Cross-border deals need broad skills in time of trade war and pandemic
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For global commercial lawyers, advising on cross-border deals between local investors and foreign capital raisers is difficult at the best of times. But when the deal involves US and Chinese interests in the middle of a trade war, risk rises to a new level of complexity.
So, Ting Wang, of counsel at law firm Paul Hastings in Shanghai, had a challenge on his hands when his team tried to broker a strategic alliance between Chinese health group Fosun Pharma and Nasdaq-listed BioNTech to help develop and commercialise a Covid-19 vaccine.
Case studies in practice of law
Scroll down to read case studies in the following categories: healthcare; digital advisers; frictionless law; liquidity and finance; and legal design
At the time of the negotiations, Germany-based BioNTech’s designs for the vaccine were unproven and a deal with US pharmaceuticals group Pfizer had yet to be signed. Fosun offered co-development resources and clinical trials in China in exchange for distribution in the region. BioNTech wanted a sizeable equity investment and access to patients, who initially were found predominantly in China. To reach a deal as the virus spread required “significant” cultural and legal differences to be bridged, recalls Wang.
“Both parties had to step outside their comfort zones to reach compromises,” he says. “It required exceptional cultural sensitivity and an understanding of three very different legal systems.” Under the agreement, Fosun paid $85m in licensing fees and made a $50m equity investment in BioNTech.
Communicating with parties across China, Germany, the UK and the US before the widespread use of Zoom video calls was a challenge for negotiators used to face-to-face interaction. Yet the deal was made within three weeks, over the phone from home and under lockdown.
Yong Kai Wong, now a co-general counsel at Citic Capital, has also played a leading role in cross-border transactions during his career — both for Citic, where he heads special projects, and previously for Dutch pension company APG Asset Management Asia.
He says general counsel who are effective in cross-border deals are “aware and sensitive” to different cultures, beliefs and the societal implications for stakeholders. “Lawyers need to be creative, adaptable and conscious [of] the needs of both sides of the deal — not just focused on the legal and compliance issues,” Wong argues. “Often, decisions at the transaction level may have a large impact on stakeholders and the constituents around them. It is important to try to keep an open line of communication with all relevant parties to proactively address issues that inevitably arise.”
Parallel to the US-China trade war, Europe was also making moves to protect itself from economic threats from abroad. By the time the pandemic took hold, the European Commission was calling for tougher measures against foreign takeovers, fearing that raiders might take advantage of wild market fluctuations wreaked by the pandemic. Caught in this net were two deals that law firm Freshfields Bruckhaus Deringer had initiated in 2019. China Railway’s CRCC International Investment Group was trying to acquire a 75 per cent controlling stake in Spanish construction company Aldesa. At the same time, Guangdong Wencan Die Casting was proposing a €251.3m public tender offer for French global foundry group Le Bélier, which had dealings with France’s defence ministry.
Freshfields partner Yuxin Shen says the firm sets out to advise clients on the operational and cultural commitments they should make to assuage European concerns. Even so, the new restrictions posed problems. Although the CRCC-Aldesa deal had been signed before the EU policies had taken effect, the Spanish government chose to review it anyway. Meanwhile, in France, the new policies added to uncertainty over its foreign investment review regime and hopes for the Wencan-Le Bélier deal.
Freshfields engaged with the Spanish and French authorities to find a mutually acceptable position for each deal. “These were new restrictions that even the various ministries were trying to come to grips with,” says Hazel Yin, the Freshfields partner who advised on the Spanish deal. “Our role was to help them understand why these deals were outside the parameters of the restrictions and did not constitute any threat to national sovereignty, economies or citizens.”
Having multi-practice teams in China and Europe that not only understood the transaction but could also work with European governments helped greatly, says Freshfields partner Ninette Dodoo, who was involved in the French deal. “You need to be able to see through the government’s strategic lens,” she says.
Charles Ruck, global chair of Latham & Watkins’ corporate department, believes Covid-19 has greatly changed dealmaking. “Companies have responded to the pandemic conditions by rethinking their geographies, core businesses and supply chains,” he says. “With the growing complexity of high-profile cross-border deals . . . the commonality behind all successful mega transactions is a top-notch team of experts from around the world who can work together.”
How will cross-border deals with China evolve? Kathleen Claussen — who is a professor of law at the University of Miami and an expert on international trade, having worked on policy during the Obama and Trump administrations — says the risk for US businesses accepting Chinese investment has evolved.
