Cranes operate at a steam cracker unit at the under construction Petronas Nasional Berhad (Petronas) Refinery and Petrochemical Integrated Development (Rapid) Project, part of the Pengerang Intergrated Complex PIC), in Johor, Malaysia, on Thursday, March 15, 2018. The Pengerang refining complex is "in good shape" for start-up in the first-quarter of next year, with an aim to achieve stable operations by the third-quarter, said Petronas Refinery and Petrochemical Corp. Chief Executive Officer Colin Wong in an interview with Bloomberg on March 12. Photographer: Ore Huiying/Bloomberg
Testament to hard work and planning: the Petronas ‘Rapid’ project being built in Johor, Malaysia © Ore Huiying/Bloomberg

Even a project eight years in the making and carefully planned can be subject to sudden swings of fate. Just days after a $28bn Malaysian refinery and petrochemical complex was signed off by its partners on April 1, an explosion — loud enough to be heard 50km away, according to The Straits Times — injured two workers and started a fire.

The setback could delay the start of production from part of the sprawling 80 sq km facility in southern Johor state for weeks or even months, says Sushant Gupta, research director at Wood Mackenzie, the energy consultancy.

But a stroke of good fortune looks likely to have a greater impact on the long-term health of the Pengerang Integrated Petroleum Complex.

New regulations from the International Maritime Organisation, which were designed to cut sulphur emissions and are scheduled to come into force on January 1 2020, will push the global shipping industry to switch from burning high-sulphur fuel oil to diesel.

Although the new regulations were not even a glint in the IMO’s eye in 2011, when the Pengerang project was first formulated, the refinery has by happy chance been designed to produce lots of diesel and little fuel oil. More happily still, it is slap bang next to Singapore — the world’s largest bunkering hub, where vessels refuel.

“The complex will benefit very much from this IMO regulation, they are coming [on-stream] right on time,” says Mr Gupta. “[The complex] was originally conceived because of rising petrochemical demand. The IMO regulation is the cherry on the cake from the margin perspective.”

More than anything, though, the project — likely to start commercial production in the fourth quarter of the year — is testament to the endeavours of an estimated 80,000 workers who have toiled to conjure the complex into being.

200-plusNumber of contracts Shearman & Sterling needed to advise on, ranging from shareholder agreements to engineering, design and licensing arrangements

Among those are a team of Singapore-based lawyers at law firm Shearman & Sterling, who have been working on the project from the outset when they were drafted in by Petronas, Malaysia’s state oil and gas company and the progenitor of the project. “It’s a huge deal, transformative for Malaysia in many respects, especially for the Johor region” says Bill McCormack, the firm’s Asia regional managing partner.

“Malaysia has always had plentiful natural resources and has exported oil and gas for a long time but this is Petronas taking control of the downstream [processing]. As you go further down the [production] chain there is more margin, more value,” he says.

Such an extensive project — which Mr McCormack touts as the largest project financing deal ever in south-east Asia, involving not just the refinery and petrochemical plant but also power and water projects and a liquefied natural gas terminal — was always going to be complicated.

The complexity was ratcheted up a notch further in 2014-2015 when, with oil prices falling, Petronas drafted in its towering Saudi counterpart, Saudi Aramco, to help out with the financing.

Aramco agreed to pump in $8bn in return for a 50 per cent stake in the 300,000 barrels-a-day refinery and petrochemical elements of the scheme, with a right to provide at least 50 per cent of the crude supply. This was the largest ever foreign direct investment in Malaysia. It also meant Shearman & Sterling needed to advise on more than 200 contracts, including shareholder agreements, long-term crude supply, natural gas supply, utility support, product offtake and risk allocation deals, as well as financing and the front-end engineering, design and licensing arrangements.

“In terms of complexity and scale this was off the charts,” says Mr McCormack, whose colleagues on the project included Anthony Patten, global head of Shearman & Sterling’s oil and gas group and Ben Shorten, regional head of its projects practice. “The sponsors [Aramco and Petronas] sell crude to the refinery, which refines it and sells the product to the [petrochemical] plants, which refine it further and sell the product to the offtakers, who sell to the market. There are multiple links in the chain and the documents need to be ‘back-to-back’ and work together in a consistent manner.”

