hotels.

Editor: Have you seen advances in the western part of China in terms of opening up the area to greater tourism and the hospitality business? Is the Chinese government making a concerted effort to provide infrastructure to this area? 

Tal: We definitely have. Airports are being built, roads are being paved and an increasing number of internationally branded hotels are being planned and opened. The roads between Kumming, Dali, Lijiang and Shangri-La are full of tourists, a growing number of whom are international. We have recently been involved in a hotel project in Kumming, and there are many more on the way. 

Editor: Tell us about the RMB funds that were just becoming open to foreign investors when we last spoke in 2009. How has the Shanghai Podong government‘s liberalization effort in allowing private equity funds led by foreign managers fared? Is there a stronger push to open wider the investment opportunity for foreign investment?

Tal: RMB funds continue to receive a lot of attention and to grow as capital in China and offshore seeks to make its way into investments in China. The gradual opening of the market to foreign investors – as evidenced by the QFLP (Qualified Foreign Limited Partnership) pilot scheme launched in Shanghai in January, which has since been followed in Beijing and other municipalities – is being closely watched by international investors. While they allow international investors to invest in RMB funds, there are many details that still have to be worked out, but nonetheless, this is a very exciting development.  

Editor: There is talk of a construction bubble in China. What is the Chinese government doing to tamp down this bubble? Have you seen any evidences of austerity or belt-tightening in Hong Kong or the surrounding area?

Tal: The Chinese government has taken numerous steps to slow down speculative investing and increasing prices in the real estate sector, and over the last few months there is more and more evidence that these measures are affecting the market. The measures include limiting the availability of loans, requiring banks to maintain higher asset to loan ratios and imposing restrictions on investments that are purchased for short-term investment purposes only. This has started to result in decreases in property prices in China. However, given the different legal, economic and cultural characteristics of the Chinese market, which include less leverage, reluctance of banks to foreclose and a very different regulatory system, the consequences of this decrease in prices will likely be very different than what the U.S. and Europe have experienced. I do not expect to see China or Hong Kong taking any austerity measures in the form being discussed these days elsewhere in the world. We have to remember that the concern in China is that the GDP growth could go from eight-ten percent to six-eight percent, which is very different from going to zero or negative growth, as in the West.

Editor: How does the regulatory climate in Hong Kong compare with that of the Mainland? Are the recently enacted anti-bribery laws being enforced more strictly in Hong Kong?

Tal: Hong Kong law is based on the old British laws and is thus a very mature legal system that is based on the common law. The Chinese legal system is very young and has to handle an economy that is growing at a remarkable pace, which results in continuous changes and much less predictability. The regulatory scheme in China with respect to foreign investments is a lot more restrictive than in Hong Kong. Add to that the fact that in China, one needs to deal with multiple levels of laws (national and municipal) and with language issues, and you end up with a regulatory system that is a lot more challenging for foreign investors. That is why it is important to have lawyers who have the knowledge and expertise in these areas as do my partners Ying Li and Seung Chong.

Please email the interviewee at ytal@proskauer.com with questions about this interview.