“The present White House shares at least one view with the previous administration: it has said a lot more should be done to protect the supply chain, US businesses and American consumers,” Claussen points out.
“In the Obama years, a central policy tool to deal with China was the World Trade Organization’s enforcement mechanism. Under Trump, it was tariffs and sanctions. It’s not entirely clear yet what the Biden administration will do.”
In such a fast-moving policy environment, Claussen says, firms working on cross-border deals need expertise in public law as well as commercial transaction prowess.
She categorises the past six years of US policy as a series of “trade tool experiments” and counsels lawyers conducting cross-border transactions to be keenly aware of changes coming out of Washington.
“Think about the risk implications of regulatory or policy shifts,” Claussen advises. “Pay attention to the relevant federal bodies and what they are doing.”
Case studies in practice of law
Researched and compiled by RSG Consulting. “Winner” indicates the organisation won an FT Innovative Lawyers 2021 award; other organisations are listed alphabetically.
Lawyers have been helping pharmaceutical companies to overcome operational, regulatory and risk challenges as Covid-19 vaccine programmes get under way.
WINNER: Latham & Watkins
The law firm devised a financing structure to attract early-stage investment for CoronVac, the Covid-19 vaccine being developed by Chinese pharmaceuticals company Sinovac. This approach resulted in a substantial return to investors.
The financing structure involved loans converted into equity interest in Sinovac Life Sciences, a research and development subsidiary. Latham & Watkins’s work resulted in a total of $515m being raised.
Anand and Anand
The firm succeeded in opposing ‘pre-grant opposition’ to a patent sought by its client, Pfizer, in India. Opposition is a legal process that allows third parties to halt the award of a patent after an application is published.
The ruling means a party bringing pre-grant opposition in India must now establish its identity and show it has relevant domain knowledge, which will help prevent opportunistic parties challenging patents in future.
The healthcare and life sciences team advised AstraZeneca on its Covid-19 vaccine rollout in Thailand, helping the Anglo-Swedish pharmaceuticals company to navigate legal restrictions and draft contracts to protect its interests.
Baker McKenzie also advised US immunotherapy company CytoSorbents on agreements that enable the use of its medical device to treat critically ill Covid-19 patients in China.
The law firm advised Chinese pharmaceuticals group Fosun Pharma on a strategic partnership with Germany’s BioNTech to develop a Covid-19 vaccine, which involved licensing BioNTech’s mRNA vaccine technology.
The lawyers negotiated the arrangement in just three weeks, despite differing jurisdictional requirements and having to negotiate a combined equity investment and cash payment in order to get BioNTech on board.
Lawyers are using their expertise in blockchain, artificial intelligence and data to help clients with digital transformation and to accelerate their businesses.
WINNER: King & Wood Mallesons
The firm launched its digital economy legal service centre in November. This was set up to provide multidisciplinary, cross-practice area advice to clients on data use and compliance.
The centre has already helped one leading Chinese bank to design and implement its compliance programme for the European General Data Protection Regulation — enabling it to share data between China and the rest of the world.
Anand and Anand
Acting on behalf of mobile technology company InterDigital, the firm filed the first anti-anti-suit injunction order in India. This is a court ruling to prevent a party pursuing an application for an anti-suit injunction.
Unlike in other anti-anti-suit injunction cases, the anti-suit injunction had already been granted by the court to Chinese electronics company Xiaomi. The ruling allows InterDigital to continue to pursue an infringement case against Xiaomi.
Nishimura & Asahi
Last year, the firm set up a dedicated group that works across practice areas and industry sectors to help clients undertaking digital transformation.
The group advises companies on data, artificial intelligence, digital healthcare services and blockchain, as well as corporate governance and cyber security for public companies. Commended: Kazuhiro Takei.
Rajah & Tann
The Singapore-based law firm launched a subsidiary, RTCyber, which provides a full suite of technical services to prevent or respond to cyber attacks.
This allows the firm to provide technical and legal advice seamlessly to clients with concerns about cyber security.
Ropes & Gray
The firm advised Alibaba, the Chinese ecommerce company, on a strategic partnership with Richemont, the Switzerland-based luxury goods group, to establish Farfetch China as an upmarket online fashion retailer.
The $1.1bn investment in Farfetch allows Alibaba to provide virtual shopping experiences for customers and is helping to accelerate the digitisation of the global luxury retail industry.