Moreover, the carve-out of part of the complex meant the two separate ownership entities needed to cross-guarantee each other in order to secure bank financing, which was led by BNP Paribas.

The credit export agencies of countries such as South Korea, Japan and Italy also provided financing during the construction phase, which Mr McCormack says is often essential for large projects in emerging countries. “Malaysia is on track towards developed country status but commercial banks typically may not lend to a project of this scale without having export credit agencies involved,” he says. “It’s a question of liquidity but they also want protection in respect of certain commercial and/or political risks.”

“There is both an uncovered commercial bank tranche, under which banks take project risk, commercial and political risk, and a covered tranche, under which the banks get ‘comprehensive’ cover for both commercial and political risks.”

Mr Gupta says all the hard work will be worth it. In the long run he forecasts Pengerang will be a “top quartile” refinery, with an average refining margin, or “crack”, of $7-$8 per barrel across its range of diesel, gasoline, fuel oil and other products.

Although the complex is gearing up to start commercial production — explosion-related damage notwithstanding — by the end of 2019, Shearman & Sterling’s work is unlikely to be complete for some time to come.

Mr McCormack says the firm hopes to have an “ongoing maintenance role”, which could cover anything from further expansion of the complex to the refinancing of its debt.

Shearman & Sterling had formerly worked with Petronas on a smaller project that closed in 2004. Some 15 years later, his team are still fielding questions about that scheme.

The tables below rank law firms and in-house legal teams for the FT Innovative Lawyers Apac awards.

Managing Complexity and Scale:

Rank Law firm Description Originality Leadership Impact Total
STANDOUT Shearman & Sterling Advised Malaysian oil and gas company Petronas in connection with an $8bn investment by Saudi Aramco in Petronas's Refinery and Petrochemical Integrated Development (Rapid) project in Johor state. The firm structured the mechanics for Aramco’s investment into two joint venture vehicles, and advised on the negotiation and execution of more than 200 project agreements, as well as financing arrangements for the project.  7 9 8 24
STANDOUT Morgan Lewis Stamford Handled the $2bn restructuring and refinancing of Ezion Holdings, the offshore service rigs provider. This involved a debt-for-equity swap and a redenomination, securing $1.5bn for Ezion from secured lenders while rendering it profitable again, without requiring reductions on the principal amounts owed to secured lenders, unsecured lenders and the debt security holder. 8 8 7 23
STANDOUT Nishith Desai Associates Allowed Mumbai-based travel tech company ZopHop (now Chalo) to navigate restrictions on cross-border investments. A virtual mechanism was established to track investments through ZopHop Singapore as effective shareholdership for non-residents and as optionally convertible debentures for residents. The combined virtual entity allows investment into and exit from ZopHop Singapore and its subsidiary ZopHop India, while providing similar rights and returns for investors of equal value, regardless of their residence. Commended: Vaibhav Parikh 8 8 7 23
HIGHLY COMMENDED Drew & Napier Advised shipbuilder Nam Cheong and subsidiaries on the restructuring of $240m of debt, agreeing an insolvency regime between Malaysia and Singapore while running parallel and inter-conditional schemes of arrangements. Nam Cheong was able to issue restructuring shares to new creditors while raising upfront cash payments, enabling its return to profitability. 7 8 7 22
HIGHLY COMMENDED Khaitan & Co Helped Vedanta in its acquisition of Electrosteel Steels in one of the first mandatory insolvency procedures under India's new insolvency and bankruptcy code. The unprecedented transaction involved a debt for equity swap, a dilution and a final share consolidation that allowed Vedanta to bypass both the IBC and shareholder approval in order to purchase 90 per cent of the company.  7 8 7 22
HIGHLY COMMENDED Latham & Watkins Advised underwriters CLSA and PNB Paribas on China Shipbuilding Industry Corporation's Frankfurt-listed $1bn zero-coupon exchangeable bonds, which are exchangeable into ordinary shares of Postal Savings Bank of China. The firm devised a complex structure, which relied on an orphan special purpose vehicle issuer to achieve off-balance sheet treatment for the bonds while ensuring that bondholders are protected from the credit risks of the SPV issuer. Commended: Posit Laohaphan, Allen Wang 7 8 7 22
HIGHLY COMMENDED Dechert Overcame intense regulatory scrutiny and uncertainty in private equity firm MBK Partners' sale of its controlling interest in China Network Systems, Taiwan’s largest cable TV and broadband operator. Having failed three times previously, the deal succeeded by moving the price adjustments to after the closing date. Commended: David Cho 6 8 7 21
HIGHLY COMMENDED Kirkland & Ellis Under challenging circumstances that included an ongoing criminal investigation into commodity trader Noble Group's accounting policies by Singaporean authorities, and a refusal to permit a relisting on the Singapore stock exchange, the firm advised Noble's board of directors on a complex process to restructure $3.5bn of debt and avoid insolvency. The process involved parallel schemes of arrangement in England and Bermuda and a debt-for-equity swap with creditors agreeing to keep “New Noble” afloat by providing $800m trade finance and hedging facilities in return for a 70 per cent equity stake. Kirkland's advice helped Noble to avoid bankruptcy; it can now try to rebuild itself as a private entity. Commended: Neil McDonald        7 8 6 21
HIGHLY COMMENDED Nishimura & Asahi Led Takeda Pharmaceuticals' $57bn acquisition of Shire. The deal was uniquely structured as a “mixed consideration” using both cash and Takeda's American depository receipts. The firm navigated Japanese regulations for contributions in kind and overcame high execution risk by carefully structuring the closing timeline to avoid a valuation gap and potential compensation claims. 7 7 7 21
HIGHLY COMMENDED Nishith Desai Associates Structured Bangalore-based private equity firm WestBridge Capital Partners' bid for health insurance company Star Health & Allied Insurance. The bid was successful despite not being the highest. The structure allowed for the purchase of Star Health's holding company, which in turn became the sole shareholder of Star Health. The purchase remained in compliance with foreign direct investment and insurance regulations while highly tax efficient.  7 8 6 21
COMMENDED Bae, Kim & Lee Advised Credit Suisse Hong Kong as the underwriter of two Vienna-listed zero-coupon convertible bonds issued by LG Chem worth €315.2m and $220m respectively. The bonds were the largest overseas exchangeable debt securities issued by a private company in South Korea since the global financial crisis. 7 6 7 20
COMMENDED Dechert Advised private equity firms Committed Advisors and NewQuest Capital Partners in restructuring the portfolio of tech investor Basil Partners into a traditional fund that involved a consortium of six companies with combined revenues of $300m. The deal involved negotiations with more than 30 parties across several jurisdictions and a complicated, 12-tiered “distribution waterfall” to pay off the different parties. 6 8 6 20
COMMENDED Latham & Watkins Counselled a consortium of lenders — including the Japan Bank for International Cooperation, the Asian Development Bank and MUFG Bank — lending to geothermal energy company Supreme Energy for financing the Rantau Dedap geothermal energy project. The unique private-public arrangement provided the initial $50m while sharing the risks of the non-recourse loan with commercial lenders. 6 7 7 20
COMMENDED White & Case The firm advised the management team on the restructuring of Noble Group, the commodities trader. Working alongside Kirkland & Ellis, it helped the group avoid bankruptcy, negotiating with shareholders and creditors to move the commercially viable parts of the business into a “New Noble” entity. When Singapore regulators said the new entity could not list its shares on the Singapore stock exchange, the firm redrafted the corporate governance agreement to structure the company as a private entity in a way that maintained the minority shareholder protections usually afforded by the Singapore Exchange regime. Commended: Christopher Kelly   7 7 6 20
COMMENDED MinterEllison Led the rushed implementation of the Banking Executive Accountability Regime by the Commonwealth Bank of Australia, providing legal assurance in the absence of formal regulatory guidelines. The firm had to navigate sensitive internal issues while ensuring legal defensibility and devising new principles that shaped the implementation guidelines subsequently published by the Australian Prudential Regulation Authority. 6 7 6 19
COMMENDED Paul Hastings Helped Cosco, the Chinese state-owned shipping group, take over shipping company Orient Overseas in a deal valued at $6.3bn. To overcome regulatory hurdles, the deal included a pre-conditional voluntary general cash offer and a complex structure to remain compliant with the Hong Kong Exchange regulations, which stipulated that voluntary offers needed to satisfy a cash confirmation requirement.  6 7 6 19
COMMENDED J. Sagar Associates Advised Indiabulls Real Estate on its divestment of subsidiaries to private equity group Blackstone. The $345m transaction involved listing a real estate investment trust to purchase the stakes in a complex structure involving 13 entities in India and overseas, setting a precedent for foreign direct investment provisions in India. 6 6 6 18
COMMENDED Nishimura & Asahi Facilitated the highly contested takeover of Japanese oil refiner Showa Shell Sekiyu by rival Idemitsu Kosan. Nishimura & Asahi was able to persuade the founding family of Showa Shell, who were blocking a merger, to agree to a business integration instead while ensuring the interests of other big stakeholders.  5 7 6 18
COMMENDED Paul Hastings Advised Fosun International in the spin-off and listing of subsidiary Fosun Tourism Group on the Hong Kong stock exchange, navigating cultural differences and the complex minority shareholder structure of its French subsidiary Club Med. To maintain regulatory compliance, the law firm devised a set of delineation principles to separate Fosun Tourism Group's real estate elements from its tourism elements to gain approval for the spin-off. Commended: Jason Kuo 6 6 6 18
COMMENDED Pinsent Masons Assisted South Korean company SK Engineering and Construction in resolving a complex dispute with the government of an oil-producing state relating to the construction of a big oil refinery project. In a challenging political and legal environment, the firm advised on negotiations to amend the completion date, holding off compensation claims while devising a new funding package and bond protection strategy. Commended: Vincent Connor 6 6 6 18