Law firms are using technology and data to enhance legal advice. By putting the user experience first, they have been able to solve problems and streamline processes.
Corporate lawyers and legal operations executives used design thinking — in which they start with end users in mind — to collaborate on creating new tools. Their ‘Incorporation Genie’ shortens protracted email exchanges with clients looking to set up new entities in South Korea. Clients can now access an online platform where they review and accept documents, and changes are automated, reducing the cost of legal advice by up to 50 per cent.
Yulchon has also created a dashboard for clients to navigate company maintenance requirements in South Korea.
The firm developed VC Works, a technology platform to manage legal due diligence in venture capital transactions more efficiently and effectively. The tool enables the firm to complete due diligence three times faster than its previous process, which relied on lawyers going through paper files.
Allen & Overy
The law firm designed a free online portal to help individuals and companies that have been subject to a cyber attack retrieve their stolen funds. The tool enables users to freeze their bank accounts automatically and also automates the process of notifying authorities in Hong Kong of any attack.
The portal has had more than 56 registered users from 19 jurisdictions.
Corrs Chambers Westgarth
On August 5 2020, all Melbourne residents learnt they would need a permit to leave home for work or childcare purposes. So the law firm helped National Australia Bank to secure 3,000 permits, automating their creation and secure filing, and setting up digital sign-off using the DocuSign esignature system.
The process was up and running within eight hours.
Gilbert + Tobin
Earlier this year, the law firm sold its Verification<i> product, developed in 2016, to legal tech company Litera Microsystems. The product is used to verify documents in big corporate transactions. The deal marks one of the first times a law firm has developed and sold a piece of technology to a leading legal tech provider.
Gilbert + Tobin had used the product extensively in-house but lacked the capability and resources to scale it to market in the way it wanted to. The project has increased the firm’s appetite for further tech development, with four other projects under way.
Konexo, the alternative legal services arm of law firm Eversheds Sutherland, took over the management of HSBC’s in-house loans negotiations teams in Hong Kong and Singapore last year. The law firm developed playbooks and standard processes to increase the efficiency of the banks’ teams, enabling staff who previously worked on in-house loans negotiations to focus on higher-value strategic matters.
Facilitating Australian financial group Magellan’s launch of four new funds simultaneously required the verification of four separate product disclosure statements, which would not have been possible in the required two-week timeframe, even with the help of automation.
The legal team worked with technology vendor Atticus to review the four documents in one process, which cut the workload by 70 per cent. The firm calculates time savings of 50 per cent.
Nagashima Ohno & Tsunematsu
In collaboration with Tokyo-based tech start-up MNTSQ and PKSHA Technology, a Japanese data analytics company, the law firm designed a tool that uses natural language processing to analyse contracts in English and Japanese.
Clients that have used the tool so far include automotive company Toyota, manufacturer Komatsu and Osaka Gas.
Norton Rose Fulbright
The firm devised and organised a digital hearings process to make a high-profile inquiry into casino company Crown Resorts accessible to the public. The inquiry was held on behalf of the Australian state’s Independent Liquor & Gaming Authority. The law firm built a website to host the hearings and organised document management, a digital submissions process, and remote hearings.
Tiang & Partners
The law firm collaborated with professional services firm PwC to create a platform for smaller businesses in Hong Kong to address their legal, tax and corporate compliance matters in a one-stop shop. The service offers more than 100 document templates and elearning modules, and allows clients to create and manage contracts digitally.
The platform is built using PwC’s IT expertise, while Tiang & Partners contributed to the legal content and design. The service, offered on subscription, has had 16,200 registrations so far.
Liquidity and finance
Lawyers sought creative solutions — often employing technology — to help clients unlock capital and close deals amid geopolitical tensions and the economic impact of the pandemic.
WINNER: Cyril Amarchand Mangaldas
When Infrastructure Leasing & Financial Services, a large issuer in India’s corporate bond market, defaulted on its debt repayments, the Indian government stepped in to replace its board. And it was lawyers from Cyril Amarchand Mangaldas who helped the new board create a resolution framework to manage the insolvency of IL&FS, which included nearly 350 separate entities that collectively held more than $12.6bn in debt.
Their framework provides a model for other group insolvencies in India.
Allen & Overy
The firm developed a bridge-to-bond financing structure for Standard Chartered bank, to help enable the merger of insurers Aviva Singapore and Singlife. It was the first such structure to be undertaken in Singapore dollars.
The financing facility had to meet Basel III capital requirements and has created a new model to finance mergers and acquisitions.
Corrs Chambers Westgarth
Following the bankruptcy of Australian company Altura Mining, the law firm represented investor Resource Capital Funds in the creation of a transaction structure that would allow Pilbara Minerals (represented by law firm Allen & Overy) to acquire Altura’s lithium-mining assets.
The structure ensured a minimum price for the assets and meant Pilbara did not have to raise capital unless it won the bid.
The law firm advised property business Ayala Land on establishing the first real estate investment trust (Reit) in the Philippines and listing it on the Philippine Stock Exchange.
Dechert worked with the bourse to introduce new laws to enable the trust — setting a precedent for the Reit market in the country. Commended: Maria Pedersen.
Freshfields Bruckhaus Deringer
Following calls from the European Commission in 2019 for tighter restrictions on foreign investment from China, Freshfields lawyers negotiated with national regulators and government institutions to secure deals for two Chinese clients. Working in China and Europe, they helped CRCC International Investment Group acquire a controlling stake in Spanish construction company Aldesa in January 2020.
They also enabled Guangdong Wencan Die Casting to acquire French aluminium components company Le Bélier in December.
Ginting & Reksodiputro (with Allen & Overy)
The Indonesian firm, which is integrated with Allen & Overy’s offices and platforms, was involved in several initiatives to support the Indonesian economy during the coronavirus pandemic. It advised Indonesia’s government on its first sovereign wealth fund, to help attract foreign investment.
The law firm also advised on the restructuring of state-owned enterprises and a contingency plan for the Indonesia Deposit Insurance Corporation.
To help Mongolia deal with the impact of Covid-19, including huge debt repayments, the firm advised the government on its bond issuance and tender offer to free up millions of dollars to spend on new sustainability initiatives. These included projects to improve housing security, air pollution and sanitation.
Mayer Brown also added collective action clauses to its contracts, enabling the government to restructure debt in future by giving it the right to impose a restructuring over an objecting minority. Commended: Jason Elder.
The firm advised a syndicate of 11 Chinese and international banks on a financing for an Indonesian stainless steel plant, under the Belt and Road Initiative.
It incorporates both US and Chinese currencies and, by using renminbi as the base currency, the structure helps Chinese lenders reduce dependency on dollars while enabling offshore businesses to hedge against currency fluctuations.
The firm negotiated a restructuring process for Singaporean shipping company Pacific International Lines with its owners in China, Japan, Singapore, Thailand and Taiwan, before starting a court process — which is unusual in Singapore. This cut court proceedings to four months and minimised publicity, which helped avoid the company’s customers and partners abandoning the process.
It also helped secure investment from Heliconia Capital.
Legal design is the term given to making the law more accessible and easy to understand. It ideally involves collaboration between law firms and in-house teams. These joint initiatives have pioneered the redesign of legal processes.
WINNER: HSBC and Inkling Legal Design
Lawyers at the bank launched SimpliTC, a programme to redesign its customers’ terms and conditions to make them more user-friendly. The lawyers engaged several legal design consultancies to rework some of the most complex documents to render them as easy to read as a children’s book.
Inkling stood out for its sophisticated approach to design thinking, including use of behavioural science to make documents more accessible. For example, it used language that had been tested for its effect on people suffering from anxiety or ADHD (attention deficit hyperactivity disorder).
The team adopted agile working to test and adapt regularly, and collaborate with other teams at the bank — including digital, branding and product experts. The new terms not only cut the number of queries but also helped customers engage more actively with the meaning.
Bis Industries and Lander & Rogers
Law firm Lander & Rogers’ innovation team, iHub, worked with Bis Industries, the Australian mining services and logistics company, to redesign contract negotiation guidelines for its legal team.
The lawyers explored various technical solutions to make the negotiation process faster and smoother, before rejecting an automated option and settling on a PDF document that uses plain language and structured information to guide the negotiation process, with hyperlinks to facilitate access to relevant information.
National Australia Bank and Herbert Smith Freehills
The bank’s legal team led a human-centred design process to revise its credit card terms and conditions. Internal and external experts in design, language and brand joined with lawyers at the law firm in a multidisciplinary team. They began by speaking to customers and looking at the questions they asked when applying for a credit card.
The team worked in agile sprints — short bursts with set deadlines — to develop a set of terms that are more visual, simpler and more accessible to customers, including those with low financial literacy.