Managing Complexity and Scale (In-house):

Rank Company Description Originality Leadership Impact Total
STANDOUT Go-Jek The team worked closely with regulators and the central bank to navigate requirements for electronic know-your-customer requirements in Indonesia. Following central bank approval, the ride-hailing company can onboard new customers through a mobile phone with a simple process using a QR code. The customer photographs their national ID with their mobile phone and takes a selfie as authentication. 8 7 7 22
HIGHLY COMMENDED SK Engineering & Construction Led negotiations for four South Korean construction companies to resolve a dispute with the government of an oil-producing state over building an oil refinery. The team analysed the impact of a construction delay caused by a payments dispute, balancing the competing obligations of delivering the project on time while also ensuring the project remains commercially viable.  7 7 7 21
COMMENDED Asian Development Bank Navigated political and regulatory challenges to provide financing for the $500m Turkmenistan National Power Grid Strengthening Project, the first by an international financial institution in the country's power sector. The project aims to reinforce the country's transmission network, improve the reliability of its power supply and increase its ability to export energy to neighbouring countries.  7 7 6 20
COMMENDED Uber Negotiated an asset-transfer merger of its south-east Asia arm with Singapore-based transport, food delivery and payments company Grab. The team managed more than 20,000 contracts, oversaw integration and ran daily legal clinics with human resources to ensure a smooth transition for employees. 6 7 6 19
COMMENDED Asian Development Bank Led on a $570m affordable housing project in Ulan Bator, Mongolia. Lawyers created a new voluntary land swapping mechanism and a public-private financing arrangement to deliver 10,000 low-carbon affordable housing units. 6 6 6 18

Explore the Innovative Lawyers Asia-Pacific rankings 2019


  • FT Most Innovative Law Firms
  • Rule of Law and Access to Justice
  • Most Innovative In-house legal teams
  • Collaboration

Business of Law

  • Data, Knowledge and Intelligence
  • Managing and Developing Talent
  • Innovation in Diversity and Inclusion
  • New Business and Service Delivery Models
  • New Products and Services
  • Strategy and Changing Behaviours
  • Technology

Legal Expertise

  • Accessing New Markets and Capital
  • Enabling Business Growth and Transformation
  • Managing Complexity and Scale
  • Litigation and Disputes
  • Creating a New Standard
Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article